Venezuela's revolutionary battle against inflation

“How much longer are we going to allow transnational companies to come here to speculate with our prices?” asked Venezuelan President Hugo Chavez on January 17, announcing the expropriation of the large Exitos department store chain—three-quarters owned by the French company Casino Guichard Perrachon, with a minority share owned by the Colombian company Exito SA — on his weekly TV and radio program Alo Presidente, after the company tried to take advantage of a currency devaluation. According to Eduardo Saman, Venezuela’s Minister of People’s Power for Commerce, “a refrigerator that they bought overseas for $300 or $400 is sold in Exitos for up to $4000”.

On January 8 the Chavez government had devalued Venezuela’s national currency, the bolivar, by adjusting the exchange rate from 2.15 bolivars per US dollar to 2.6 in the areas of food, medicines, machinery and equipment for economic development, science and technology, books and school equipment. A second exchange rate of 4.3 bolivars to the US dollar was introduced for the oil, automobile, telecommunications, rubber, plastic, and construction industries. Speaking on Alo Presidente two days later, Chavez warned businesses against playing the “bourgeois speculation game” by illegally raising prices on items already on the shelves before the devaluation: “We’re going to launch an offensive against speculation”, he said, adding: “I want the National Guard to help people on the street fight speculation. To those gentlemen, let’s call them looters of the people ... if they want to, go ahead and do it, but we’ll take their business and hand it over to the workers.”

Within 10 days, 1031 businesses were fined or temporarily closed following inspections by an alliance of the grassroots communal councils, boards of social controllership for supply, the ministries of commerce and communes, the National Guard, the National Customs and Tax Administration Service (SENIAT), and the volunteers’ Institute for the Defence of People’s Access to Goods and Services (Indepabis). During the campaign Chavez’s United Socialist Party of Venezuela (PSUV) held meetings in municipalities across the country to swear in extra volunteers for Indepabis. “Even if I increase the minimum wage, Venezuelans cannot allow traders to come and increase prices”, Chavez explained. “For that reason we have to halt speculation and the single way to do it is by means of the socialist model”.

The expropriation of Exitos is a significant blow to the cartel monopolising the distribution of household goods. The local branches of the department store chain are now being transformed into the beginnings of the state-owned Corporation of Socialist Markets (Comerso) to provide refrigerators, washing machines, TV sets and other goods to households, at low prices. According to Lisbeth Jimenez, a union member working at Exitos, “more than 500 workers, factory workers and shop assistants who work in [Exitos’] Success Terrace branch in Avila, favour the expropriation, [because] for more than two years the company has refused to discuss the collective contract with workers in violation of the Labour Act.” The Chavez government has guaranteed all Exitos workers jobs under a collective agreement in the newly formed Comerso.

The opening of the Comerso signals the beginning of a new wave of expropriations which will extend the Chavez governments’ nationalisation of distribution networks. In April 2003 the social mission Mercal — an abbreviation for Mercados y Alimentos (Markets and Food) – was launched. It grew in one year to a network of 15,000 grocery stores providing food at low prices. During the January 17 opening of the state-built housing project Ciudad Mariche in Miranda state, Chavez suggested that nationalised stores should be put under the control of local communal councils in the housing complex, “so you will see that communal controllership, by means of communal councils, will end with added value [and that] products and food prices will fall immediately”.

Working peoples’ government

The ability of the Chavez government to progressively nationalise the Venezuelan economy and reorient state-owned enterprises to serve the needs of Venezuela’s working people is a result of the April 2002 revolutionary working people’s uprising against the capitalist oligarchy. After being elected president at the end of 1998, Chavez had faced fierce resistance from the pro-capitalist managers of the state oil company PDVSA who stymied his attempt to use its revenues to support government-run programs to eradicate poverty. This battle came to a head on April 11, 2002, when Chavez was overthrown by a military coup that replaced him as president with the head of the employers’ federation. But within two days, a massive insurrection of workers and soldiers defied the military high command and defeated the coup regime. Chavez then purged 400 generals and other military officers who supported the coup. The Chavez government was now based on a military loyal to the interests of Venezuela’s poor working class majority. A year later, after defeating a bosses’ lockout, the Chavez government took control of PDVSA and began to channel its revenues into social programs benefiting working people.

The takeover of PDVSA in January 2003 was the first expropriation of capitalist property and has been followed by the nationalisation by the Chavez-led working people’s government of other strategic sectors of the economy, such as telecommunications, electricity generation, mining, aluminium, steel and cement production, as steps toward creating the central planned economy of a socialist state. “We are not subordinated to the bourgeois elite but to the interests of the people … We are proceeding and will continue to proceed with nationalisations of strategic sectors”, Chavez told supporters last May. In his January 15 annual address to parliament, Chavez said that over the coming year, “Our political strategy must allow us to continue dismantling the bourgeois state and create a new state”.

According to the National Consumer Price Index (CPI), inflation dropped 5.8 percentage points in 2009 to 25.1%. Despite high inflation, a 2.9% drop in GDP as a result of the global recession, and the worst drought in 50 years, measures taken by the Chavez government in 2009 have succeeded in continuing to reduce unemployment, general poverty and extreme poverty in Venezuela. Throughout 2009, general poverty was reduced from 27.5% to 24.2% (it was 50.5% in 1998), extreme poverty declined from 7.6% to 6% (it was 17.1% in 1998). Unemployment dropped from 7.4% last February to 6.6% in December (it was 12% in 1998). In comparison the US unemployment rate, which was 5% in December 2007, reached 10% in December 2009.

According to the Gini index, which is used by the UN to measure inequality in countries around the world on a scale (of 0 to 1, where zero equals complete equality), inequality in Venezuela dropped from 0.4865 in 1998 to 0.4068 in the first quarter of 2009, dropping further to 0.3928 by the end of 2009. These social gains refute the claim made by ABC TV’s Foreign Correspondent reporter Eric Campbell in his August 2009 report “Total Control” that “poverty is still rife” in Venezuela.

With inflation eroding the purchasing power of wages, Chavez announced on January 18 that Venezuela’s minimum wage will be increased 10% in March and 15% in September, maintaining it as the highest minimum wage in Latin America and taking it to US$673 a month, including $208 worth of food tickets. The announced increases in the minimum wage will also benefit 2.6 million people whose government pensions and allowances are set at 60-80% of the minimum wage, such as poor women who receive an allowance via the social mission Mothers of the Neighbourhood in recognition of their unwaged domestic labour contribution to the economy.

Seizing banks

Several banks have been expropriated over the past year, as a result of which the Chavez government now directly controls 25% of the banking industry, employing 13,000 bank workers. Banco de Venezuela, taken from Spanish banking group Santander, has given the government control of 285 bank offices across Venezuela. In December a second major state bank was created, Banco Bicentenario, which unifies Banfoandes, a state bank, with three expropriated private banks (Bolívar, Central and Confederado), adding a further 390 offices to the state banking network. The three banks were expropriated on November 20 along with a fourth when its owner, Ricardo Fernandez, was arrested with eight other bankers for breaking the law against organised crime and the general banking and financial institutions law. Fernandez had failed to disclose the origins of funds he was investing in one of his banks and is also accused of not providing loans to poor people.

Anticipating the launch of Banco Bicentenario on his December 20 Alo Presidente program, Chavez declared, “Tomorrow, Monday, we will start granting housing credits to a group of people who applied for a loan and were denied the credit; they [private banks] only give credit to rich people; they consider poor people un-bankable. That is capitalism: not giving rights to the poor”. Greater control of the banking sector puts the Chavez government in a better position to control inflation, which the government aims to reduce to a rate of 20-22% this year.

Following the devaluation of the currency, the government released 100 million US dollars into the exchange market in an attack on the black market, reducing the unofficial exchange rate from 6.4 to 5.8 bolivars to the US dollar. When US dollars are not abundant the black market charges more for US dollars than the official exchange rate which then reduces the exchange rate of Venezuela’s currency. The black market “acts as reference for the market and exerts a strong inflationary pressure over prices of imported goods, which is purchased by the consumer public”, explained the Bolivarian News Agency on January 15.

The currency devaluation will provide more funding for the national industrialisation plan. When Chavez announced changes to the exchange rate, he said it was aimed at “the defence of the domestic economy, protection against the avalanche of imports and the promotion of exports”. Devaluation will increase government revenues from oil exports: “Every day our barrel of oil is worth less because of the weak dollar, because oil is priced in dollars”, Chavez explained. Now every time PDVSA exchanges its revenues in US dollars for bolivars at the Central Bank, it will get 4.3 bolivars rather than 2.15 per dollar. “This will have a huge impact on the national fiscal situation, and will strengthen our oil industry”, said Chavez.

On January 13, a $1 billion Bicentenary Socialist Productive Fund was created to help end reliance on imports of food and other goods paid for by oil export revenue. While the price for Venezuelan crude dropped to $43 a barrel in early 2009, since then it has steadily rebounded, reaching $74 in the first week of 2010. The aim of the new fund is to finance the boosting of domestic production to replace imports. “Let’s increase the local production of food, clothes, and appliances. Let’s reduce importations”, Chavez said. Elias Jaua, Vice-President for the Productive Economy, explained that funds would be given first to projects in which “workers participate in the development of initiatives accompanied by communities and communes”, and “those business sectors willing to move forward on the construction of the productive socialist model”. Nora Castaneda, president of the Venezuelan Women’s Bank, explained that the new jobs that are created by these projects “will have social benefits that cannot be obtained in the informal sector”.

A major import that the national production plan seeks to end is food. The historical neglect of food production is revealed by the fact only 14 million tonnes of food were produced in 1997, despite a wealth of arable land, leaving 70% of food to be imported. With Chavez’s government in control of PDVSA’s revenues, government agricultural financing has skyrocketed from $62 million in 1998 to $4.6 billion in 2009. The Chavez government has also progressively seized idle or underused land from large landowners to be put to productive use by agricultural cooperatives.

In 2009, 380,000 hectares were recovered from the latifundia. Despite the severe drought, food production rose last year to 20 million tonnes. Malnutrition has now dropped more than 75%, from 21% in 1998 to 6% in 2009. The minimum daily intake of kilocalories to sustain life according to the UN Food and Agricultural Organization is 1900. Venezuelans now consume an average of 2790 kilocalories per day. The School Food Program provides 4 million children with free meals on a daily basis, whereas in 1999 such programs were almost non-existent. This improved food situation occurs in a global context where a record 1 billion people suffered hunger every day in 2009. According to the UN Food and Agriculture Organization, the combination of lower incomes, increased unemployment and high food prices, not poor global harvests, forced an extra 100 million people into “chronic hunger” in 2009.

Venezuela’s national development is aided by its close relationship with the Cuban socialist state. Gradual economic, social and cultural integration is harnessing the strength of one country to counter-balance a weakness in the other for mutual development, for example: Venezuela is sharing its oil expertise with Cuba by investing $5 billion into the development of the Cienfuegos refinery; Cuba is teaching Venezuelan doctors and supplying its vaccines to Venezuelan immunisation programs; and 2000 Cuban agronomists specialising in organic agriculture have joined Mission Campo Adentro (Into the Countryside) to train Venezuelan cooperative farmers.

In December the Cuba-Venezuela Joint Commission, completed is 10th high-level meeting, agreeing on 285 joint projects for 2010 worth $2.9 billion. Commenting on the cooperation projects, Chavez said: “Fidel [Castro] always says it: if the Bolivarian Revolution falls, the whole continent will fall into the hands of the yankee empire. I am obliged to add: the Venezuelan Revolution without the Cuban Revolution could not exist.”