Decreeing Venezuela’s downward economic spiral

A week ago on Wednesday, the Venezuelan National Assembly gave President Nicolás Maduro controversial new powers to rule by decree for one year, without having to consult the country’s parliament. The so-called ‘Enabling Act’ was passed by one vote, after a deputy who had defected to the opposition was forced to vacate her seat and was replaced by a government loyalist. Mr Maduro says the act will enable him and his administration to step up their “economic war” to deal with Venezuela’s increasing economic difficulties and bring the country back to growth, as well as fight corruption – in the private sector, that is.

This is not a new ploy; the late President Hugo Chávez resorted to Enabling Acts four times during his 14 years in power, and the opposition is already crying foul, accusing Mr Maduro of planning to use his near dictatorial powers to suppress its activities, especially with local government elections due on December 8.

Ever since he succeeded Mr Chávez in April, Mr Maduro has been blaming the “oligarchy” – the opposition and the business class, supposedly backed by the old bogeyman, the United States of America – for carrying out a strategy of “economic sabotage” to disrupt the economy and foment popular discontent and political instability. He has also denounced merchants for hoarding products to create artificial shortages and oblige the government to remove the price controls it had imposed to make goods more affordable for the poor.

Before the November 20 Enabling Act, the Venezuelan government had already forced retailers to slash prices by up to 60% and had imposed strict foreign currency controls. But imposing price controls has, of course, led to shortages and the attempt to combat the black market in US dollars has only served to grow the black market. The end result in the face of growing consumer demand has, quite naturally, been higher prices, contributing to a runaway inflation rate, currently estimated at 54%.

Earlier this month, in a sign of increasing desperation, Mr Maduro ordered the seizure of a chain of electronics stores and forced the company to start selling its goods at fire-sale prices, because they were allegedly overcharging consumers. More than 100 “bourgeois” businessmen were also arrested on charges of price-gouging. On November 21, the day after the passing of the Enabling Act, the Venezuelan President announced that he would decree two laws to limit retailers’ profits to 15-30% and create a central body to oversee allocations of dollars at the official rate of 6.3 bolivars. Both moves, presumably to quell voters’ concerns about the rising cost of living ahead of the local elections, are sure, however, to lead to more shortages and the continued flourishing of the black market. The attempt to control further the flow of foreign currency is, moreover, cynically expected to fuel official corruption.

For Mr Maduro, the problem rests not with Mr Chávez’s esoteric vision of “21st century socialism” and the state’s mismanagement of the economy; rather the resulting large public-sector deficit and one of the world’s highest inflation rates, not to mention shortages of basic food items and other essential goods such as toilet paper, as well as the irony of power cuts in an energy-rich country, are all due to the efforts of the private sector, “capitalist parasites,” who support the opposition, to undermine the “Bolivarian Revolution.”

Critics counter that failed socialist, state-driven economic policies and interference in the production and distribution of goods, not private enterprise, are to blame for chronic foreign currency and product shortages and soaring consumer prices. The productive sector, outside the oil industry, is suffering from a lack of foreign exchange to buy inputs, resulting in lower production, lower supply and higher inflation. Contraction in production is also leading to higher unemployment.

Venezuela appears caught in a downward economic spiral and it is difficult to understand how, in a system already characterised by mismanagement, official corruption and gross under-production, rule by fiat and populist measures and rhetoric will ameliorate the situation.

 

 

 

 

 

 

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