Former Venezuelan Vice President for Productive Economy, Luis Salas now teaches political economy at the Bolivarian University while writing prolifically about Venezuela’s economic and political scene.
In this interview with Venezuelanalysis, Salas responds to our questions about the economic measures that the government implemented earlier this month, which include a reconversion of the Bolivar currency, an anchoring of the latter to the Petro cryptocurrency, and a minimum wage hike.
We asked him to help us make sense of these measures and their likely effect on the country’s future.
What are the causes of Venezuela’s current crisis, and to what degree can the government's recent measures solve the problem?
We can’t say that the crisis has only one cause. There are structural causes that have to do with historical conditions and the structure of the Venezuelan economy, but I think our situation today is in a large measure attributable to attacks on Venezuela’s exchange rate that began in 2013 in the context of Chavez’s worsening health and then his death. The arrival of President Nicolas Maduro to power led to a very aggressive monetary attack, and what has happened since then has much to do with the immediate and medium-term effects of that.
Later on, other elements entered the picture. In my view, a large part of the responsibility lies with the inefficacy of the government’s measures to offset and reverse the effects of these [monetary] attacks. Moreover, many policies even contributed to making things worse, as for example, in the areas of prices and currency exchange.
Also, we have to consider the sanctions, even if they are more recent (beginning in mid-2015), and the falling oil price. These are factors which come in to complicate the situation, but I don’t think they are the fundamental causes of what is happening now.
Additionally, the handling of the debt has not been very apt. First, the practice has been to simply pay the debt without asking for any kind of renegotiation or restructuring. We only asked for restructuring when it was already very late, when the sanctions were already there, and moreover when we had paid a very large amount: more than US $70 billion. That meant that we sacrificed a large part of the imports to pay for that debt without reducing the country’s risk and without abating the atmosphere of conflict.
Because of the financial blockade, Venezuela has difficulty accessing international financial markets, and can only access them if it pays very high interests. The last attempt to break out of the blockade, which was the Petro, was itself blocked. I think that all this has contributed to the crisis. Later on, there are other factors that make the situation worse, such as what is happening in the state oil company, PDVSA, and new practices that have been introduced in the society such as the illegal economy, etc. (1) The hyperinflation that we are seeing has to do with all those things brought together over the long term.
There are many uncertainties about these new economic measures. One concerns the anchoring of the Sovereign Bolivar to the Petro, and in turn the Petro to the price of the Venezuelan oil barrel. That really only makes sense if one could exchange Bolivars for Petros and Petros for oil barrels or the equivalent in hard currency. Is that the case? It’s clear that in a market economy, the value of a currency can’t be a matter of mere decree. In effect, how are we to understand the idea of “anchoring” the currency?
As you yourself indicate, I think the anchoring of the Sovereign Bolivar to the Petro is essentially a matter of decree. There are many things that continue to be unclear here. There is a formula that was established in which the value of the Petro corresponds to the current price of an oil barrel. From there the government set up an exchange rate with different currencies, such as the dollar and the Sovereign Bolivar. Those are the basics.
They say the Petro will function as a unit of account as was the case with the Real in the context of Brazil’s “Plan Real.” However, they also continue to claim it is a cryptocurrency, even though we don’t know exactly how it can be used, nor how it will be used. The President said there will be a surprise announcement about it in October or November, but similar announcements have been made on earlier occasions. A pre-sale and a sale were done in which supposedly we got US $3 billion, but we don’t know what happened with that. Nor do we know if it will be a currency or a cryptocurrency for external commerce, or if it is for internal commerce too. Based on some decisions the government took before the Petro came out, we can suppose it is also for internal circulation. That raises the issue of how it will coexist with the Sovereign Bolivar. Possibly Venezuela will have a system with two currencies, as in Cuba, with the peso and the CUC, which have different values and cause a set of distortions.
So, for now, the anchoring of the Sovereign Bolivar to the Petro functions as a governmental decree, but whose economic base and future functioning is still to be seen.
With regard to socialism – which was Chavez’s strategic objective – do you think that the recent measures amount to a step forward or step backward? Or perhaps they are a step backward to later go forward?
I have said on other occasions that if there is one weakness of the economic policy in the present moment, it is that it lacks definition. In the time of Chavez, one understood that there was an economy that, although it was operating in a capitalist context, there was still an implicit process of transition toward a goal that was socialism (even if we didn’t know exactly what kind of socialism beyond some statements).
Now, even though socialism continues to be part of the discourse, in practice the general tendency is toward policies that wager on a kind of neo-industrialization, counting on the Venezuelan private sector. It seems to be along the lines of the classic discourse in Venezuela of substituting so-called “rentier capitalism” for industrial capitalism, with a nationalist bourgeoisie, etc. At the same time, there has been support for the communes, but with time the communal project has lost more and more importance. The same goes for the EPSs (2).
So the announced measures, assuming that they work, seem to be part of a stabilization plan in the conventional sense, even if they contain elements that are heterodox and nonconventional. They seem to be the result of a pact with the most concentrated private sector regarding prices, and there is talk about the reduction of the fiscal deficit.
Whether all this amounts to a step forward or as step backward is still to be seen. Most elements point to it being a heterodox plan in an overall framework of capitalism that is trying to develop industry and attract foreign investment. In that sense, of course, it doesn’t seem to escape the logic of the traditional plans of that kind.
There seem to be cycles in the Venezuelan economy: a kind of pendulum swing that goes from oil booms to profound crises, which are followed by adjustments, belt-tightening, and liberalization (such as the hike in the sales tax and the freeing of the exchange rate that is going on now). In that sense, the government’s new measures seem to be proof that we have not gotten out of the old labyrinth of dependent capitalism. How can we break with the inertia of this ongoing cycle?
How to break with the inertia and stop the pendulum swings? I think that historically in Venezuela there has been a mistaken interpretation of rentism and oil dependence: the mono-producing, mono-exporting nature of the Venezuelan economy. Oil is seen as the problem. The tendency is to treat oil dependence as if having oil were the root of the problem. In fact, I think that oil is a comparative advantage that the Venezuelan economy has and we have not known how to take full advantage of it.
Instead, I think that the structural problem of the Venezuelan economy is that it has a structural duality, as the old Latin American theorists called it, in which there is a primary economic sector that is very developed, with a level of productivity comparable to the first world (I am speaking of the petroleum industry, leaving aside its current problems). On the other hand, there is the second sector of the economy, industry and manufacturing, that is very dependent on importation for its inputs, and is also technologically backward.
In effect, I think the problem is not petroleum. The problem is that the second sector, which was weak even before oil entered the picture (in fact, the little that it has developed, has been due to support, leveraging with oil profits). So the challenge of a country like Venezuela is how do develop sector two. Now, that brings us to another problem: With whom should it be developed? With the existing industrial group? With a new emergent group? Or with whom else to do it?
In Venezuela, there is an old slogan which is “sow petroleum.” The intellectual Arturo Uslar Pietri invented the slogan, and it was put into action by the government of Medina Angarita. The proposal was to transform Venezuelan capitalism, which was essentially commercial and financial, not very productive, even “parasitic” (as it was called at that time), toward developing the national bourgeoisie. But it was the national bourgeoisie itself who opposed that project and brought down Medina Angarita in 1945. In fact, the principal resistance to the project of industrialization comes from the national bourgeoisie, for whom it is inconvenient.
In that sense, the most important steps taken have been under Chavez, especially later on, when it was understood that it didn't make much sense to develop an industrial capitalism in Venezuela with private sector capitalists, though one didn't have to deny them participation. Instead, one needs to industrialize, thinking not only about productivity but also including new productive actors, based on diverse kinds of productive relations. That is is were the EPSs (2) come in to play, and also the cooperatives and communes. There were a bunch of non-private economic projects, in which new kinds of producers emerged.
I think it’s always rhetorical or cliché to say that in Venezuela we have to produce more. Yes, we have to produce more, but also we have to produce with other actors and agents. At least that is what history has shown and even the present points to: the private sector in Venezuela does not have the vocation to carry out a process of industrialization. It has to be a process leveraged by the state’s forces (the main economic agent in the country) that will reach out to other sectors that can include the private sector, but essentially it must involve economic actors in relations of social property and other forms of organization, alternative ones…
Since one cannot separate the economy from a range of social, cultural and historical factors, I would say that no macroeconomic measure (or even a battery of such measures) could solve the current crisis. If that is the case, what transformations are needed in our society so that ordinary people can begin to live better?
In effect, this is a multi-factorial situation, and it also requires multi-factorial solutions, not just macroeconomic measures. The solution would have to involve elements of a cultural order, etc. Now, I think that the first big step in the solution to the Venezuelan structural crisis would be a greater inclusion of the population into national life. That was achieved with Chavez between 2003 and 2012. But the medium-term problem has to do with the sustainability of that inclusion, which is exactly what was lost from 2013 to the present.
In principle, no national policy makes any sense without that inclusion. It is not only a matter of social justice and people living well, but also a matter of economic effectiveness. Importantly the process of social inclusion between 2003 and 2012 led to people having more access to education. They became more educated and trained, and thus prepared to participate in a process of economic transformation.
An example of that is all the brain drain that has happened in the last few months to a year, in which people here were given free education (of a kind that would be impossible for many people in other parts of the world to access), and now they are leaving to become cheap wage labor in other parts of the world. In economic terms, it is as if we were exporting multipliers in the sense that all the investment that we made in education and technology is going to benefit other countries...
People got formation and training, but simultaneously something took shape that hadn't existed before in Venezuela: the emergence of an internal market sufficiently robust to sustain an industrialization process. In Venezuela, there has always been a tendency to consumerism, but in the framework of an economy that was highly exclusive. Although consumerism did not go away, in Chavez’s epoch (in fact, we saw much evidence of it), that should not hide the fact that there was a widening of the economic sphere and of the salary, leading to increased buying power. That, in turn, led to an effective demand that made the Venezuelan economy work for a long time. So I think that there are important elements that we need to consider, that should not be overlooked: social inclusion is fundamental, but also economic and political sustainability.
Is there anything else you would like to add?
If today’s private sector, without a push in the petroleum industry, is going to return to the level of production similar to that of 2012, it would need to grow annually for a decade at about four or five percent. Moreover, it would have to surpass its current productive capacity by 350 times to supply the local market and generate exports, if we are talking about profits from other sectors substituting for the petroleum profits! That would involve an effort that from my point of view is simply impossible.
There is another element, which is usually not mentioned, which is that that big push in petroleum production will need to go hand in hand with an equally giant injection of electrical energy. Everyone knows about the problems that the Venezuelan economy confronts with regard to the supply of electricity. Our capacity to generate electricity is very run down. Some say that it is operating at about 50 percent of its capacity. To recover the other part, a great deal of investment is necessary.
As long as that is not done, there cannot be any alternative industrial development, because the businesses simply need electricity to function and they can’t take it away from the residential sector, because that would lead to people being without electricity. In summary, to begin recuperation, it’s necessary to get the petroleum industry going and update the electrical system, because the other option amounts to putting the cart before the horse. It doesn’t make sense and the goal wouldn’t be achievable.
(1) Salas refers to practices such as smuggling, hoarding and speculation with subsidized goods that became widespread in Venezuela from 2013 to the present.
(2) EPS initially stood for Empresas de Producción Social (Social Production Enterprises). The initiative began in 2006 as an attempt to provide an alternative model for businesses in which production would be community‐based and there would be a more humanized workplace. A couple of years later, due to an awareness that only enterprises based on social property instead of private property could produce a significant transformation, people began to speak instead of Empresas de Propiedad Social (Social Property Enterprises), changing the meaning of the “P” in the acronym.