Will Venezuela’s New Floating Exchange Rate Curb Inflation?
Mark Weisbrot: New exchange rate is intended to safeguard the importation of essential and primary goods
SHARMINI PERIES, EXEC. PRODUCER, STRATEGIC PLANNING, TRNN: This is The Real News Network. I’m Sharmini Peries, coming to you from Baltimore.
Since Venezuela exports petroleum and petroleum byproducts and imports most of what it needs, the exchange rate is crucial for economic stability. Food scarcity and inflation has been cited among the reasons why there is ongoing protests in Venezuela.
Hoping to quell some of this protest, last week the Bank of Venezuela introduced another exchange system, Sicad II, hoping to take control of inflation and scarcity of essential goods.
To discuss all this and more is our guest, Mark Weisbrot, who recently returned from Venezuela. Mark Weisbrot is an economist and codirector of the Center for Economic and Policy Research in Washington, D.C.
MARK WEISBROT, ECONOMIST AND CEPR CODIRECTOR: Thanks, Sharmini.
PERIES: Mark, what do you take of the recent protests that are going on in Venezuela?
WEISBROT: Well, I think the protests from the beginning have been very politically driven. I know that, you know, most of the press reports say they’re driven by inflation and shortages and other issues, but these issues have really been the same since December, and in December, of course, the government party won by a large margin in national, nationwide municipal elections. So nothing really changed between December and February, when these protests started.
But I think what really changed was, you know, the hard-right of the opposition decided they didn’t want to wait until next year’s parliamentary elections to get rid of the government. So that’s been the call from the beginning of these protests, to get out in the streets and get rid of the government.
PERIES: Will the new exchange rate system that was just introduced last week by the Bank of Venezuela make a difference?
WEISBROT: Yes, I think it will. I mean, it already has made some difference. It’s brought down the black market dollar, at least since its peak. You know, the dollar is sold–there are dollars bought and sold on the black market that peaked at, you know, around 88, actually, per–88 of the domestic currency, bolívares fuertes, per dollar. And that is–it’s about 70 now. And so–and it bounces around some.
But then, of course, the government has introduced a new exchange rate, which is kind of a market-determined exchange rate, and anybody can get dollars there legally. Some people will still go to the black market because they don’t want a record of their transaction. Either they’re avoiding taxes or it’s illegal or whatever reason. But they now can get–people can now get dollars on this legal market from private banks and brokers for the first time in four years.
PERIES: Why is this exchange rate system different from the others? And who benefits from this system?
WEISBROT: Well, there are still two other systems in play. One is a–they’re both controlled rates, subsidized rates that are much lower. It’s 6.3 per dollar in one of the exchange rates, and that is, you know, for priorities–food and medicine, things like that, and also for, you know, some other goods that the government determines to be strategic. And then there’s another rate, which is called Sicad I, or Sicad. It’s the first Sicad system. And that’s around 11 or 12 per dollar. And that again is also limited.
But this one–Sicad II, it’s called–is open to everyone. And I think the advantage of this is it undercuts the black market. It gives people a legal place to get dollars. And, you know, the black market is a unregulated kind of speculative place. And so it contributes to inflation, for example, when there are shortages of dollars for whatever reason and/or there’s just–speculation drives it up. So this will be a more normally functioning market, and I think it should contribute to reducing some of the scarcities, and also bringing down inflation.
PERIES: Mark, why is there this multi-tiered system of foreign exchange and currency controls in Venezuela?
WEISBROT: Well, that’s been government policy. I mean, I think, you know, it’s evolved over the years. They’d had this fixed exchange rate with periodic devaluations. And so they’ve, instead of just devaluing altogether and having a unified exchange rate, they chose to use this system in order to subsidize certain goods. Basically, I think that’s the main reason.
PERIES: And subsidize what goods and how?
WEISBROT: Well, it’s mostly, like I said, food and medicine, but other goods that the government considers to be strategic.
So this is the first, I think, step in recent years towards a more market-determined exchange rate. And I think it is–for that reason I think it’s better because, you know, historically systems of fixed exchange rates with periodic devaluations tend to invite speculation and they tend to be unstable compared to, say, just a managed floating exchange rate, which is what most of the countries in South America have.
PERIES: Right. So some economists and some of the opposition is complaining that this will actually have adverse effects on the poor and people who are struggling to, you know, buy necessary goods and food on a day-to-day basis. Is that so?
WEISBROT: I don’t think so, because I think that you already had a lot of prices that are being determined, the ones that are not controlled being determined by the black market rate. And so I don’t see that this will increase inflation.
Also, I guess, today–I’m just seeing the news today about the government has introduced a system of ration cards which is voluntary, but it allows people to get a certain amount of goods, you know, at subsidized rates, which they’re already getting through other programs as well.
PERIES: Such as?
WEISBROT: This is mostly for food and essential goods.
PERIES: And what are the other subsidized programs that the poor has access to?
WEISBROT: Well, there’s a state–you know, there’s a distribution–the Mercal system of food as well. So the problem is that there have been scarcities. And a lot of these scarcities are due to people–for instance, the government estimates that 30 to 40 percent of the foods that they have are actually lost–imported foods–lost across the Colombian border. People take them and sell them. And so this system of the cards that they’re having is to regulate that, to make sure that people can only buy a certain amount [incompr.] buy large quantities and take them across the border.
PERIES: Right. Do you expect that this will quell some of the protests that are taking place?
WEISBROT: Well, I don’t think–as I said, I don’t think the protests are that related to the economic conditions, because, you know, if you look at it again, you know, you can see that protests are confined to about 18 out of 335 municipalities, the richest areas. When I was in Caracas [incompr.] could see where the protests are. They’re the richest areas. And the people most affected by the shortages have been–or even the inflation, for that matter, have been the working class and poor people, and they’re very decidedly not part of these protests. And, in fact, the majority, if you look at any of the opinion polls, the vast majority of the country is against the protests. So it’s a minority faction. And most of the protests are very, very small.
There’s been some large peaceful marches, but the protests are–most of the protests are not peaceful. They’re–you know, they take place at night, they involve, you know, violence, throwing rocks and firebombs at police who try to clear the barricades or National Guard. You know, most people don’t know this, but half of the people killed in the fatalities that you hear every day were actually killed by the actions of protesters, not by security forces.
So these protests are really–they’re people who are against the government, and they’re going to be against the government no matter what happens to the economy.
But I think the sense that it is related to the scarcities is that, you know, when these people decided to launch this campaign to get rid of the government through violent protest, they were, of course, taking into account, they were hoping that the poor and working-class people would join them at some point because of the scarcities and the inflation. But that just hasn’t happened at all.
PERIES: Yet last week Assistant Secretary of State Roberta Jacobson, I believe, said that U.S. had not ruled out the possibility of imposing sanctions on Venezuela, and she’s making all of this based on the protests that are going on. And if this actually happens, will these type of sanctions make the situation–at least the economic situation–in Venezuela worse?
WEISBROT: Well, not the sanctions they’ve been talking about. The sanctions they’ve been talking about are pretty targeted just towards some individuals that they would select in the government or associated with the government. I don’t think they’re talking about any kind of economic sanctions that would affect the economy. So I don’t think that would make much difference even if they did it, although it is–you know, it’s–where they really have their role is the United States gives support to the opposition and to the idea of overthrowing a government by taking this kind of aggressive posture. And that does have an impact. I mean, that’s what gives them a lot of encouragement. You know, you can see that from–like, in April, for example, when they had the presidential elections and John Kerry refused to recognize the results of the election. And he was the only government in the world other than Spain that took that position. And then he was forced to back off. And they had violent protests then, too, trying to overturn the results of the election in April. And as soon as the U.S. government recognized, implicitly recognized the results of the election, that was the end of those protests. So I think, again, you know, because the U.S. has–government has so much influence, especially on the international media, and by extension the Venezuelan media, it really does give support to this strategy of regime change and not waiting–not working through the electoral process.
PERIES: Is it a bit premature for the U.S. to be talking about sanctions on Venezuela while the Community of Latin American and Caribbean States leaders just recently, you know, gave a great deal of, you know, verbal support to Venezuelan government and the presidency of Nicolás Maduro?
WEISBROT: Well, yeah, there’s no doubt that the United States is completely isolated in this hemisphere on Venezuela, just as the Bush administration was, and probably even more. You know, last month they went to–Washington went to the Organization of American States and tried to get the OAS to intervene in some way in Venezuela by a vote of 29 to three, with just the U.S. having the right-wing government of–Canada and Panama governments. They actually–the OAS turned it around, turned the resolution around completely and expressed their solidarity with the government of Venezuela. So it was a huge diplomatic defeat, and it shows how completely isolated they are.
I mean, these governments see it completely differently. You know, if you look at the statements not only from the OAS resolution but from UNASUR (the Union of South American Nations), MERCOSUR (the trading bloc in Southern America), you know, they all see it as really an attempt to overthrow a democratically elected government, that is, the buildup to a coup. And that is how these governments all see it. And the–you know, they don’t see it like the Brazilian protests last year, where people went to the streets ’cause they had grievances against the government. They had specific grievances on the Chilean student protests from 2011 to 2013. You know, those were all organized around demands. In that case it was greater access to education. This is just we want to get rid of the government that was elected, and we haven’t been able to win an election for 15 years. They’ve lost 18 elections, the opposition has, and that’s what this is really organized around.
PERIES: In spite of what the opposition is saying or how the media is covering Venezuela, there are some real issues on the ground in terms of affordability and availability of food that is affecting ordinary people. And until government actually begins to address those issues specifically, they may not be able to quell some of the, I know, sometimes radical protests that are going on, organized by a minority of the opposition, even.
WEISBROT: Yeah, well, I definitely think that they do have to do something about the economy. I’m not trying to minimize those problems. I do think–you know, the inflation has stabilized in the last few months. It’s actually come down some. And I think the new exchange rate system will help. But they do have to take care of the shortages. And I think they will. But, again, I don’t think it’s the driving force in these protests. Otherwise, you would see the people who are really most hurt by the shortages supporting the protests, and they really don’t.
PERIES: Alright. Mark, thank you very much for joining us today, and we’ll keep an eye on what’s going on in Venezuela and keep up with our reports.
WEISBROT: Okay. Thank you.
PERIES: Thank you for joining us on The Real News Network.
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