Venezuela’s Economic Policy: A Conversation with Tony Boza (Part II)

A National Assembly deputy outlines a possible solution to stagnation of salaries in Venezuela.

Tony Boza is a Venezuelan economist, a National Assembly member for the Socialist Party (PSUV), and a well-known television personality. In Part I of this interview, Boza addressed the changes Chávez promoted by channeling oil profits toward working-class needs and examined the impact of the US blockade on Venezuela. In Part II, he evaluates the economic policies currently being applied in Venezuela.

When faced with the US blockade, what economic policies have been implemented by the Venezuelan government?

When you apply an economic policy, you must use the scientific method. The scientific method has to have two solid components. First, there must be an internal logic and, second, the proposal you make should be verifiable with regard to its results. That is, you must have a real-world mechanism to test your hypothesis.

That being so, if one says that the blockade is impacting the country’s economy (which it is), and if the country is under siege, then one cannot apply a market solution. Venezuela is not Holland or France.

The current economic policy in Venezuela is monetarist. The idea is that if you increase the quantity of money, it will increase inflation. Based on this assumption, the amount of money circulating in the economy has actually been decreased in real terms in recent years.

Pasqualina Curcio has researched this issue in depth. In 2013, there were approximately 73 bolívares circulating for every 100 bolívares accounted for in the nation’s Gross Domestic Product [GDP]. By 2020, the last year when the Central Bank [BCV] issued economic data, there were approximately 20 bolívares circulating for every 100 GDP bolívares.

Has this policy reduced inflation? No, this period sets a historical record. In other words, the application of the monetarist policy does not work in our context.


What is the real-life impact of this policy?

The application of the monetarist policy comes with a radical contraction of public spending on social services, while the minimum wage has become practically symbolic: nobody can live off of it.

Why do you think a monetarist policy is being applied in Venezuela?

If you go to any university’s economy department or if you listen to the spokespeople from a think tank, you will hear that the most important issue is to keep inflation down. In other words, inequality or poverty are not the main problems. In their terms, the main objective is “economic stability.”

Now, you may wonder, why is it so important to have low inflation? Is it because these “enlightened” professors and researchers feel the pain that the poor feel when inflation goes up? No, the point is that inflation actually does hurt banking and financial interests: the most consolidated economic powers in the world.

Joseph Stiglitz, who is by no means a leftist, says that inflationary problems should not become the be-all and end-all of a country’s economic policy, and that fixating on inflation will generate other larger problems.

In a capitalist world, market ideas are, as we know, hegemonic, and they affect those designing Venezuela’s economic policy. Fortunately, there is a debate about this, and our hope is that the government, which is no doubt in a very difficult situation due to external attacks, will soon correct its economic policies.

We are in a war-like situation and the government recognizes this fact. So, why are we privileging the market? In war-like situations, markets are always sacrificed. Why don’t we do the same?

Is the economic policy equally restrictive with the working class as it is with the interests of capital?

In January 2021, Venezuela’s Central Bank issued a ruling that protects the patrimony of the banking sector. Inflation is, indeed, the main problem when you hold financial assets. This ruling establishes that banks can – and of course do – index all their financial products, including credit.

In lay terms, what does “indexation” mean?

Inflation is real in Venezuela. Does it affect the comprador bourgeoisie? Obviously not, since there are no price regulations now. That means that when I place a good in the market, I “index” its price at the rate of inflation (or higher even). In doing so, I protect myself.

The banking system cannot “index” autonomously, so the BCV gave it the prerogative to do it. Now the credit portfolios in the hands of banks go up with inflation. That means that, as the bolívar devalues, the loan principal goes up to account for inflation.

So, as we see, the comprador bourgeoisie is shielded from inflation, and the financial bourgeoisie is protected as well, but what about the working class? Wages are not indexed, so the working people – particularly teachers and public employees – see their salaries shrink one day after the next.

Fernando Pisani published Inflation, the Trojan Horse of Neoliberalism. In that book, he explains money, circulation, relative prices, and so on and also argued that Marx was right: value is not created by bankers nor by entrepreneurs, value is produced by workers.

Now, when it comes to the “distortion” of an economy, what is its origin? In the history of Humanity, no crisis has ever been caused by high wages. Distortions come from the financial sector and the distributive structure of the economy.

This brings us back to another important research carried out by Pasqualina Curcio with BCV data: in 2014, 36% of the GDP went to salaries. By 2017 that number went down to 18%. The BCV ceased to publish data in 2020, but I suspect that the percentage now is in single digits. Inflation is very real, so the real wages of the working class have been going down systematically over the years.

Are you saying that liquidity has no impact whatsoever on inflation?

No. Indeed there can be situations in which a rapid increase of liquidity can trigger inflation, but that is not always the case. First, inflation will rise when demand is higher than supply, but there is a point of elasticity in any economy, and that is even more clear in the Venezuelan case. Why? Because supply is actually being reduced through the monetary policies in place, and this can actually be reversed. Let me explain how.

Fedecámaras [Venezuela’s largest chamber of commerce] said that 78% of its installed production capacity is idle. If we estimate that 20% of that installed capacity is obsolete, then we can conclude that Venezuela is at 40% of its installed production capacity.

If salaries go up, it is indeed the case that demand will go up. However, with an important part of Venezuela’s constant capital currently idle, and if the correct economic policies are set in place, we will see the reactivation of the productive apparatus. In other words, more demand will trigger more production, which will in turn increase supply. This, in itself, should contain inflation.

Some argue that, in the current situation, we have to see productivity rise before wages go up. What is your opinion of that thesis?

You cannot expect productivity to go up when people are making twenty or forty dollars per month. In fact, you can hardly expect to get them to work when wages are so low, so these analysts seem to have gotten the formula upside-down!

In fact, Leonardo Vera, an economist who doesn’t identify as Chavista but is a rigorous researcher, proved recently that when you raise salaries, productivity goes up.

As it turns out, in the current arrangement, capital doesn’t have to prove its “productive” capacity and the banking system doesn’t have to either… but underpaid workers must magically raise production? That’s not fair!

The thesis that productivity comes first and wages last is a reactionary one. In the mid to late 19th century, the “intellectuals” at the service of the bourgeoisie had one task: debunking Marx. They came up with the Marginalist Theory of Value, which came of age with Piero Sraffa in the 1930s and 40s. While marginalist theory came to be practically hegemonic among mainstream economists, it actually has no explanatory value: it is more ideology than science.


Can you break down the current distribution of Venezuela’s national income?

Capital’s profits was 31% of the Gross National Product in 2014. By 2017, that number was around 50%. By my estimation, it is close to 60% now. So yes, while the pie has shrunk due to external aggression, the “slice” that goes to the bourgeoisie has grown significantly. This means that Venezuela is now far more unequal than seven years ago.

I will add one more point: if production goes up, national income will grow too, but why should we believe that that will revert the current unjust distribution automatically?

And mind you, when we are talking about a “better” distribution of income, we aren’t even talking about socialism, where the bourgeoisie is dissolved as a class. We are talking about a less unequal distribution in capitalist terms.

In addition to reducing the real monetary mass, another practice that was set in place over a year ago is the injection of dollars into the commercial banking system. At the moment, the BCV places 50 to 150 million USD per week into the commercial banking system. Can you explain this?

This is an aspect of the current economic policy that, at best, favors the interests of capital. When the Venezuelan state, via the Central Bank, injects hundreds of millions of dollars into the commercial banking system, it is simultaneously sacrificing the number of real goods that could enter the economy.

The people who support these policies love to talk about “organic money,” but the practice works in the opposite direction: real, organic money that came into the state’s coffers via oil sales is being funneled into the financial market because – so the story goes – it will make the market more stable and a climate of prosperity will emerge. It’s the old theory of a trickle-down economy.

In fact, what is happening is the following. Since the BCV’s sells the US dollar at a few points below the “parallel market” price, the “financial bicycle” is doing very well. Those who are affluent, and have certain banking privileges, purchase dollars at the BCV’s and then turn around to sell them a few points above for an immediate profit.

So, the Venezuelan state places its dollars in the exchange market at a low price with the hope that the price of the dollar will stabilize. However, the capitalist continues to sell his dollars as high as he can, thus defeating the purpose of the state’s sacrifice. This is no small sacrifice: the Venezuelan state has injected more than five billion dollars into the financial economy via commercial banks.

In my opinion, it would have been better if that money were injected into the real economy. I have no doubt that a few billion could push production up, thus raising supply and reducing inflationary pressure.

The government states that inflation rose again in the second semester, because the volume of transactions went up in the same period. In this way, it justifies continuing its restricted emission of money which, in turn, keeps salaries down. Can you explain this?

Between January and July 2022, when inflation was relatively low, monetary emissions actually grew in relation to inflation. By contrast, monetary emissions were restricted in the second semester, but inflation picked up.

This data defeats the thesis that relates inflation to monetary mass exclusively… For that reason, government spokespeople have changed their tone: now the problem is the volume of transactions!

Why did inflation go up in the second semester of 2022? According to them, it was because the number of transactions went up. But that is not a good economic indicator, since it puts the purchase of a single cigarette on par with the purchase of a mansion. Each counts as one transaction, but their impact on the economy is wildly different.


Given the imperialist blockade and the impact of current economic policy on the life of the working class, what alternative solutions do you propose?

Indexation is happening in Venezuela’s economy now. The comprador bourgeoisie raises the prices of their imports with inflation, the financial bourgeoisie raises its credit portfolio with inflation, and the industrial bourgeoisie also raises the price of the goods that workers produce on par with inflation.

On the other hand, the working class is getting the short end of the stick. Wages are raised only sporadically and at a rhythm far below the inflationary rate, so the real salaries of public employees, teachers, medical personnel, etc., are steadily going down.

To correct this, two things have to happen. First, there must be a plan to gradually raise the minimum wage, which is now below 10 USD per month. But that is not enough: the minimum wage should be indexed so that people’s real salary doesn’t eternally shrink. All goods and services are indexed, so salaries should be as well!

When we talk about indexing wages, we are talking about implementing a corrective in an economy that is already indexed. Indexation would begin to correct the problem of growing inequality. Not everyone has the power to index prices. As it is now, the bourgeoisie can and the Venezuelan state could too.

Is indexation the solution to all of Venezuela’s economic problems?

No. Venezuela is under a criminal blockade, but precisely for that reason, market solutions are not right for our country, and salary indexing is a must.

In fact, the Venezuelan state sanctioned indexation of the national economy when it sanctioned indexation of credit lines in early 2021. If you want to open a small storefront and ask for a loan, that loan will be pegged to inflation. That means that even if you want to keep the prices low, you can’t, because not only do you have to pay the interest on your principal, but the principal grows with inflation. At the end of the day, you will have to keep up with inflation to pay the loan, or else it will be curtains for your business.

One more thing: when we talk about indexation, we aren’t talking about some radical socialist policy. Even Milton Friedman argued for salary indexation in inflationary economies, and the ECLAC [UN economic commission for Latin America and the Caribbean] released a manual for countries undergoing inflationary spirals in 2001. In it, they argue that to preserve real values in the economy, you have to raise the nominal value of wages on par with inflation. Otherwise, a sector of the economy will freeze and people won’t be able to access the basic goods they need.

It is obvious that the bourgeoisie will not come up with a magical solution to the problems that the working class faces. The government – which was elected by the Venezuelan people and I know is committed to them – is the only one who can intervene in the economy and fix this problem.