Venezuela: Notes on the Monetary Measures

No devaluation is socially neutral, because of the dragging effect, where what Marx said is verified: all traders are potential speculators.


1.  On the afternoon of 8 February the Venezuelan government announced a series of financial measures revolving around the modification of the exchange rate of the Bolivar to the US dollar, which went from 4.3 Bs/ $US to 6.3 Bs/ $US, that is, a devaluation of 46.5%.

2.  It’s worth remembering that this isn’t the first devaluation that the Bolivarian government has made since it established monetary control in 2003. It’s also not the largest one. The exchange rate has gone from 1.9Bs to the US dollar, to 2.15, then in 2010 to 4.3, which has been the rate until now and which represented an increase of 100%.

3. According to declarations made by Vice-president Maduro just after the announcement of the monetary measure, the devaluation was a response to out of control speculation with the dollar in the “parallel or black market”, where the value of the bolivar has quadrupled its official value in a few months- a fact which was public and notorious. Maduro also explained in a lot of detail that the main source of dollars which feed this market is no other than the manoeuvres of overbilling used by importers, especially those who receive large amounts, and who instead of applying those dollars to ends that CADIVI awarded them the official dollars for, they recycle a large amount of them in the illegal market, obtaining extraordinary profits.

4. However these monetary manoeuvres denounced by the vice-president couldn’t be ignored by the state, nor are they recent.  For example, on the last devaluation we wrote; “Facts show that the black market was fed indirectly by the actual state through dollars assigned at the official rate to importers, who carried out all types of billing manoeuvres on the real value of these imports, especially multinationals in direct complicity with their head offices, and through banking triangulations recycled their surplus dollars left over for them after paying for what they actually imported, on the black market. In that way, these bourgeoisie sectors came up with a mass of dollars to be sold at almost three times the 2.15Bs/ dollar that they had received them for from the state. Also, sectors of the private banking sector added to these manoeuvres through more complex banking transactions” (The two faces of the revolution, February 2010).

It’s obvious at this point that the services of financial security of the state should have access to information much more precise than the sort that a simple observer or political militant has. It’s worth adding that since the price of the bolivar was set at 4.3, it’s never been worth less than 8bs on the illegal market.

That means that, for one reason or another, there was a political decision to tolerate this marginal managing of the speculative dollar, without refining the mechanisms of control or radically advancing against overbilling for three years, until the magnitude of the effects of the manoeuvring became a threat to macroeconomic variables, inflation in particular.

Is that a new example of the state bureaucracy that Chavez demanded be combated in his speech on 20 October last year?

5. Actually, this inflationary risk as promoter of the recent measures was a fact admitted by the president of the BCV [Central Bank of Venezuela], Dr. Merentes, when he announced them in a press conference. He explained that monetary speculation put upwards pressure on all internal prices, even on those products which had no imported component.

No devaluation is socially neutral. Monetary devaluation is reflected in a change in all the relative prices of all merchandise, which then affects all products and services, even those who don’t depend directly on dollars to be imported. This is owed to the well known “dragging effect”, where what Marx said in his time is verified, that all traders are potential speculators.

The population [of Venezuela] has been living this situation for the last three months and will be reflected in January’s inflation rate. If it’s not quickly corrected, it threatens the inflation aims that the economic cabinet has set for this year, which should continue the line of descent achieved in 2012, as more economic growth is expected.

6. The change from a monetary regime of an unfixed exchange rate to one that was controlled and set by the state in 2003 was a forced decision imposed at a critical time in the revolution, as the flight of foreign currency threatened to empty the Central Bank, and because of the attacks by the capitalist sector against a government that didn’t respond to its interests but rather to those of the poorest layers of the people. Likewise each of the successive devaluations that followed also were obliged responses by the state in the face of new speculative financial attacks by the large capitalist sectors who operate the national economy. The recent devaluation doesn’t escape this rule, and politically should be understood in that light.

That is, it should be noted in the framework of the intense class struggle that has traversed Venezuelan society for the last twenty years, and in particular since Chavez was elected, fourteen years ago.

7. In that sense, it is a defensive measure that the Bolivarian government is taking in the face of an enormous weight still generated by capitalist relations in the economy, that is in the structural heart of the republic. It can and should be discussed if the move was the only option available. But fundamentally it’s important to elucidate if this new devaluation will manage to achieve what previous devaluations haven’t managed, and win the wrestling match against the speculative capitalists who periodically strengthen this type of measure.

The most burdensome thing for a revolutionary process which is aiming to advance towards socialism isn’t the enrichment of these capitalists sectors at the expense of the public chest – a fact which is worrying and furthermore, criminal- but rather that the idea that market pressures inexorably end up imposing themselves in the face of any state regulation being strengthened in the public consciousness, whether those pressures are price controls, labour relations, etc.

8. This systematic laughing in the face of state set norms also becomes an ideological chess move against one of the premises for the transition to socialism, which is that a state which is efficient in terms of daily activity but also in terms of being able to concentrate and synthesise the political will of the majority of the people in order to subjugate the exploiter classes which won’t renounce their power, is necessary. With special tenacity, it will defend the economic predominance that is vital for the survival of the dominant class.

The material damage that these manoeuvres produce in the economy are added to the ideological damage that they produce when discrediting the state of the transition, as an indispensable organisation until the people are power.

The rightwing won’t avoid taking advantage of the negative effects of the devaluation as a political counterattack and to buffer as much as possible their recent defeats. The inflationary pressure we’ll see over the next few days will be a threaten the income of broad sectors of the population, which will serve the rightwing in its sermon that these negative effects are owed to the fact that the only healthy and possible economy is a free market one.

9. This defensive situation which the revolutionary process is in, in the financial and economic sphere, contrasts with the development of a general line of political offensive which the Bolivarian political leadership has announced against the national exploiting class and its external allies, in particular Yankee imperialism. It’s a line that is possible and necessary in the current situation, and which has been revitalised thanks to the recent large electoral triumphs in October and December. President Chavez delineated the line in his well known intervention which was latter published with the name “Change of course” [Translator: a 37 page document based on Chavez’s speech shortly after winning the presidential elections, available here in Spanish Golpe de Timon].

10. Revolutionary forces should draw conclusions from this contradiction. One of those would be that it’s clear that, just as the political apparatus of the exploiter classes show huge weaknesses and difficulties in the cooption and mobilisation of the popular sectors, including part of the military structure, something which would allow for an attempt to recover control of the state, and on the side of the revolution one sees huge limitations to neutralise first, and later definitively conquer the space that belongs to the revolution and that is determining for capitalism: production, and more generally all of the economy. Without winning this long battle there won’t be any socialism.

11. Historical experience shows that it’s not easy to win, nor will there be an immediate solution, as occurs in other struggle fronts, such as electoral ones or in the street, for example.  It’s a battle that isn’t even limited to the national arena, for the simple reason that local capitalism is a subsidiary of international capitalism through some visible and other not so visible links, that breathe air and forces daily.

That’s why the policies of the Latin American allies of the Bolivarian revolution, with their historic roots and solidarity, have a long term projection and strategy. The gains in this sense  compared to the first years of the Bolivarian government when almost all the continent’s governments were aligned in unconditional and permanent ways with neoliberal policies and the dictates of Washington are evident. This is despite the fact that the natural allies of the Bolivarian revolution, which are the poor and exploited masses, don’t hold control of their respective governments.

The most profound motivation to forge these different levels of alliances (CELAC, Mercosur, ALBA) is the need to create a more favourable scenario on a regional scale for confronting international power forces, starting with Yankee imperialism. Those are the forces that hold up the internal bourgeoisie, they encourage it to retake control of the Venezuelan state, and they facilitate actions, among many others, monetary manoeuvres, which forced the recent devaluation of the bolivar.

12. The economic effects of a monetary devaluation are well known, but cannot be seen outside of the concrete context of the national political and economic situation. A quick examination of some of these variables puts the lie to those who – beyond their political intentions – rashly predict catastrophic effects for the coming months.

Firstly it is worth mentioning that the general context of the Venezuelan economy at the beginning of 2013 is far more favourable than in 2010, when the last devaluation of 100% occurred. At that time the economy was coming out of a recession that was the result of the blows of the world economic crisis that negatively affected oil prices. On the contrary, now the economy is in an expansion phase almost three years long, and with the expectation of continuing, due to the multiplying effect of large state investment. These investments have taken place as much in the area of social housing with direct effects in increased employment and consumer demand, as with long term investments in different branches of production (steel, cement, agro-mechanisation, oil, etc.).

Secondly, there isn’t a short term perspective in which the price of oil collapses, which is a determining factor for the national economy; indeed, an aggravation of the political crisis in the Middle East could act to the contrary, increasing it further.

Thirdly, it’s known that the weight of Venezuela’s public debt is controllable with the country’s regular income, as the payment of debt calculated in dollars, of interest and amortization of capital, represents approximately 5% of the income from oil; and the internal debt, which is calculated in national currency, represents a low percentage of the GDP.

Fourthly, the positions in reserves of the Venezuelan Central Bank (BCV), which include US $17 billion of gold deposited in its vaults, are solid and sufficient to confront current activity and prevent speculative attacks. These reserves have been strengthened by a recent government resolution, by which PDVSA is going to contribute a greater quota of its income from oil payments toward the BCV.

Fifthly, the private banking and financial sector has been cleaned up following the bankruptcy of various banks and insurance providers in 2009.

Sixthly, since the devaluation of 2010 the sector of the economy under state control – productive, commercial and financial – has grown significantly, although a part of this is still subsidised and shows serious inefficiencies.

Other positive variables could be elaborated on, although the enormous pressure of the capitalist market that affects every one of those economic activities, including those in state hands, cannot be ignored. This onerous and negative pressure for the Venezuelan economy has one of its worst manifestations in capital flight, also associated with exchange-rate manoeuvres, in the face of which the instruments of the state appear to be impotent up to now.

13. Revolutionary forces also shouldn’t fall naively into the right-wing trap which tries to present the devaluation as a “package” [Translator: paquetazo in Spanish, similar to Caracazo, describing something quite dramatic and terrible], or a “shock” policy in the same style as the traditional measures favoured by the IMF and the terrible aftermath that it has left in the recent history of the country. That past returns to collective memory if one observes what is currently happening in European countries like Greece, Spain and others.

If it’s true that “shock” policies almost always contain a monetary devaluation, the inverse is false. Not every devaluation is inexorably associated with those neoliberal policies. The previous devaluations by the Bolivarian government prove this.  In no moment did the government stop underpinning and increasing social investment and development by pro-active state policies to increase production and with it employment, even at the cost of increasing public spending. This goes against traditional IMF formulas, which were hidden within the opposition’s discourse, defeated last October, but written by their advisors in the program that they had prepared to apply if they reached government. 

This doesn’t negate the different effects that the devaluation will have; some of them negative, and it is necessary to examine them to confront them.

14. The inflationary effect of the devaluation will be felt immediately, although not necessarily in proportion to 46.5%, decreasing the acquisitive capacity of the sector of the population that has fixed incomes, most of all those with salaries and pensions. They are the majority and cannot transfer (inflationary changes) onto third parties, as those who offer services and the minority business sector will do, including the so-called informal sector.

Even before the devaluation occurred, the state’s sanctions and mechanisms of control to confront speculative price increases, among those [consumer protection agency] INDEPABIS, had shown themselves totally insufficient to put a brake on this activity. Historical experience teaches us that the problem is not solved with more inspectors. When control is exercised through people’s power, which has developed insufficiently in this aspect, it can only access the final point in the commercial chain.

However, it’s necessary to strike at those who generate prices in the large stock-pilers of imported products and in national manufacturing and production centres. That is where the state should concentrate its artillery of controls, hardening sanctions if necessary and fundamentally associating itself with the workers in these companies and their organisations, to strengthen the control of costs through the workers themselves and not only through declarations. The old experience of worker control must be reactivated in the concrete conditions of the national reality, at the level of organisation of the workers themselves and through their conscious commitment with the defence of the revolution.

15. Arguing against what the right says, especially in the international press, lightening the state’s internal debt measured in bolivars doesn’t seem to have been the central cause that pushed the government to undertake the devaluation. However this will be one of its beneficial fiscal consequences. The state will need to invest 46.5% less dollars than before to pay the same debt in national currency, with which it benefits itself at the same rate as it harms its debtors, be they large capital or small lenders of services to the state. On this point the state should distinguish between them. A similar treatment in the moment of paying overdue debt could involve great injustice.

For large capital, absorbing this cost only reduces their profits; however for small lenders, such as cooperatives, in many cases this could put their continued operation at risk. The state should give preferential treatment to small creditors, recognising greater costs at the moment of cancelling debt, not only to maintain the economic viability of many of these small units of social labour, but also fundamentally to  secure a class alliance, which is vital to strengthening the revolutionary process. In this, as in so many other cases, the socialist vision of justice doesn’t have anything to do with coarse equalitarianism. Likewise, part of the state’s savings in its internal debt payments should contribute toward a fund to compensate the salary loss of the workers.

16. Others who will benefit from the devaluation will be national companies with the ability to export. Their production costs measured in dollars but that are covered by the national currency, will be reduced.  That makes them more competitive in overseas markets, and they can try to sell their products there.  Additionally, in a complementary measure, the government increased the assignation of dollars that enter the country for foreign sales by 10% for exporters. Before, of every $100 that they brought in, they could keep $30, and that amount is now $40. Further, the possibilities for diverse sectors of the population to open bank accounts in dollars has been broadened, as has the possibility to bring dollars into the country for those who have foreign bank accounts.

These measures taken together tend to provide incentives for local businesses that produce non-petroleum based goods so that they can generate exportable sales, with eyes on Mercosur. But in general, they’re framed in a protectionist concept for the promotion of ‘national capitalism’, an old dream held by a section of Latin American reformist currents. Over the last 8 decades though, they have seen more failures than successes. It’s certain that the intention behind these measures is to continue supporting growth in terms of GDP. There’s more uncertainty in endorsing the notion that a strong state sector of the economy, with national capitalism in ascent, is the route of transition towards socialism of the twenty-first century.

Regarding this, it’s worth remembering that with the previous devaluation in 2010, one of the main arguments explaining it was the need to stimulate non petroleum based exports. At the same time lines of state credit were opened up for these companies, at subsidized rates, to encourage them to increase their productive capacity. For most of society though, we’ve yet to see a public balance of that three year experience, to see if it’s worth persisting with the same tools or if it’s necessary to look for other paths less walked on.

In times of a revolution that’s aiming for socialism, this overview is the first and indispensable step for collective self-criticism. It’s an unavoidable step for the construction of popular power that Chavez has demanded. The majority revolutionary party in the national assembly should have something to say about this. So should the workers organisations which are direct actors in goods production.

17.  The devaluation will raise the price of imports. The creation of a new state organism of control for managing foreign currency, which the current organism, CADIVI, will be subordinated to, is an indication that the Bolivarian government felt the time had come for a substantial change in direction in the controlling of the foreign currency market. To turn off the tap that was feeding the illegal currency market, the new organism will implement two types of measures. One of them involves watching the route that dollars assigned to each importer follows, so that they are effectively turned into verifiable products that enter the country. Like that, it would be possible to assign a reserved margin of profit to the importer and a final price for the product. Experience shows that if these controls were more rigid, which they really haven’t been until now, it would be possible to bring down the overbilling trick, especially among the subsidiaries with overseas head companies, such as multinational car companies for example, which when they buy from themselves they have greater possibilities to overprice and keep a portion of the subsidised dollars in their pockets, to later re-sell them.

Nationalising foreign trade would be a much safer and efficient path to take to put this control into practice and end any sort of manoeuvring, because dollars wouldn’t be assigned to importers, but instead the state would be in charge of that. But it’s clear that the powerful links that still tie the state structures to the groups of capital have more weight than the radical disposition of the men [sic] who govern. However, the fact that the government has started to see the problem in its real terms should be celebrated.

The second measure that the new organism would implement is long overdue. Merchandise imported with authorised preferential dollars would be classified according to social need.  The republic can’t keep spending foreign money, even if there is some, on importing merchandise with little social importance or for luxury, when there are so many needs to satisfy. The criteria of prioritising what his humane, or of social and collective need, is part of socialism, and should orientate all of society’s activities, among them, the economy.  It should also be celebrated that it is starting to be the orientating basis of an area where until now, the law of supply and demand reigned.

Once these imports are classified, it’ll be important that those which are declared most strategic or important are protected from any speculation attempts by special legislation. Those who speculate with currency assigned to importing these goods should be sanctioned by the same laws that punish those who attack national security. Once again, the majority revolutionary party in the national assembly should speak on this.

Finally, the challenge for the revolutionary process isn’t just to stop the material damage that counter-revolutionary forces inflict on the economy with contingency measures, such as those that have just been announced – measures that should be understand as a step backwards, but which should be welcome if they prepare the way for leaps forward in an area where the forces of capital still have hegemony.

Today this leap is more viable than some years ago, among other reasons, because the internal forces of the revolution have strengthened, despite Chavez’s temporary absence, and the counter-revolutionary forces lose their credibility more and more for the broad masses. More and more they also sustain themselves and finance themselves from the darkest forces of world capitalism which is advancing blindly towards a future that it doesn’t control anymore.

Translation by Tamara Pearson and Ewan Robertson for Venezuelanalysis.com