Venezuela: economic crisis worsens – which way forward?

The economic situation facing the masses in Venezuela has suffered a sharp turn for the worse over the Christmas period. The problems that already existed have worsened, with prices spiralling out of control, a further collapse of the transport system and an aggravation of scarcity (of food, fuel and cash). This has led to scattered protests and incidents of looting.

The election of the National Constituent Assembly in July last year raised hopes amongst the Bolivarian masses of action to solve the economic problems facing working people. They have been sorely disappointed. Laws, projects and grand-sounding announcements have followed one after another while the situation of the ground only gets worse.

Protests and looting

The government and the PSUV leadership had made all sorts of promises (distribution of CLAP food parcels, special Christmas food deliveries and so forth) in order to guarantee the turnout at the municipal elections on 10 December, but many of these were not fulfilled. Fed up with the situation, protests started before Christmas with several small-scale gatherings in neighbourhoods up and down the country. People spontaneously came out to protest transport fare hikes, lack of food, electricity blackouts, scarcity of fuel and such. Protests intensified in the last week of the year and in some cases there were incidents of attempted looting. People were protesting at the fact that the promised CLAP government subsidised food parcels and the traditional Christmas ‘pernil’ (ham) were not being delivered. It needs to be underlined that these protests took place mainly in chavista areas and had nothing to do with the right-wing opposition. They affected states like Aragua, Nueva Esparta, Bolívar, Anzoátegui, Portuguesa, Guárico, Aragua, Táchira and the capital Caracas.

With the new year, the situation deteriorated and there were actual instances of looting of food warehouses and supermarkets and assaults of food transport lorries. In Cagua, Aragua, locals established road blockades and requisitioned food from passing trucks. There were incidents of looting in at least six states, as well as other forms of protests, all of them related to the lack of food and scarcity of other basic products.

Crisis de Venezuela Foto Lucha de ClasesThe situation in Venezuela is critical / Image: Lucha de Clases

The worst incidents took place in rural areas along the Panamerican road, in the north of Merida on 11-12 January. Here, in a number of towns there were incidents of looting of supermarkets, assaults on lorries and in one instance hundreds of people broke into a farm, killing and taking away over 100 cattle. In the incidents, four people were shot dead and 15 were injured. The circumstances of these events are unclear and according to some reports heavily armed men (perhaps paramilitaries) opened fire against the looters in Arapuey.

On 16 January, a lorry transporting live chickens was caught in a road blockade in Villa de Cura, Aragua. Locals came out and looted the lorry, taking away the chickens. On 18 January a fishing boat full of sardines was looted before it could reach the shore in Margarita island.

Clearly in any situation of spontaneous protests and looting, criminal elements tend to get involved for their own reasons. There have been instances in which liquor stores have been looted and others in which the motive was clearly not the desperate search for food. However, what is significant about these protests and incidents is that they have taken place overwhelmingly in poor and working-class areas that traditionally support the Bolivarian Revolution and they have been motivated by genuine grievances and lack of food. These are desperate expressions of the anger of ordinary working people and the poor. The opposition has quickly criticised looting and come out with a clear line of defending private property.

The defeat of the opposition’s violent attempt to overthrow the government in March-July 2017 and the subsequent ebb in the counter-revolutionary movement, has probably encouraged the people to protest more openly as there is no danger of being lumped in with the reactionary opposition they hate.

Price increases

The sharp price increases over the new year played a major role in triggering many of these protests and have become the main problem working people are facing. Just to give a few examples: maize flour has risen from 15,000 Bs per kilo in October to 60,000; the price of 500 grams of margarine has gone from 65,000Bs in December to 120,000 in January; a kilo of meat which was 26,000Bs in September is now sold for 280,000 Bs; chicken was sold at 25,000Bs per kilo in october, 85,000Bs per kilo in December and is now 180,000Bs per kilo.

Many of these sharp increases in prices took place as the government announced a further increase of the minimum wage. The minimum wage was 177,000 Bs plus food tickets worth 279,000 Bs for a total of 456,000Bs and it increased to 248,000Bs plus food tickets worth 549,000 Bs for a total of 797,000 Bs. But the frequent wage increases (seven in 12 months) are immediately cancelled by inflation. In this particular instance, supermarkets withdrew their products as the wage increase was announced only to then release them, at double their price, once it had come into effect. (All the information on price increases taken from this statement from the Class Struggle Marxist Tendency in Venezuela).

On top of the wage increase, the government announced a series of special benefits or bonuses, to be paid on Christmas, the new year and the Nativity, benefiting around 8 million families. In his new year’s speech to the constituent assembly, president Maduro announced another set of benefits, including a family benefit for 4 million families (from 320,000 Bs for a family of 2, to 1 million Bs for a family of 6) and a new pregnancy benefit of 700,000 per month.

The problem with these measures is twofold, one is that they do not address the main problem of supply and production and the second is that they are financed by printing of money, which in turn fuels inflation.

The increase in money supply has reached unprecedented levels. Between the 10 December municipal elections and the end of the year the M2 measure of money supply went up by 26 percent; between the 15 October regional elections and the end of the year by 163 percent; between the Constituent Assembly and the end of the year by 466 percent; and for the whole year 2017 money supply increased by a whopping 1,121 percent (source: Venezuelan Central Bank)! Despite protestation by pro-government economists it is clear that the massive expansion of the money supply in a context of sharp economic contraction is a major factor in the current hyperinflation spiral.

The reasons for scarcity

At the same time the supply of products in the Venezuelan market has been negatively affected by a series of factors. Among them is the collapse in the Venezuelan economy for four consecutive years. According to official figures, GDP growth was -3.9 percent in 2014; -6.2 percent in 2015; and -16.5 percent in 2016 (source: Venezuelan Government report to the US SEC) Though there are no official figures for 2017 yet, the CEPAL estimates the figure at -9.5 percent. That would mean an accumulated contraction of the economy of nearly one third since 2014.

The main factor in this economic collapse is of course the steep fall in the price of oil, from around 100 US$ per barrel in 2013, down to a low average of 35US$ a barrel in 2016. There has been a slight recovery in 2017 (average of 46 US$ and end of year figure of 56 US$), but this has been countered by a fall in production mainly due to lack of funds for investing in maintenance and renewal of equipment (as well as open sabotage and corruption). Venezuelan oil production has collapsed from over 2.8 million barrels per day to a low of 1.6 million in december 2017. In a country where 96 percent of hard currency income comes from oil exports, this has had a huge impact on public finances and the ability of the country to import food and other basic products.

President Nicolas Maduro Image HugoshiPresident Nicolas Maduro / Image: Hugoshi

Foreign currency reserves have been depleted as a result, from 30bn US$ in 2012, to 22bn in 2014 and less than 10bn now. The country’s imports have consequently collapsed, from a total value of 57bn US$ in 2013, to 47bn in 2014, 33bn in 2015 and 16bn in 2016. (Source: Venezuelan Government report to the US SEC)  Figures for 2017 are not yet published but we can expect an additional fall. Meanwhile, the diminishing income in hard currency has been used by the government to punctually pay its massive foreign debt obligations. In a speech on 8 January in which president Maduro made a balance-sheet of 2017, he explained that the country had paid 74bn US$ in foreign debt.

This is of course a major factor in creating scarcity and scarcity is in turn a major factor in making smuggling, racketeering, black marketeering and the wholesale corruption, which feeds into these activities, an extremely lucrative proposition. Corruption, the black market and contraband involves government officials, capitalists and military officers embedded in the state and state-owned companies at all levels. The obscene enrichment of these unscrupulous individuals adds to the rage of ordinary working people who have to suffer the consequences of scarcity.

Faced with a collapse in oil revenue the government has resorted to financing the government deficit by printing money. According to official figures, government deficit was 8.8 percent of GDP in 2014, 10.3 percent of GDP in 2015 and a massive 17 percent of GDP in 2016. In these years money supply has increased by 64 percent in 2014, by 100 percent in 2015, 158 percent in 2016 and a record breaking 1,121 percent in 2017. (Source: Venezuelan Government report to the US SEC)

On top of all these problems, in the last year the US has been turning the heat up on the Venezuelan economy with targeted sanctions, which mainly affect the ability of the government to contract further debt and renegotiate existing debt, as well the ability of foreign companies to pay money to the Venezuelan government. The aim is to asphyxiate the government into submission.

The scarcity of hard currency has made dollars into a valuable commodity, subject to speculation. The official system by which the government allocates dollars to importers at a preferential rate has become a system for an extremely lucrative form of flight of capital. Importers (in cahoots with government officials) were being given dollars at 10Bs at a time when the black market was paying up to 10,000 Bs per dollar. Of course, instead of being used for importing, the preferential government-subsidised dollars made their way into the black market or were directly taken out of the country. According to some calculations, 300 billion dollars were siphoned off in this way over a 15 year period by capitalists, fake businessmen and corrupt government officials.

That system has all but collapsed but not been replaced by any other. Last year the government organised auctions of dollars through the DICOM system, where the exchange rate reached 10,000 Bs per dollar, but by then the black market was paying 23,000Bs per dollar. DICOM was closed down in September as the government was unable to allocate any more money to it. The black market for the dollar has since jumped to over 200,000Bs.

While the government insists that the black market price is manipulated, fixed by those who are intent on ruining the Venezuelan economy through the Dollar Today website, what is clear is that unless there was a demand for dollars at that price no amount of market manipulation would make people accept it. What we have is a massive devaluation of the Bolivar, which is of course the flip side of inflation. This, in turn, aggravates the problem of inflation in a country which imports many of the goods it consumes.

Petrocedeño workers Image public domainPetrocedeño workers / Image: public domain

On top of all of these problems, the economic crisis has had a negative impact on a whole series of sectors, from public transport to healthcare. The combination of all of these factors and the persistence of the economic crisis has led to a significant flow of migrants from Venezuela to other Latin American countries, to Europe and the US. This, of course, mainly affects middle-class layers, professionals, and those with enough money to pay for a flight and move abroad.

Contrary to what the capitalist media says, the Venezuelan economic crisis has nothing to do with the ‘failure of socialism’. In fact, the opposite is true. Back in 2003, president Chavez introduced a series of measures aimed at regulating capitalism in the aftermath of the extremely damaging oil lockout organised by the reactionary opposition and big business. Foreign exchange and price controls were introduced in an attempt to prevent the flight of capital and defend working-class families from inflation and speculation. In addition, the government introduced a ban on layoffs. The problem is that capitalism cannot be regulated. Capitalists found different ways, legal and illegal, to go around these controls.

While the government had plenty of funds, the negative impact of these controls was not really apparent. The government could use the hard currency revenue from oil exports to import food and guarantee the supply of subsidised food for the workers and the poor. As soon as the price of oil collapsed, the government could no longer afford to do so. If the capitalists refuse to produce food products, which they will have to sell at regulated prices, and the government cannot afford to import food to sell it at those regulated prices, and you end up with scarcity.

What has failed in Venezuela is not socialism, but rather, the attempt to regulate capitalism in order to make it work in the interests of working people. There are only two solutions to this crisis. One is to lift all controls and allow the capitalist economy to work ‘normally’; that is, in the interest of private profit. That would be an unmitigated disaster for the workers and the poor. It would bring food to the supermarket shelves, but at prices which no one would be able to afford. It would also lead to mass layoffs in the public and private sector.

The policy of the government so far has been a combination of concessions to the private sector (regulated prices have been all but abolished and now they are to be replaced with ‘agreed prices’), with printing money on a massive scale to subsidise wage increases and targeted food subsidies (through the CLAP food parcels). This policy does not solve the problem for the working class, which sees its income eaten away by inflation, but does not satisfy the capitalist class either, who demands a complete lifting of all regulations to restart production.

Political impact

The economic crisis, and above all the inability of the government to address it, despite constant and repeated grandiose announcements, has had a severe impact on the support for the Bolivarian Revolution. This is what led to the defeat in the national assembly elections in December 2015. The significant feature of 2017 was that, under the whip of counter-revolution, the revolutionary spirit of the masses was revived, particularly expressing itself in a massive turn out at the Constituent Assembly elections.

A hard core of people, around 30 percent of the population, remain loyal to the revolutionary spirit of chavismo. The violent opposition campaign of the first half of 2017 did not manage to win over the working class and poor to their side. With a very healthy class instinct, the masses knew that the coming to power of the reactionary pro-imperialist opposition would not solve their most pressing problems of scarcity.

The bureaucracy in the PSUV and the state drew the wrong conclusion from that. They thought that the support of the masses was guaranteed and proceeded to mobilise them in two additional election campaigns, for regional governors in October and local councils in December. In the meantime, none of the main problems facing the masses were addressed. Rampant corruption, rising inflation and scarcity continued unabated.

The unrest has occurred in areas that traditionally supported Hugo Chávez and the Bolivarian Revolution Image Dilma RousseffThe unrest has occurred in areas that traditionally supported Hugo Chávez and the Bolivarian Revolution / Image: Dilma Rousseff

By the October and December elections here was already an undercurrent of opposition and criticism against the leadership for having, once again, failed to deliver on the question of addressing the economic crisis. The PSUV officials however pushed through these elections by using clientelar methods, where PSUV candidates promised CLAP food parcels and other subsidies in order to mobilise the vote. These practices are repugnant to revolutionary activists as they are exactly the same ones Acción Democratica used in the Fourth Republic to buy votes.

Furthermore, in the municipal elections, the PSUV party and state apparatus used undemocratic methods to stave off the challenge of a number of left wing Bolivarian candidates who were standing against the official candidates. This was done in a number of isolated cases, but it had a profound impact on the revolutionary vanguard who was involved in these campaigns, in Caracas and half-a-dozen of other local councils (mainly in rural areas).

Increasingly, the leaders of the party are seen as callous bureaucrats who are only interested in staying in power for the sake of it, and furthermore, who are unable to solve any of the problems the masses are facing. This is also playing a part in the current wave of spontaneous protests.

While the masses are suffering the impact of the crisis, the government is engaged in talks with the reactionary opposition in the Dominican Republic. Many wonder, why should the government be talking to those terrorists instead of entering into a dialogue with workers, peasants and the poor? Many fear a new edition of the infamous Punto Fijo pact of 1958, which was an elite agreement to share power.

Angel Prado a Bolivarian candidate who ran against the PSUV in the municipal elections Image Green LeftAngel Prado: a Bolivarian candidate who ran against the PSUV in the municipal elections / Image: Green Left

The discussions in the Dominican Republic are centered around a number of questions. One is the recognition of the Constituent Assembly by the opposition in exchange for the recognition of the legitimacy of the National Assembly by the government. The other is the conditions in which the 2018 presidential elections will take place and the composition of the National Electoral Council which is going to oversee them.

It is not clear whether an agreement will be reached. The government has been courting a section of the opposition (Manuel Rosales’ Un Nuevo Tiempo). Others, like Ramos Allup’s Acción Democrática, are so desperate to share in political power that they might be also brought in. Others are completely opposed to any deals with the government and favour the violent overthrow of the ‘dictatorship’, particularly those around Maria Corina Machado. In between the two wings are the rest of the MUD (United Democratic Roundtable): parties that vacillate between one position and the other. In reality, for most of the political leaders of the reactionary opposition this is not a question of principles, but rather a tactical one. They want to remove the Maduro government and take power, if they think they are strong enough to do it by force (through  terrorist methods, imperialist intervention, a military coup) they will go down that road. Right now, as they are weak, divided and their ranks are demoralised from last year’s defeats, they will probably tend to favour some sort of deal with the government in the hope of defeating Maduro in an election. If they see that avenue blocked, they will not hesitate in going back to street violence and terrorism.

Meanwhile, another section of the ruling class is campaigning for businessman Lorenzo Mendoza, the owner of food distribution monopoly Grupo Polar, to stand in this year’s presidential election. He would be a Macron-like candidate, standing on the pretence of representing ‘the centre’, putting forward his ‘business experience’ as an asset and giving the appearance of a ‘non-party political’ ‘cross-section’ solution to the problems of society. A candidate like that, not tainted with the violent opposition campaign last year, could win over a section of those standing in the middle ground and even a section of the discontented chavistas, they hope.

Workers struggle

Significantly, in the last few weeks we have seen a few indications of a revival of the workers’ struggle. On 9 November, a group of workers and trade union representatives occupied the premises of the Ministry of Labour demanding a solution to the problems they are facing. In January we have see workers at nationalised cement plant Vencemos in Anzoategui take to the streets to protest about the semi-paralysation of the plant, fearful for the future of their jobs. Even more significant was a protest by oil workers at the Petrocedeño joint venture (PDVSA-TOTAL-Statoil) demanding an end of year bonus as they cannot survive with their wages. These oil workers stressed that they had nothing to do with the guarimberos (opposition rioters) and that they did not intend to paralyse production (an action that could seriously damage the economy and which brings echos of the 2002 opposition-inspired oil lockout).

These are so far only a few isolated instances, but they are very symptomatic of the general mood in society and how it impacts the working class. Workers and the poor are suffering the most from the economic collapse. They clearly do not want the reactionary opposition to come to power, but are being pushed into a struggle to defend their livelihoods.

The situation is highly flammable and the spontaneous protests we have seen at the beginning of the year could become bigger and turn into more widespread looting. Only the organised working class can provide a channel for these moods of anger and discontent.

Which way forward?

As Marxists we have explained that we can give no support to the policies of this government. Ever since it came to power it has taken no serious measures to tackle the economic crisis. It has insisted in making ever-more-partial concessions to the capitalists (lifting price controls, the new foreign investment law and so forth), which have had no real impact.

Of course, we must also be clear on one point. If the reactionary opposition came to power that would be a major disaster for the working class and the poor. They would unload the full burden of the crisis on the working class, destroying any safeguards and rights that still exist. Instead of printing money to finance the deficit, they would implement massive cuts in public spending, destroying what remains of the Bolivarian social programs (misiones). They would immediately lift the law against layoffs and would implement massive sackings of workers in the public and private sector. They would put an end to the CLAP-subsidised food parcels, plunging millions of families from a very difficult situation straight into starvation. Furthermore, from the point of view of democratic freedoms, they would start a witch-hunt against Bolivarian activists and their organisations, destroying any elements that still survive of the Communes, the workers’ councils and workers’ control.

The government of Maduro and the leadership of the PSUV have proven completely incapable of changing course. The bureaucrats at the top of the PSUV and the state seem only interested in one thing: staying in power. The workers, the poor and the peasants can only trust their own forces.

The workers organisations and the Bolivarian revolutionary left currents have a responsibility of putting forward a program which offers a genuine solution to the economic crisis, a program that will be in contradiction with the government’s policies, but which will also fundamentally reject the opposition’s plans.

Such a program would include at least the following main points:

  • State monopoly on foreign trade, so that no more dollars are handed over to the bourgeoisie.
  • A worker’s audit of preferential dollar allocations over the last 15 years. Confiscation of properties and jail for all those involved in theft and mismanagement (capitalists and bureaucrats).
  • Nationalisation and centralisation of banking and insurance companies so that all their resources are put at the service of a rational plan of production, under democratic workers’ control.
  • Nationalisation under workers’ control of all companies involved in hoarding, speculation and the black market.
  • Expropriation of all landed states to be taken over by peasants organised in communes. Peasant communes to be given credit for the purchase of seeds, fertilizers, machinery and so forth.
  • Nationalisation of all food production, processing and distribution companies under the democratic control of peasant communes, workers and consumers.
  • Revolutionary provisioning committees in every neighbourhood with powers to control and organise the distribution of food on the basis of need.
  • Suspension of all payments of the foreign debt. Imports of basic food and medicines to be prioritised.
  • All power to the working class and the organised people. Down with bureaucracy.
  • Internationalist appeal to the workers and peasants in Latin America and the world to come to the aid and defence of the Venezuelan revolution against imperialist intervention.