By Adriaan van Ginkel
Finally, after more
than a month waiting for announcements that would be announced announcing
what was to be announced concerning the salvation of the Venezuelan economy
(not my words but president Maduro’s), details came out yesterday afternoon about
the new official exchange system for
the bolivar. Called SIMADI, or Marginal (!) Currency System. Ain’t kidding,
that’s the baby’s name.
Now a “quick”
explanation for those who don’t really know what is going on with the economy
in Venezuela. Which I can’t blame because the government sort of tried to find
new paths in the land of economics, and became hopelessly lost. Take a seat; it
will take a time to read what is coming.
Since 2003, free
exchange of currencies is forbidden in the country. From that year on, there
exists an exchange rate that is fixed and controlled by the state. Hugo Chávez
at that time said it was a measure to stop capital flight, putting the state as
the only one allowed to receive and spend foreign currency. Since more than 90%
of the nation’s income comes from oil, and oil can be exploited only under
direction of the state oil company PDVSA, the system seemed rather watertight.
The US greenback was bolted at a fixed exchange rate, the central bank was the
only institution allowed to have foreign currency (and under control of the
president himself). Companies had to ask for permission to buy dollars to be
able to import goods. Travelers had to do the same to exchange their bolivars
into a fixed amount of foreign currency. Wages and prices of most basic goods,
including that of gasoline, were fixed for years to come, and the impression
was created that the economy was stable, prices stayed the same, and a score of
stable years followed during which the Bolivarian Revolution, with its planned
economic system, had time to impose itself on society in a peaceful, orderly
way.
Or so it seemed. The
bolivar in fact became an overvalued currency, and the underpriced goods became
the source for a booming smuggler trade right into neighboring Colombia. But
when I arrived in 2006, Venezuela seemed a rather cheap country where you could
live fairly well without spending too much. I was impressed by the full shelves
in supermarkets, and the low pricing of it all.
In
2007, pushed by zealous leftist advisers, Chávez decided to rock the boat. A
transformation of the capitalist economy into a “socialist” one was announced
shortly after the president was reelected with an ample majority of votes. The
first distortions and shortages appeared that were answered to by the government
with an iron fist. In- and exportations became the sole privilege of the state.
All ports, sea and air, were militarized. Wave after wave of expropriations and
confiscations of private enterprises and estates followed. The result was a
steep decline of domestic production, as most confiscated factories and estates
simply stopped producing. But that didn’t deter Chávez from continuing smashing
the “capitalist bourgeois” economic structures with his red sledge hammer. ¡Exprópiese! became the war cry of the
Revolution. And meanwhile, the economy became more and more dependent on oil
revenues that reached a staggering 97% of the nation’s income. With soaring oil
prices, Chávez apparently felt invincible. And he went on with his
transformation of the economy into a socialist paradise.
The
straw that apparently broke the proverbial camel’s back, in 2010, was the
sudden prohibition by the government of the broker companies that had till then
made their business buying and selling a “grey” dollar, or permuta, that acted as a tolerated, not permitted way of buying
unlimited amounts of dollars at a rate slightly higher than the official one. It
was the only escape valve for countless Venezuelan companies to keep importing
from abroad and keeping the shelves full of goods. When that valve was closed
down – and the brokers disappeared behind bars – the black currency market was
born almost immediately. The first serious shortages of goods became visible,
as well as increasing distortions between wages and prices. The difference
between official and black exchange rates grew and grew. Minimum wages were
increased to appease the Venezuelan worker, and the state attempted to knock
prices down by force and subsidies, initiating yet another wave of expropriations
and jailing, as well as rising inflation. But with goods getting scarcer and
scarcer – from car parts and machinery maintenance to milk and
butter – pricing
was answering to market mechanisms. So, if anything of quality was available,
it was expensive, of course. The state tried to answer by importing cheap goods
from China on a massive scale, but of notoriously bad quality. Try driving your
car with spare parts that have to be replaced every 6 months, like I did.
Are
you still reading? OK, don’t blame me for the monstrously complex problem Chávez
put his country in, having no clue what economics are about.
Thus, many shop
keepers, in order to avoid getting sanctioned by the state, simply stopped
selling certain goods. If you have to resort to the black market dollar to get
goods (since Venezuela now produces squat, really), you have to price them
higher than allowed, or else sell them at below the cost, generating losses and
causing bankruptcy or expropriation. I will let your imagination work to
picture the heyday desolation in many streets and shopping malls in the cities.
Too many shops are closed down by their broke owners or the authorities, or show
empty shelves and employees with nothing to do.
The state started the
printing press to flood the streets with money and counter the incontrollable
rise of prices. You can probably guess what that did to inflation. In 2011, Chávez
was steadily losing popularity and many consciences had to be bought back into
the revolutionary folds with cheap goods and free social housing in order that
the opposition didn’t win the elections. Chávez did in fact win the elections,
shortly before dying of cancer, but it was clear that the Chavist movement had
lost millions of votes that kept the Bolivarian government in place for years. As
well as billions of dollars from the national treasury, many of which ended in
unauthorized
pockets – rampant corruption became visible. A rising number of Venezuelans
have grown disappointed with the course of the Revolution – you cannot make a
revolution on an empty
stomach and purse –
and although the opposition does not convince being the alternative to the
current regime, and Chávez keeps being a rallying point for his followers even
after death, it has become less and less clear what the future of the Bolivarian
Revolution would be. Venezuela needs dollars, urgently. It is again nearing a default
in her payments coming March, and doesn’t know how to fill in the gaping holes
left by overspending and plain thievery.
Now, what has this
all to do with me, as a common resident in this country? Scarcity hasn’t
receded a bit. Chávez’ successor Nicolás Maduro has again taken out the red
sledge hammer of his predecessor and taken to confiscations, incarcerations,
sanctions and expropriations. He throws dirt at the US in the best Fidel
fashion. He tries to appear big and strong. Only thing is, he stands alone. His
new monetary scheme is already heavily criticized by renowned economists. Although
the black market dollar hasn’t really risen, as details about the new exchange
rate for the grey dollar have yet to be published – money changers are holding
their breath – it is already apparent that whatever success the new scheme of
(again) three different exchange rates to the dollar will have, it might be too
little too late to stop the hyperinflation, the price spiral and the scarcity
of everything. The coming days might become crucial for the fate of the Chavist
regime and for the near future of Venezuela.
The only real advantage
for me as an average Foreign Joe in this country, is that I can now legally
exchange my bolivars in euro’s and keep my bank account in Europe at a level. For
which I am grateful, to be frank. Now, Maduro has to be a good boy for once,
and publish the starting exchange rate of SIMADI as soon as possible.
Just for once, Nicolás,
show the world that you are a president of some weight. Just for once. I need
to survive in this country for a while more.
Have a great week and
till next Wednesday!
© Adriaan van Ginkel
2015
