In the midst of the highest inflation in seven years, on May 7 Venezuela’s revolutionary working people’s government escalated a campaign against price and currency speculators. President Hugo Chavez declared that his government would create an “export-import corporation to take over middle-class management of the people’s resources”. Chavez explained: “we look stupid handing over dollars to the bourgeoisie … letting them import and overcharge us … they buy something abroad worth one dollar and sell it here for five dollars”.
The Central Bank of Venezuela (BCV) and the National Statistics Institute (INE) revealed on May 7 that prices had increased by 5.2% in April, pushing inflation to an annual rate of 30.4%. Critically, food prices rose 11% that month. In response, the Law Against Illicit Exchange Transactions was passed on May 11 by Venezuela’s national legislature, giving the government-controlled BCV a monopoly on brokering all trade in government bonds, and extending the definition of currency to include bonds. Manuel Barroso, president of Venezuela’s commission for the administration of currency exchange (Cadivi), commented on May 24 that the Chavez government faced “a situation of mafias in the parallel market”. A report by Bloomberg.com on May 7 noted that private companies and individual investors buy US dollars at inflated prices on the parallel market when “they can’t get approval” from Cadivi to buy dollars at the official rate.
On May 14, government-organised raids on currency and bond brokerage firms began. By May 25 the accounts of 30 companies had been inspected. Fifteen company executives have been arrested, including Miguel Eduardo Osio, director of the largest brokerage company, Econoinvest, which had received million-dollar contracts from the Chavez government to help manage the sale of US$7.5 billion worth of government bonds in 2007. Econoinvest had purchased government bonds at the official exchange rate and then sold them at a profit causing the national currency to lose its value, dropping to 8.5 bolivars to the dollar.
According to Tomas Sanchez, president of the National Securities Commission, the black market in stocks and bonds involves 80% of the 107 Venezuelan brokerage firms. During his TV program Allo, Presidente on May 16, Chavez reported that, “we have changed the laws and started the raids … it’s robbery, you take a dollar that is officially worth 2.6 or 4.3 [bolivars] and you sell it for 8-10 [bolivars]”. Chavez encouraged people to use his micro-blogging account with Twitter to expose illegal currency traders. All currency trading has been frozen until early June when a new trading system controlled by the BCV is introduced. Inflation, Chavez declared on May 20, was also an electoral strategy of the pro-capitalist opposition parties, aimed at undermining popular support for Chavez’s United Socialist Party of Venezuela (PSUV) in the September parliamentary elections. Chavez pledged to finish off the “economic mafia”.
Chavez’s working people’s government was forged out of the April 2002 revolutionary uprising against a CIA-backed military coup, which attempted to stop Chavez taking control of Venezuela’s state oil company PDVSA – the largest company in Latin America – from the country’s capitalist oligarchy. Following the defeat of the coup, Chavez purged the pro-capitalist military officers and promoted younger officers who had led the revolutionary uprising alongside other working people and restored Chavez to the presidency.
The Chavez government’s expropriation of PDVSA in early 2003 opened the socialist stage of Venezuela’s revolution. It has enabled the government to secure the funding and administrative resources to massively expand the government’s social missions, aimed at providing Venezuela’s poor majority with vitally needed social services. The government’s social missions have dramatically improved the lives of the majority of Venezuelans. Furthermore, the Chavez government has progressively nationalised the economy, creating a national development plan to meet social needs.
In 2003, the government introduced a fixed exchange rate of 2.15 bolivars to the US dollar. On January 8 this year, with the black market selling US$1 for 6.25 bolivars, Chavez devalued the official exchange rate for bolivars from 2.15 to 2.60 to the dollar for priority imports such as medicine and food, and 4.3 bolivars to the dollar for the oil, automobile, telecommunications, rubber, plastic, and construction industries. The government exchanged dollars from the sale of oil – Venezuela’s principal export – at the rate of 4.3 bolivars, which increased its proportion of national income. To keep up with price inflation Chavez also increased the minimum wage by 25%. Chavez warned businesses in January against taking the opportunity of a higher minimum wage and exchange rate to increase prices. Chavez promised to “take over any business, of any size, that plays the bourgeois speculation game”.
According to Goldman Sachs’ New York-based economist Alberto Ramos, “Chavez continues to misdiagnose the problem and feels the solution is more socialism and less speculation”. Capitalists blame the Chavez government’s social spending for causing inflation. Since Chavez was first elected in late 1998, his government has spent $330 billion on national development measures compared to just $69 million spent on social services in the previous 10 years (1988-1998), according to the INE.
Venezuelan economist Jesus Farias commented on May 11 that during the 1988-1998 period under the capitalist government of Carlos Andres Perez (1989-1993) inflation averaged 45% per year, and again during the following term of the next capitalist government of Rafael Caldera (1993-1998), inflation averaged 55% per year. While a 25.1% inflation rate was recorded in 2009, Faria observed that its impact was diminished due to millions of people rising out of poverty as a result of the Chavez government’s “social and wage policies”.
The proportion of public debt, including the debt of PDVSA, to national production is lower than many other countries. According to Mark Weisbrot, co-director of the US-based Center for Economic Policy and Research, Venezuela’s public debt is 26% of GDP, while the European Union average is 79%. According to a report by the BCV, national production declined by 5.8% in the first quarter of the year due to the reduced purchasing power caused by inflation, restricted access to foreign currency for imports and a shortage of electrical power for industry caused by the harshest drought in six decades, which has reduced water levels at Venezuela’s dams, which in the past have provided 70% of the country’s electricity supply.
Venezuela’s population has increased by 17% since Chavez was first elected in 1998. Venezuela’s electricity consumption has increased 54% in that same period, from 11 thousand megawatts to 17. This is due to the success of the Venezuelan socialist revolution increasing working people’s living standards. Just one state-run company, Electricity Caracas, has connected 70,000 users in the past three years who previously had little or no electricity supply. But the drought-induced fall in hydroelectric output has forced the imposition of electricity rationing, leading to declines in industrial production. On May 25, the BCV reported that GDP had contracted by 5.8% in the first quarter of 2010, matching the 2009 fourth-quarter rate of -5.8%. Despite this, the INE reported on May 27 that unemployment had fallen from 8.7% in March to 8.2% in April. When Chavez became president in early 1999, the unemployment rate was 14.6%.
Trade minister Richard Canan reported on May 24 that the largest private food company, Empresas Polar, was found hoarding 114 tonnes of food at a warehouse in Barquisimento, a city in the state of Lara, to sell on the black market above price controls. To boost the price on the black market, Polar published a deceptive notice naming 260 small food shops which it claimed had a shortage of those foods hoarded by Polar. The government has expropriated the hoarded food and distributed it at the fixed price. Canan also announced that a ministry-organised raid on May 24 had discovered 2600 tonnes of food hoarded in the state of Bolivar.
To counteract the artificial food shortages created by capitalist hoarding, 113 extra public markets were set up on May 25 by the government across 11 states through the social mission Mercal and distributed 452 tonnes of food at prices 40% below regulations. Using his Twitter account on May 9, Chavez announced that by mid-June every Cada supermarket, previously privately owned, would become a part of the government-run Gran Abasto Exito stores, “to continue fighting speculation”. To combat inflation, the Chavez government is progressively nationalising the major distribution hubs of the economy at the same time as nationalising foreign trade. The recently nationalised Exitos and Cada supermarkets form a part of the Corporation of Socialist Markets (Comerso). The Comerso network will allow the government to import goods at the official exchange rate and sell at a lower price, as well as distribute local produce at official low prices, making goods more affordable for working people.
Government control of foreign trade will be easier due to the nationalisation of all seaports, airports and highways on March 12, 2009, which transferred control from states, some of which were under opposition governorships, to the Chavez government.