BUSINESSOPINION

Venezuela begins to recover from its inflation and economic collapse

By Peter Tase

The first year of government for President Nicolas Maduro is considered to have a number of measures that have radicalized the economic policy implemented during the 14 years of President Chavez’s revolution.  These measures are based on the theory of developing a new productive model that ranges from the stocks and administration plans of petroleum to the reduction of inflation and increase in the investments pertaining to social welfare, as well as assure protection of people’s salaries from devaluation.

However the economic landscape that President Maduro is currently facing has been perhaps the most difficult time in his political career.  According to the numbers that are published by major economic indicators it would appear that it is a less favorable scenario due to the sustainability of social policy reform towards which is located the majority of earnings that are obtained from petroleum sales.

Investments in social welfare and assistance projects represented 37.6 per cent of Venezuela’s National Budget, totaling 396,406 million of bolivars, according to the former minister of treasury and financial planning Mr. Jorge Giordani, the amount of 477,000 million USD, generated by petroleum exports, was awarded to social welfare projects being led by Caracas.

Nicolas Maduro came to power while facing an important annualized inflation, found at around 56.2 per cent, higher than the average of 28 percent and the fall of international reserves down to US$ 21,025 million.  Moreover, between 2012-2013 there was an exponential down fall in the real growth of the economy as the Gross Domestic Product was reduced from 5.5 percent to 1.6 percent respectively.

In 2013, investments in social welfare projects were 37,6 percent of the national budget, reaching approximately 396,406 million of bolivars.

In 2012, Venezuela was among those countries in the Latin American region, with the largest growth.  This year’s Gross Domestic Product closed at 5.5 percent including last year’s expected growth of 5 percent, which had lost four points, a situation that was attributed by President Maduro, to the economic sabotage led by the private sector and denounced by him as an “economic warfare”.

At the end of 2013 President Maduro said: “there was a tentative to generate a setback of the real economic growth.”  Due to the economic growth the GDP in 2013 reached 1.6 percent.  Venezuela’s chief of state, reiterated the impact of President Chavez’z death in the economic sphere and invited all sectors to double this year’s growth digits.

However, this is one of the realities that have been greatly criticized by local experts.  According to Venezuelan economist Jose Ramon Acosta, the economic decrease of 2013 is unjustifiable.  “All nations of the world are growing and only Venezuela is a country that not only lacks economic growth but its overall development is further deteriorating.  Every economic growth that reaches a two percent growth or lower is negative in real terms.”

While arguing in the same terms, the government applied its first measures, which are focused mainly to address the concerns of inflation that in only one year increased the prices to 36.1 percent.

According to the statistics provided by the Central Bank of Venezuela, in 2013, inflation grew by 56.2 percent, 36.1 percentage points higher than last year’s digits.  Venezuela closed the 2012 with an inflation of 20.1 percent.

Such a high index, directly affects the incomes and expenses of all Venezuelan’s who will experience a price increase of basic consumption products.  According to some economic specialists such as Jose Guerra, a university professor: “this constitutes the first economic failure of Maduro for not achieving a lower inflationary index.”

Last year the goal was to keep inflation at 12% and indeed it hiked to 56 percent and this year the government was determined to keep inflation at 24 percent and in fact is reaching 60 percent.  According to Mr. Guerra “this is a clear breakdown in the political-economic field,” who in fact is expecting that inflation will reach 65 percent by the end of 2014.

The Venezuelan economist Jose Ramon Acosta explains that inflation “is not a monetary phenomenon, to the contrary, it is manageable by controlling the liquidity size of the economy” and the principle cause of the actual high inflation index is attributed to “the excessive banknote printing during the government of President Hugo Chavez.”

In an exclusive interview for Noticias 24, Prof. Acosta expressed:  “Nicolas Maduro inherited this model and he pretended to continue doing the same, unfortunately the current situation is the consequence of his wrong actions.  This government aggravated the situation even further because it failed to take the right decisions.”

Acosta considers that the policy of controlling the prices and the implementation of a series of measures to exert pressure in some sectors of the economy is not an adequate decision and does not resolve the problem, it will further deteriorate the problem.”

Prof. Acosta explained: “the fact is that salaries which are controlled are scarce and their inflation is higher.  Controlling them is not the measure that should have been taken, this is wrong.  This is the reason as you can see, where control is exerted there is a greater shortage.  I always take as an example alcoholic beverages: there are some steep prices but there is no shortage either.”

The consideration of Prof. Acosta corresponds with the economic reality of Venezuela.  Caracas has registered the greatest inflation of the region in the last seven years even though there are heavy controls of the prices and exchange rates since more than a decade ago.

However, President Maduro attributed the actual inflation index to the effects of the “economic bubble” and added that inflation of 56.2 percent in 2013 is an “unusual digit” which represents an “induced” tax and a “speculative” product of the economic warfare.

According to the economic analysis made by critics to the government’s policies, the country was not even suffering such a strong acceleration as it occurred in the years 1995-1996 when it had reported rates reaching at 56,6 percent and 103,2 percent respectively, due to a financial crises and a national economic adjustment program that was implemented by the then president Rafael Caldera.

For Rodrigo Cabezas, an economist and a former minister of Finances, the reason of having such a high inflation index corresponds to: “Speculation, monopoly, lower agricultural production, and delay in imports, contraband in mining and extraction as well as increase of liquidity.”  He considers to be fundamental the efforts that the revolutionary government has done to invest in the benefits of growth, overcoming the excessive use of oil exploration, a model that reined for many years and caused a lack of interest to explore other productive sectors and sources of energy in the country.

For the former finance minister Mr. Cabezas, to work in the benefit of growth in other sectors is the principal factor that should be addressed.  There are two items that ought to be tackled: “the first is to invest for growth with monetary flows towards real economy; the second is to urgently suspend the contraband of extraction and mining while using every tool of the government.”

On April 15, the Venezuelan government announced that one week later it will begin a new economic offensive led by President Maduro, this program was named “Full production and supply with the right prices (PAP)”, in which he promised, it should maintain “distinct characteristics of the measure in November 2013.”

President Maduro stated that “[his government] will undertake a great offensive together with our people. There is no war in a revolution that can be won without the [Venezuelan] people.”

He spoke of the imperative commodities to “satisfy all material needs of his countrymen with Venezuela’s production of goods” and with such a production, he intends to alleviate the dependency from imports which, according to him, “have fostered a dependent culture and acts of corruption in Venezuela.”

In the same vein, President Maduro underlined the lines of action to be taken by all government actors that are responsible to regenerate and increase dynamism to the national economy, including the role of entrepreneurs, businessmen and all citizens. President Nicolas Maduro is demonstrating a leadership to find a solution to his country’s difficult economic position and bring Venezuela’s development and GDP growth back on track.  With the new ambitious series of policies that are implemented by Caracas, the Caribbean nation has great hopes and it will certainly have a more optimistic future.

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Peter Tase

Peter Tase is a contributor, freelance journalist and a research scholar of International Affairs, Paraguayan Studies, Middle East Studies and Latin American Affairs, located in the United States. Educated at the University of Wisconsin – Milwaukee and Marquette University Les Aspin Center for Government; Tase is the author of “Simultaneous Dictionary in Five Languages: Guarani, English, Italian, Albanian and Spanish” and “El Dr. FEDERICO FRANCO y Su Mandato Presidencial en la Historia del Paraguay.” He’s a frequent contributor to Foreign Policy News. His personal website is www.petertase.com

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