The international media have provided a constant fusillade of stories and editorials (not always easily distinguished from each other) about the collapse of the Venezuelan economy for some time now. Shortages of food and medicine, hours-long lines for basic goods, incomes eroded by triple-digit inflation and even food riots have dominated press reports.
The conventional wisdom has a set of predictable narratives to explain the current economic mess. "Socialism" has failed -- never mind that the vast majority of jobs created during the Hugo Chávez years were in the private sector, and that the size of the state has been much smaller than in France. The whole experiment, it is said, was a failure from the beginning.
According to this narrative, nationalizations, anti-business policies, populist overspending during the years of high oil prices and the collapse of oil prices since 2014 sealed Venezuela's fate. Adherents to this explanation say the downward spiral will continue until the chavistas are removed from power, either through elections or through a coup (most pundits don't seem to care which).
The reality is somewhat more complicated.…
Given this situation, it is clear that serious reforms are necessary in order to restart the economy. The Union of South American Nations (UNASUR) has assembled a team of economists, headed by former president of the Dominican Republic, Leonel Fernández, which has presented a set of proposals. (Full disclosure: I am one of the members of this team.)
The most obvious change that is needed is to unify the multiple exchange rate system. This should be done quickly, and in one step. The government can auction a fixed amount of dollars each day, with the price determined by supply and demand. Although allowing the currency to float seems scary to many people, the price of the dollar would undoubtedly stabilize at something considerably less than the current parallel market rate of about 1,000. A floating rate is also the only way to avoid wasting scarce foreign exchange reserves in a futile attempt to maintain an overvalued fixed rate.…
This means that the hard part of the adjustment -- the one that often requires people to reduce their living standards in order to sharply reduce imports -- has already been done. It is relative prices now that have to be adjusted in order to recover. The result is that Venezuela can return to growth rather quickly, without the prolonged recession that neoliberal adjustment normally creates.…So what are they waiting for?
Much of the left -- including people inside the government and among the base of its party, the PSUV -- rejects these economic reforms. They think it is a "paquetazo" (package) similar to International Monetary Fund (IMF) or neoliberal reforms that increased poverty in the past. They see the fixed exchange rate as socialistic and a floating exchange rate as a "free market" reform. But in reality, the informal economy for dollars constitutes one of the most destructive "free markets" that exists; it is the "capitalismo salvaje" ("savage capitalism") that Hugo Chávez used to denounce. (Chávez himself successfully floated Venezuela's currency in February 2002, and dollar reserves actually increased despite serious political instability.) And we can recall that the IMF supported fixed, overvalued exchange rates with disastrous results in Argentina, Brazil, Russia and a number of Asian countries in the last years of the 20th century.
There is nothing neoliberal about a program in which the government creates employment, protects wages from inflation (which has not happened since inflation began to skyrocket nearly four years ago), subsidizes food and essential items on a large scale, and protects people generally from the burden of the adjustment of relative prices.
Yet there are those on the left who seem to think that Venezuela can recover without fixing its most fundamental and destructive imbalances.….The problem is that the traditional left is clueless.
TruthoutVenezuela's Economic Crisis: Does It Mean That the Left Has Failed?
Mark Weisbrot | Co-director with Dean Baker of the Center for Economic and Policy Research in Washington, D.C