Venezuela Introduces New Measures to Halt Hyperinflation: Will they Work?

Story Transcript

SHARMINI PERIES: It’s The Real News, I’m Sharmini Peries coming to you from Baltimore. Earlier this week, Venezuela made headlines again when the International Monetary Fund announced the prediction that inflation in Venezuela will reach a staggering annual rate of one million percent by the end of the year. Venezuela has been going through a period of hyperinflation since late last year. Hyperinflation is usually defined as at least fifty percent per month. The government of President Maduro, who was reelected last May in a vote that most of the opposition parties boycotted, has been struggling to stop the country’s massive inflation.

Last Wednesday evening Maduro announced a new set of economic reform measures. These include the introduction of a new currency to be circulated next month and then pegging this currency’s value to the price of oil and loosening currency controls. The details of these policies, however, have yet to be provided. Joining me now to discuss Venezuela’s economic situation and the most recent policy announcement is Cira Pascual Marquina and Gregory Wilpert. Cira is Political Science Professor at the Universidad de Bolivariana de Venezuela in Caracas and is staff writer for Venezuelanalysis.com. Cira normally lives in Caracas but today she is joining us from Vermont, where she is visiting at the moment. And Greg joins us from Quito Ecuador. He is a host and producer here The Real News Network and the author of the book, Changing Venezuela by Taking Power: The History and Policies of Chavez government. I thank you both for joining us today.

CIRA PASCUAL MARQUINA: Thank you, Sharmini.

GREGORY WILPERT: Thank you.

SHARMINI PERIES: All right Cira, let me start with you first. You have been living in Venezuela for several years now. How is daily life, in terms of conditions, of hyperinflation and how it’s affecting you living there on a day to day basis?

CIRA PASCUAL MARQUINA: Well, I’ve been in Venezuela since 2006. I’ve seen a broad spectrum of the whole process. I’ve seen the beautiful period earlier on, and now we are living a rather difficult day to day situation. Basically, you have explained the situation with inflation. To get precise about the living conditions of those on a Venezuelan monthly salary, a minimum salary, a regular salary, perhaps that buys you a kilo of meat. So, that’s very grave.

Of course, many people are working other forms of solving their daily problems. Many people have emigrated and those who stay in Venezuela receive remittances from their families. So, the crisis has generated a creative form of solving problems, but the day to day life in Venezuela is very difficult. There are problems in everything from getting physical cash to solving medical problems, et cetera, et cetera. So, for instance, in the last few days we have seen a series of protests that are not antigovernment protests, that are not protests that point to changing the government as they were last year, but protests that point to solving the profound problems that Venezuelans are living day to day.

SHARMINI PERIES: All right, Greg, let’s go to you. What exactly are these new economic measures all about? And describe the main ones to us so that we can see the impact the government hopes they will have by introducing this policy.

GREGORY WILPERT: Well, perhaps the first and most important policy is to introduce a new currency, as was mentioned in the introduction, that will basically- I mean, it’s a currency that only knocks off five zeros from the Bolivar, what the name of the currency is. And so, that means in other words one million Bolivares will become ten Bolivares. And that’s, of course, mainly going to make life simpler because we don’t have to deal in these humungous denominations. Perhaps more importantly, but also a little bit less predictably as to what the effect will be, is that this currency is supposed to be pegged to a new currency, a parallel currency that the government introduced actually earlier this year, which is known as the Petro, which is supposed to be tied to the price of Venezuelan oil basket.

So, currently, one Petro is supposed to equal sixty dollars. Now exactly how it will be tied and what that means is a little bit up in the air. But if it were to be tied in an effective way, that is that it would actually allow people to trade the Bolivars for Petro and the Petro for dollars, that is on the freeway without a strict control, then that could actually stop hyperinflation. But that’s what we don’t know yet, is exactly how tightly it will be controlled and tied to the value of the oil basket. So, that’s a real big unknown. Then there were several other perhaps less important changes that have been introduced. One is to reform the law on the illicit exchange, that is the illegal or black market trading in the currency. Presumably, it will loosen those laws so it will make it easier and less illegal to deal with that. Exactly how, we don’t know yet.

And then, another one is to assign a section of the oil reserves to the Central Bank, meaning that in other words, the Central Bank’s balance sheet would mention or would include some of Venezuela’s oil reserves. Now, exactly what effect that will have is also difficult to say, because the oil hasn’t been produced yet. It’s still in the ground. So, how much is it worth? Well, that’s a little bit difficult to say. So, those are just a couple of the measures which the government obviously hopes will stop hyperinflation, but I think the devil is in the details and we don’t know yet, obviously, if that will actually happen.

SHARMINI PERIES: All right, Cira, now people in Venezuela have been living under this kind of inflation and this isn’t the first time that the government has tried to take control of it. What are the people in Venezuela talking about with regard to the government’s economic policies? How are they being received? And how are they coping with it in terms of actually buying and selling, and how is commerce conducted in the country?

CIRA PASCUAL MARQUINA: Well, in terms of how the measures have been received, I mean, there have been measures, there have been attempts to put in place measures through the crisis. And so people are sort of lukewarm every time that there’s a bunch of announcements. Now, Greg was mentioning the measure of tying the Bolivar to the Petro, and that has generated a little bit of expectations. I personally think that it’s more a symbolic measure than a real concrete measure that will have an impact. For it to actually work, the state, the government will have to be able to place dollars and there would have to be the possibility of circling Bolivars to Petros to dollars with the participation of the state in placing the dollars. So, actually placing the dollars in the market, offering the dollars. But the state has limited dollars.

So that one measure has created some expectations. What is it to live in life in Venezuela? Well, with an economy that is highly inflationary, basically we see the proposal of perspectives on the horizon that are not radical in terms of transformation. And later we can go into that. Basically, people are looking for individual solutions. People are making tremendous sacrifices. People are actually committing themselves, of course, to solving the problems of their families. But the collective solution that, from my perspective, would take us out of this kind of crisis is not in the collective horizon.

The collective solution is the commune and the government does not seem to place a great deal of importance in the communal project in this moment. So, basically, logically, what we see is a great deal of individualism simulaneously wtih sacrifices, family members sacrificing themselves. Many people are going out of the country to send remittances to their families. That is of course a sacrifice. Mothers making long queues to get food in supermarkets, that is a sacrifice. But they are sacrifices that are individual or for the family, and the collective horizon is not on the table at this moment.

SHARMINI PERIES: All right, Greg, let’s take us step back and look at what impact U.S. financial sanctions are having on Venezuela. To what extent are they contributing to the economic crises that they’re feeling on the ground?

GREGORY WILPERT: I would say they’re definitely having a major impact, but the crisis itself, that is the hyperinflation spurring, and I think we need to be clear about that, was not started by the sanctions, that’s something that has to be clear. And so, of course there’s other things. I mean, the government talks about an economic war against Venezuela and it’s talking specifically about the local elites, smuggling and being involved in currency speculation and all of that, which is certainly also happening. But in terms of the U.S. sanctions, they’ve had a secondary effect in the sense that they’ve made certain conditions worse. And one of the first ones is of course the shortages, because it’s become much more difficult to import things.

The sanctions right now are kind of specific, but they have a ripple effect. That is, they specifically target trading in Venezuelan debt. That is, U.S. citizens and people living in the U.S. are not allowed to trade in Venezuelan debt. And since so many transactions are made on the basis of debt, it pretty much freezes up all financial transactions of Venezuela that go through the United States. So, for example, the United States banks have been closing Venezuelan bank accounts across the board, making it impossible or very difficult for Venezuela to import anything from the United States, even. And preventing, this is also a major impact, preventing the sending of all the profits from Citgo, which the Venezuelan oil company owns. Sending those dividends to Venezuela is basically illegal at the moment.

And so, Venezuela can’t pay for many of the imports, either through the dividends or Citgo or through taking on additional debt, also cannot restructure its existing debt. Normally, when a government has debt, and Venezuela has a significant amount of debt, they can roll over that debt and just pay the interest, while in the Venezuelan case they cannot, and so, that means they have to pay off the principals, that means the debt payments, the annual debt payments, are way higher than they normally would be for most ordinary countries that aren’t going through these kinds of sanctions. So, in other words, it’s causing basically much larger expenses to flow out of Venezuela, for the debt payment, and it’s making imports more difficult and complicated because of the freezing of bank accounts.

SHARMINI PERIES: All right, Greg. Now, if these latest measures to get control of inflation doesn’t work and hyperinflation and shortages continue, what else can the government do for the people of Venezuela?

GREGORY WILPERT: Well, this is of course a hotly debated issue within Venezuela and there’s many disagreements and many people have different perspectives on this. My own personal perspective is that Venezuela ought to liberate the exchange rate in order to- and this is the way, traditionally, hyperinflation has stopped. I wish the government would look at other examples of hyperinflation. And the only way to really stop it is to introduce a new currency that does not go through at least for a period. I mean, I’m not saying that can’t ever go back to currency control, but right now, the currency control is specifically what’s causing all of these distortions, at least in my analysis, because it’s creating so many opportunities for arbitrage, for basically speculating on the currency and also creating a lot of corruption in the process.

And so, the first step I think is to get rid of the of the fixed exchange rate and that means also introducing a new currency. That’s why my hope is that this new currency which is supposed be introduced in August will make a difference. But it all depends, like both Cira and I have said already, whether or not that that connection to the petrol is actually connected to a real market where people can actually get something of value outside of the country for that. If not, there’s just going to be a new black market for Petros for the Bolívar, and that won’t really solve the problem. So, that’s really the main thing, I would say.

CIRA PASCUAL MARQUINA: If I can add something-

SHARMINI PERIES: Yes, of course, Cira. Go ahead.

CIRA PASCUAL MARQUINA: So, of course I think there have to be macroeconomic measures and I agree that there has to be a liberalization of the currency. A lot of Chavistas are wary of doing that because the limits on exchange were set in place by Chavez. But right now the currency, let’s say, policy cannot stay as it is. I would say that, for instance, Venezuela has to look into entering default in terms of the debt. Venezuela has the most expensive debt in the world. Venezuela cannot go on paying this debt. And actually, Venezuela has been defaulting in a disorganized way in the payments of that debt.

So an issue that has to be brought to the table, at least discussed, is doing an organized default. But beyond that, what I would say is that we have to change the rules of the game. That is the most important thing. All these macroeconomic measures are necessary, but they don’t mean changing the rules of the game. Changing the rules of the game in a situation that is very extreme means the reorganization of the society. And Chavez had a plan for that, which was the commune. So I believe that if macroeconomic measures don’t go hand in hand with a real commitment, with the communes, with this radical, popular, direct democracy and social property reorganization of the territory, which has worked in some instances, then the macroeconomic measures might work to normalize the situation… but normalizing the situation in a country of the Global South is not enough. Normalizing the situation in a country of the Global South could mean that your inflation is not so high. But that doesn’t mean that there’s not going to be poverty. And this project, the Chavista project, is a project that aims to create the emancipation of human beings in a project that we call socialism, Bolivarian socialism or socialism of the 21st century, which corrects the errors, let’s say perhaps somewhat authoritarian errors, non-democratic errors of 20th-century socialism.

SHARMINI PERIES: All right, Cira Pascual Marquina and Gregory Wilpert, I thank you both for joining us today. Obviously, this needs to be a more in-depth conversation. There’s so much more to be said and analyzed here. But for now, I thank you both for joining us.

GREGORY WILPERT: Thank you.

CIRA PASCUAL MARQUINA: Thank you.

SHARMINI PERIES: And thank you for joining us here on The Real News Network.