Caracas, May 11, 2010 (venezuelanalysis.com) – Venezuelan President Hugo Chavez has announced the creation of a publicly owned import-export company as part of a broader plan to combat “the hegemony of the bourgeoisie”, speculation, and inflation in the sphere of distribution.
Despite price controls and a fixed exchange rate inflation continues to pose a challenge to the Chavez government, reaching 25.1% in 2009 - the highest in Latin America.
According to central bank figures inflation climbed 5.2% in April (double that of March and significantly higher than the same month last year of 1.8%), bringing accumulated inflation for 2010 up to 11.3 %.
Inflation in Venezuela has a “large speculative component” and this speculative behaviour has a “political direction” aimed at creating discontent in the lead up to the parliamentary elections in September, Chavez argued.
In this context he compared various sectors of the Venezuelan economy to other countries in South America, saying that for instance in Buenos Aires, Argentina, a family dinner in a restaurant can cost up to three times less than in the Venezuelan capital, Caracas.
He also referred to the price of new vehicles, and said that for example in Bogotá, Colombia and in Brazil they sell for two or three times cheaper than in Caracas.
Although the government has taken important steps to increase wages – a 10% increase to the minimum wage in January and a further 15% on 1 May giving Venezuela the highest minimum wage in Latin America – capitalists immediately increase prices to ensure that this redistribution of the national income “is captured by them” Chavez explained.
“The Venezuelan bourgeoisie still has a lot of power in the economy but I’d advise it against trying to corner us,” he warned, saying that measures such as fines or expropriations would be taken against those who have engaged in speculation or hoarding.
Currently in Venezuela hoarding and speculation are provoking shortages of some basic food items, including meat, sugar, and milk, among others. A similar problem occurred in the lead up to the 2007 constitutional reform referendum and other electoral processes.
Venezuelan Food Minister, Félix Osorio argued that the hoarding and speculation has two aims, one is to try and break government price controls and the other is to promote panic buying and “create matrices of opinion to provoke shortages and anxiety amongst the Venezuelan people,” with “electoral intentions.”
Venezuela, the largest oil producer in South America, and whose income from oil accounts for approximately half the country’s GDP and ninety percent of exports—experiences an economic phenomenon known as “Dutch Disease” where high oil revenues act as a disincentive for domestic investment and production in other sectors making the country heavily reliant on imports and therefore extremely vulnerable to inflation.
In 2003 the government moved to regulate foreign currency exchange and prevent capital flight, after a two month long boss’ lockout in the oil industry in 2003, aimed at ousting the democratically elected Chavez from power, caused an estimated $20 billion damage to the economy.
However, currency controls have created a thriving demand for dollars and some estimate that approximately 30% of the country’s imports are dependent on the unofficial or parallel dollar market, in which at the end of 2009 the Bolivar was trading at approximately one-third the official rate.
In order to address this imbalance Chavez announced a controlled devaluation of the Bolivar currency in January .It had been fixed at Bs 2.15 per U.S. dollar since 2005, and he created a two-tiered exchange rate of Bs 2.60 per dollar for transactions identified as priorities by the government and Bs 4.30 per dollar for general economic activities, as well as special regulations to intervene in the parallel or unofficial market.
However, while many importers receive dollars at the official two-tiered rates from Venezuela’s foreign exchange regulatory body, CADIVI, they continue to sell products at the unofficial rate which is currently trading at around Bs 8 per dollar, thereby doubling or tripling their profit margins and contributing to over all price rises.
“It seems stupid giving dollars to the bourgeoisie and they import, charge, and overcharge, they buy [goods] abroad, bring them here and charge more than what they really cost,” Chavez said as he explained why the state should set up its own import-export company.
New import/export company and socialist distribution chain
Via the new company the government will be able to import at the 2.6 rate and significantly undercut private capital by selling products at regulated prices through the new chain of “socialist” stores it is creating.
Following the devaluation in January Chavez nationalised the Exito Hypermarket chain for “speculation and abusive anti-worker practices” and converted it into the publicly owned Bicentenary Hypermarket chain.
Then in February the government announced its intention to purchase the Cada supermarket chain owned by the French-based Casino Group. Chavez announced via his Twitter account on Sunday that the Cada chain will pass over fully to state ownership in mid-June.
The government is also attempting to boost agricultural production and has set up a “socialist” food distribution company, Comerso.
Américo Mata, the coordinator of the Bicentenary Hypermarket chain said, “With the transformation of these companies the national government aims to create a socialist food policy for the benefit of the Venezuelan people.”
Also brewing is a conflict with Venezuela’s largest food and beverage company, Empresas Polar, after April 28 when Chavez decreed the expropriation without compensation of a number of Polar storage sheds in the city of Barquisimeto, Lara state, in order to build public housing on the land. Polar has said it will mount a legal challenge to the expropriations.
Polar is majority owned by Lorenzo Mendoza, one of only two Venezuelans to make it onto the Forbes 2010 list of the worlds billionaires, and is most well known for its line of beers, but also owns the Pepsi-Cola franchise in Venezuela and dominates the food sector.
The Polar conflict has produced splits within the “Chavista” alliance, with the Governor of Lara, Henri Falcon siding with Polar in the dispute and resigning from Chavez’s United Socialist Party of Venezuela (PSUV), to join the Patria Para Todos (Homeland for All) Party.
In Lara, Polar, the PPT and Venezuela’s business federation Fedecameras (which led a coup against Chavez in 2002), have been campaigning against the expropriations, leading PSUV leaders to declare that there will be no electoral alliance with “Polar Para Todos” in the upcoming elections.