Hard Money

Chavez supporters in Caracas

Venezuela’s announcement on 8 February of an immediate currency devaluation was neither unprecedented nor unexpected. Despite government officials’ repeated insistence they were not considering it, most Venezuelans accepted that devaluation had become a grim inevitability. With inflation hovering at around 20% (historically still quite low)  and the explosion of a black market in which a single dollar sells for between 20 to 25 Bolivars, the government’s tagging of the currency at around a quarter of that rate was no longer, to use the de jure term of economists worldwide, “credible”.

Already under fire from a right-wing buoyed by Chavez’s absence, the stand-in government decided to accept a degree of political damage in an attempt to avoid economic paralysis. But the week since the announcement has made their political calculus look dangerously suspect. Firstly, their chances of establishing short-term economic stability through this measure alone are slim. It does nothing to address the fundamental problems and blockages in Venezuela’s economy (which, it should be said, it still growing at a rate most Northern countries, including our own, can only dream of). Secondly, the furious reaction coming not from the revolution’s enemies but from inside the revolutionary movement itself suggests the political consequences may be more serious than expected.

While much of the ire is focused on ministers and officials in the government, the devaluation speaks to a much broader and more deeply rooted problem with the process of change currently occurring in Venezuela. The inability of the Chavez government to create a real industrial base and improve and modernise agriculture means Venezuelans still rely on imports for the vast bulk of their basic food stuffs and manufactured goods. An investment strike, speculation and hoarding from the politically dispossessed oligarchy have successfully stymied attempts by Chavez to reduce Venezuelan dependence on foreign markets. The government, for political reasons, has contented itself with using record receipts from oil exports to subsidize food and basic goods for poor Venezuelans.

The decision to devalue is another cruel demonstration that this model of economic development is not sustainable. It relies on a system in which, as one Venezuelan put it, the ‘government provides the dollars for basic goods, and the bourgeoisie provides the prices’. The Venezuelan government has left itself economically exposed to an investor class, at home and broad, that despises it, its supporters and its political aspirations.

The immediate effect of the devaluation, like all such devaluations in Latin American history, is to decrease the buying power of the poor and the working classes, and to concentrate even more wealth and power in the hands of the moneyed classes. For the small section of Venezuelans who hold vast amounts of dollars in off-shore accounts, 8 February was a bumper pay day. Working  class and poor Venezuelans, who spend almost all their income on basic necessities imported from abroad and paid for in dollars, woke up to an effective 30% pay cut. This in a country where reckless speculation and inflation have already caused food prices to rocket.

Counter-intuitively, the left’s unusually fierce criticism of its ‘own’ government reflects the health and deep roots of the revolution among the masses. The fight has shone a light on the divisions between revolutionary currents tied to the people and their democratic and progressive aspirations, and the bureaucratic elements in the government and the upper echelons of Chavez’s party, the PSUV.

The dilemma caused by Chavez’s illness and absence is helping to exacerbate these tensions. One question being asked is: did el Comandante approve this attack on the people’s living standards? No one knows because no one knows precisely what Chavez’s health is like, nor what role he is playing, if any, in the governing of the country of which he is still the elected President. Although a welcome boost to morale, Chavez’s recent return to Venezuela to continue his treatment in a military hospital does little to address these questions

In an attempt to cauterize some of the wounds, the government has announced pay increases and made assurances that the price of basic goods won’t be affected. The opposition, relentlessly opportunistic to the last, has mocked the government, labeling the measure ‘red austerity’. They have claimed similarities, quite fallaciously, between this measure and the dreaded era of IMF-imposed ‘structural adjustment’. Of course, the move directly favours the opposition’s social base, which is why the right’s candidates called for devaluation consistently during last year’s election.

Whatever the government’s intentions, the move is a blunder, one symbolic of more serious problems in the revolution. It has aided the opposition’s efforts to destabilise the political situation and create an air of crisis that is to its own benefit. Their aim is to delegitimize the people standing in for Chavez, particularly vice-President Nicolas Maduro. Provoking public divisions within the revolutionary movement with measures like these can only reinforce those attempts. Only a strategy of resting significant economic power from the oligarchy, which the government has so far been reluctant to do, can prevent future setbacks of this kind.


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  1. George Gunn says:

    What we in Scotland have to understand is that Venezuela is a small country which is energy rich but with a long history of colonialism and it is under tremendous pressure for daring to become independent from both its huge neighbour, the US, and the vested financial interests which control companies, property and ,money within Venezuela. This is mirrored in Scotland. We in our emerging situation should both support the Venezuelan people and learn from their experience.

    1. George – I agree that we can learn something from Venezuela, but I wouldn’t make the comparison in quite the way you have. I don’t accept that Scotland has a long history of ‘colonialism’ – unless you mean, which I don’t think you do, that Scotland has a long history of *inflicting* colonial power on people as part of the British Empire. Scotland has a much higher level of development that Venezuela, less inequality (although obviously too much), and so on, that makes direct economic comparisons difficult. I think you’re right however that we can learn from Venezuela both positive and negative lessons about how to democratise oil funds.

  2. Tom Potter says:

    We should have democratic economy where all contribute and have a say, not this nonsense.

  3. George Gunn says:

    Calum, aye Scotland is not like Venezuela in many ways but you would have to have lived in the Highlands for a few years to understand what colonialism means here. I remember a few years ago when the Venezuelan government took huge cattle ranches off absent landlords – one of them was the Vesty family – and gave the land to landless peasants The same Vesty family own thousands of acres in North West Sutherland and the only way we, the peasants, can get it off them is through the unsatisfactory half way house of community buy out where we, the people, give them, the landlords,millions of pounds to get our own land back. Seems to me we have a lot to learn from Venezuela. It’s good that you are writing about the country especially at this crucial time as the forces of reaction see a chink of opportunity now that Chavez is ill The rest of South America, the ordinary people of the continent, need Venezuela to remain democratic, vibrant and to spread the practise of social justice and wealth redistribution. We need that here as well

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