However, this third devaluation, as the previous two, could be the price President Chávez was willing to pay to cling to power. The bolivar?s weakness is the result of the way the government financed public-spending growth, but spending may also have contributed to maintaining GDP growth between 2003 and 2008, to increasing employment, reducing poverty and inequality in the distribution of revenues and improving the values of the country?s Development Index, particularly in its income per capita component. Although these results were obtained on a fragile basis, increasingly dependent on oil revenues, they may have had a decisive influence on crucial electoral triumphs of Chavismo in the last few years.
The President admitted at a top level workshop held in November 2004 that the first elections in which he participated (and won), in December 1998, constituted a ?tactical window? open for taking power, which he could not access through armed uprising. Although the so-called 21st-century Socialism did not feature in the President?s discourse until January 2005, most of his policies were previewed in written documents of the Bolivarian Revolutionary Movement 200 (Movimiento Bolivariano Revolucionario, MBR-200), a civic-military group that engineered the coup in February 1992. One of these documents, the draft manifesto of MBR-200 (Proyecto de Declaración Programático del MBR-200), was re-published by the Ministry of Communication and Information in 2007, the year of the proposed constitutional reform. This document states the purpose of maintaining the economy subject to central planning, namely to achieve a ?varied, mixed economy, with three sectors in which the proportion of each one of them or their weighting would be altered in line with the nature, strategic importance and role of each area [using] specific economic policy measures to make it viable?. The State would be in charge of the first sector: the basic industries, including oil, gas and petrochemicals. This is where industrialisation and diversification of exports would focus. There would be a private sector, since in the society to be built ?the subsistence of the bourgeoisie within the social set is assumed?. Monopolies would have been dissolved or controlled from within, by incorporating State and workers? representatives to their executive boards. Foreign capital would be accepted only when it was ?unavoidable?. The third sector would be created by the State: the cooperative sector, ?in which the workers of the area will be a dynamic factor?. The private and cooperative sectors would be in charge of the manufacturing industries that ?would work for the internal market, except for very clearly identified exceptions?, and the aim is that ?the State and cooperative sector combined have majority weighting, decisive in the country?s industrial economy?.
The creation of an economy such as the one described would imply the destruction of the existing one. This is how the Statement of Motives of the presidential proposal for constitutional reform was put in 2007: ?The proposed 21st-century socialism must be seen as a process both of destruction and construction: a process of destruction of the elements of the old society that still linger (including those on which is based the logic of capital), in order to promote the ideal of establishing new relations of human co-existence based on fairness, social justice and solidarity? The substantive modification of production relations and, in particular, it is worth highlighting the permanent conflict regarding the private appropriation of work, under the premise of control by private capital of the means of production. Accordingly, in the definition of ownership of means of production it is a core element for designing a new productive model?.
Consequently, when the President asserted that the devaluation had ?various objectives: to give renewed momentum to the productive economy [?], to slow down imports that are not strictly necessary and also to stimulate export policy? it was clear that he did not plan to favour the owners of the means of production.
Conclusion: The devaluation will enable the government to significantly increase its fiscal revenues, nine-months ahead of parliamentary elections. With them, the government will try to ease the effects on the fiscal accounts of oil price volatility, accentuated by the worldwide financial crisis. Although the government has announced its intention of promoting exports and substituting imports, these objectives appear to be out of reach for various reasons. Keeping controlled exchange rates at pre-devaluation levels (which were insufficient in some cases) and the threat of expropriating businesses, in some cases already carried through, has hampered and discouraged private productive activity in the middle of a recession that began in the second quarter of 2009. Non-oil public companies are being adversely affected by the delays in the necessary public funding. This is the case of electricity generation and the operating problems of base mineral and metal companies in Guyana. Furthermore, the ?socialist? project has been described as one of ?endogenous development?, in which communities organised as ?communes? receive government machinery in order to produce for their communities. The scant technology and small scale of the communal companies make it impossible for them to compete with foreign production.
Furthermore, the use of revenues obtained from the devaluation, the currency exchange profits that this generates for the BCV, the PDVSA and FONDEN funds and the possible increases in oil prices will give rise to a new cycle of expansion in spending and the monetary base, inflation, real currency appreciation, widening of the exchange spread and growth of the non-tradable sector at the expense of the tradable, paving the way for later devaluations and for an increase in 2010 inflation initially estimated at 35%-40%, depending on the pace of growth in public spending and monetary liquidity.
In a context such as the current one, liable to corruption and in which all decisions hinge on the President?s own interests, the deterioration of the institutions in Venezuela will very likely continue in the quest for a non-viable development model. However, social discontent and the negative outlook on the country?s economic situation will no doubt be reflected in national political opinion, giving the Venezuelan opposition the chance to gain political clout following the parliamentary elections of September 2010.
Ronald Balza Guanipa
Professor of Micro-Economics at the Andrés Bello Catholic University and the Central University of Venezuela