Inflation, Indexation and Venezuela’s Distributive Problem: A Conversation with Tony Boza
Tony Boza is a Venezuelan economist and United Socialist Party (PSUV) National Assembly member from Zulia state. Together with Pasqualina Curcio and Juan Carlos Valdez, he is one of the main proponents of wage indexation as a mechanism to protect Venezuelans’ purchasing power. In this interview, Boza takes stock of present economic policies, debates around inflation, and the challenges for Venezuela’s besieged economy.
According to official data, Venezuela had four consecutive years of GDP growth, although instability continues. What is your assessment of the present situation and current economic policy?
Firstly, it must be acknowledged that any analysis is hindered by the lack of accurate information. The Venezuelan Central Bank (BCV) does not publish data, for example on sectorial growth. However, we know from several officials that the economy has been growing for 16 consecutive quarters, four years, and this period should allow us to draw conclusions in any social experiment. To analyze the impact of a policy and judge whether it should continue or be changed.
There is very little public discussion of the economic situation. If I were to make an analogy, it would be like when a child is sick, the doctor tells him that he has to take a bitter medicine. Why? Because it will cure him, and there is no further explanation. But if we have already been taking a “medicine” for several years, we must know why the measures are being applied and what is the path forward.
It is undoubtedly true that there is an imperialist blockade, a siege against the country. (1) That has a real impact on the economy. So perhaps the tactical moves cannot be explained, so that the enemy does not find out and tighten the blockade. But we can explain the strategic side of things, that we are going to take the medicine and follow this path to reach a better wealth distribution scheme, if we want the people to accompany us. But we cannot speculate about that plan, if it even exists.
You have recently written a lot about wage policies and inflation control. What has been the government’s approach to this issue?
Let’s do the analysis. The minimum wage has not been raised [since March 2022] for a reason I deduce: the executive branch decided in its economic policy that the priority is to control inflation. This has been publicly admitted, because with inflation under control there is a more stable framework to plan and better deal with the economy.
I agree with this idea, but I see it as an intermediate step. Controlling inflation cannot be the ultimate goal. [US economist] Joseph Stiglitz unveiled the origin of inflation targets. They were imposed by financial capital, and from then on, governments invested efforts and resources to control inflation. This shows that the underlying problem, although it passes through the monetary sieve, is distributive.
It is the issue of how the cake is distributed. In 2018, the slice of the cake was small because the cake was small. Now the party owners say that the cake grew, but the piece is still small. So it is a deep distributive problem, which has to do with a policy that I would no longer call wrong, but that goes in a direction that affects the collective welfare of workers.
Historically, economic analysts have pointed to excess liquidity as the cause of inflation in Venezuela. How does this diagnosis correlate with reality?
That is the instrumental argument, that the “little printer” cannot be turned on and flood the economy because liquidity produces inflation, thus feeding into a monetarist dogma. Let us examine the data and look at reality. There are economists, with right and left ideologies, who want to adjust reality to the manual when it should be the other way around.
What does the Central Bank do? The BCV is not constitutionally obliged to defend the people’s purchasing power. Its mandate is to control the value of the currency. It is a monetarist scope of action that fits like a glove. It must control inflation. At what cost? Whatever it takes. Even if he has to sacrifice the entire population at the altar of monetarism.
Pasqualina Curcio, one of the most rigorous Venezuelan economists, has analyzed official data up to 2016. The amount of circulating money or liquid supply, technically known as M2, is everything that can be immediately converted into means of payment to trade goods in the economy. It is measured with respect to GDP. Typically in Venezuela, M2 stood between 35-45% of GDP, regardless of its size. At points it went down to 10 or 15, but that was the most common range.
What is the ratio at the moment? This is one of the few things that the Central Bank publishes. On April 18, M2 was 220 billion bolivars [Venezuela’s national currency]. At the exchange rate at that time, it was about US $2.4 billion. I have seen GDP estimates of $110 billion, so M2 is 2-3%, way below the historical trend.
Therefore, if there is inflation, it is not a product of liquidity in bolivars, because liquidity is almost suffocated. There is also the liquidity in foreign currency, which the BCV does not publish. Some analysts say that it is around $8 billion. Adding both would be $10 billion, 10% of the GDP. In the monetarist logic there is not enough liquidity to produce inflation. Reality proves otherwise. In other words, there is no evidence to support the idea that raising wages and pensions would inevitably trigger inflation.
If we multiply the $5.6 billion sold by the Central Bank last year by the average exchange rate of 40, we get practically the same amount as what is circulating now. We do not know the velocity of money now, but not all M2 is used to buy foreign currency, so it should be much higher than it is.
It means that the Central Bank took a path of drying up liquidity, under the dogma of monetarism. How is this done? Simply by sterilizing bolivars. And here we can no longer blame the blockade because it already has these dollars in its hands after selling crude, paying commissions, etc. But the BCV decided to allocate them to the exchange tables, and then burn the bolivars it receives. Because they are not in the M2, otherwise they would still be circulating in the economy.
How do you interpret the announcements of the last International Workers’ Day (May 1), when bonuses were increased a little but salaries and pensions remained untouched? (2)
I saw May Day as a last opportunity of sorts to show that what we are experiencing is just a tactical shift. But the government closed that door. Salaries and pensions remained frozen.
I give President Maduro a lot of credit. He has faced the US empire, he has done it with boldness and courage. He has not had it easy at any time. But internally, in order to achieve tranquility, he gave in to the bourgeoisie. The bourgeoisie threatened instability, shortages, and ended up imposing conditions.
Today, it is our class enemy, Fedecámaras [the chamber of commerce], that sets the economic agenda. Their spokesmen announce that such a thing is going to happen; they say that there will be no talk of salaries. And they are right.
I am not with the right-wing and nobody can accuse me of that. Within the revolutionary camp, I have the right to look critically at the policies that are applied. Since the campaign for the National Assembly in 2020 I adopted the wage problem as a central issue. Shortly after the election, I wrote a booklet on the indexation of wages and inflation. It falls short in many things, but it is right that the basic problem is distributive and not monetary. There is no point in solving the inflationary and monetary problem at the expense of the distributive problem. It is a vision that does not favor the working class.
Speaking of indexation, two years ago the government started talking about “indexed” bonuses. And indeed they are pegged to the official exchange rate. But this is not what you understand by indexation. (3) Where does this proposal fall short and why does it not solve the problem?
The government in recent years has adopted a euphemistic narrative to talk about the economy, using elements that fall short of describing reality. This goes back to the lack of data from the Central Bank that I mentioned in the beginning. Another tendency is to talk about phenomena that do not mean much, such as the number of retail transactions, while others like the Gini coefficient, which measures inequality, have disappeared.
I believe that it is not a problem of ignorance, and that we are entering a stage where the discourse has a clear purpose.
Who knows more about the logic of money than bankers? Nobody! They essentially told our government, “I don’t care what you do with inflation,” and had the BCV create an accounting unit for their credit portfolio indexed to inflation. Retailers and industrialists do not suffer from inflation either. It is the working class, with its salaries, pensions, and deposits, that is left unprotected.
In the indexation debates, there are also questions about its implementation, whether it would be feasible or not. How do you see this?
Clarification is needed on the use of the word indexation in relation to the non-wage bonuses. Indexation is not tied to the dollar; it is tied to the distribution of wealth. It is a mechanism to protect the purchasing power of the majority.
It can be set up by adjusting salaries and other amounts based on inflation, as Fernando Henrique Cardoso did in Brazil in 1993. This little-known minister decided to rely on a group of economists from the Pontifical Catholic University of Rio de Janeiro, hardly a leftist stronghold, who made an inflation management proposal after the hyperinflation crises in Latin America in the 1980s. The “Plan Real” eventually paved the way for neoliberalism, but it showed how indexation can tackle inflation while protecting incomes.
The goal was to restore the public’s purchasing power. They did this by creating a currency, the real, as a unit of value, and tied it to the US dollar, but they did not dollarize the economy. They kept their currency, the cruzeiro, as a means of payment. And regarding the domestic prices of goods and services, what was the solution? They took the previous month’s inflation and used it to adjust the real-cruzeiro exchange rate on a daily basis, and that was published in the newspaper. Then at the end of the month there was a compensation mechanism in case inflation was lower or higher. So, it was not about following the dollar, it was about defending purchasing power.
We are talking about a time before the Internet was widespread. Today, with all the technological means, it would be perfectly feasible to monitor prices in real time and adjust salaries accordingly. Juan Carlos Valdez even floated the idea that grassroots organizations could do this efficiently.
The problem is philosophical. Solving the real distributive problem may involve controlling inflation, or it may be solved some other way. But we have four years under a trickle-down approach, with the logic that first we must grow economically. But how much wealth must be created before it begins to trickle down?
In recent months we have seen a steady growth of the parallel USD-bolívar exchange rate, which is another factor that hits purchasing power as it is used by retailers to set prices. What is your opinion on the lack of regulation in the economy, which goes hand in hand with the BCV’s monetary policy?
The first consideration is that government officials talk about a forex market, the bank-run exchange tables. But there is no market there. It is not a space of open supply and demand because there is only one supplier, the Central Bank, which furthermore operates with a different logic from the market. It does not enter with the goal of securing the best price, but of stabilizing the exchange rate, selling at the cheapest price that the context allows. This is a logic contrary to the market and convenient for the buyers, who then turn around and enter the real market.
Private sector dollars do not enter the exchange tables. If a bourgeois puts his foreign currency there, he should be made a saint for going against his class interests. So the exchange tables are still a mechanism for the allocation of foreign currency. It can be called a “market,” but it is not.
On the other hand, we were talking about the estimated $10 billion in circulation of which the state only provides a quarter. The other 70-80% represents the real market, where merchant capital, industrial capital, need dollars for domestic or foreign transactions. This is where the price of the currency crystallizes, with opportunities to increase profit margins by speculating with the dollars allocated by the Central Bank.
Once again, the thesis that the exchange rate grows because the State does not supply enough foreign currency falls apart. Between 2011-2013, for example, the state supplied an average of $40 billion a year, yet there was still a parallel market with a rate three times higher than the official one. There is clearly another at play here, which is not based on supply and demand: it is the speculative room to maneuver allowed by the conjuncture. Capitalists are able to bend, or at least adapt to the changes in the distributive logic, whereas wage laborers cannot.
Taking into account all that we have discussed, how do you see the outlook for the Venezuelan working class? Both in terms of their labor rights as well as broader economic policies.
Right now the scenario is one of deep labor precarity. Besides that, I remember that Chávez talked about the “social salary,” to include all the other factors (education, health, public services) necessary for the reproduction of life. Currently, all this is in a very discouraging situation. It is dangerous to get sick, for example. Services are increasingly in the hands of the private sector.
We cannot expect the logic of capitalism to solve our problems, it is not going to. There is a growing narrative, pushed even by government officials, that the public sector is unproductive and that only the private sector can increase productivity. This is surrendering to the enemy’s rationale.
Let us be clear, at the root of everything we find imperialism and the treacherous right-wing that does its bidding. There is no need to debate that. But there is evidence about the economic policy that is being applied internally and who benefits from it. If this policy is merely tactical, then somebody should show it, because tactics are conjunctural and the conjuncture has already extended to four years. Nobody has said anything about how to return to the path of redistributing wealth, other than waiting for it to trickle down at some point.
Another consequence that seems serious to me is that we cannot have these debates within the revolutionary camp, be it in parliament or within the [Socialist] party. We are expected to blindly assume that our leaders are doing the right thing. And I am loyal, I am disciplined, I can even assume democratic centralism. But I must point out that I do not believe this train is on the right track.
Notes
- According to estimates, US sanctions on the oil industry have caused roughly $25 billion in yearly revenue losses. For comparison, Venezuela’s 2024 budget was $20.5 billion. The Trump administration has recently escalated economic sanctions against the Caribbean nation as well.
- On April 30, President Maduro announced that the Economic War Bonus allocated to public administration workers would go from $90 to $120 a month. Coupled with the $40 food bonus, it took the minimum monthly income in the state sector to $160. The Economic War Bonus for pensioners was raised from $40 to $50. The minimum salary remained at 130 bolívars/month (roughly $1.3). Trade unions have criticized the bonus-over-wage policies for favoring employers, since a number of benefits (vacation pay, severance, social security contributions, etc) are computed based on salaries, as well as doing away with collective bargaining rights.
- Economist Pasqualina Curcio originally proposed indexation mechanisms pegging the Venezuelan bolívar to the price of gold, and later to the Petro cryptocurrency, as efforts to counter attacks against the currency. Later proposals, involving Boza and Juan Carlos Valdez, envisioned indexing wages and other economic aspects to inflation markers.