Venezuela: Pragmatists vs. Radicals?

Written for teleSUR English, which will launch on July 24

The publication of a highly critical document authored by one of the longest-serving ministers in former president Hugo Chavez’s government, has triggered off an unprecedented debate among Venezuela’s revolutionaries.

Jorge Giordani dropped the bombshell on June 18, a day after he was removed from the post of planning minister, one he had held almost uninterruptedly since 1999. Many view Giordani as a principal architect of the Chavez government’s economic policy and representative of a more orthodox Marxist strand within cabinet.

His removal has been portrayed as evidence of a widening rift between “pragmatists” and “radicals” in the Venezuelan government.


Giordani’s testimony

In his document entitled “Testimony and responsibility in front of history ”,

Giordani points out what he believes have been the three key achievements of the Bolivarian revolution to date, namely: the dramatic decrease in the level of poverty; the dismantlement of power relations that allowed foreign and domestic to control the state, in particular the state oil company PDVSA, and enrich themselves off the country’s oil wealth; and the creation of a public sector that now dominates key segments of the economy.

These gains however, according to Giordani, are at risk given “the new path taken following the physical disappearance of Comandante Chavez.” This change of course, combined with the impacts of the right-wing offensive and a president “who lacks an ability to project leadership”, has led to “the clear sensation of a power vacuum in the presidency, and its concentration in other centres of power, thereby destroying the work of institutions such as the Ministry of Finances and the Central Bank, and consummating the independence of PDVSA [the state oil company] from the government.”

Furthermore, Giordani argues that capitalist interests have succeeding in pushing the current Nicolas Maduro government down the “path of re-installing capitalist financial mechanisms that would facilitate [their] attempts to recapture oil wealth”. This is in reference to attempts by the Maduro government to gradually replace strict currency controls (of which Giordani has been a strong advocate), which more market-orientated mechanisms.

Although few have come out in complete support of Giordani’s statements, at least two former ministers and high profile leaders of the governing United Socialist Party of Venezuela (PSUV), as well as the Communist Party of Venezuela, have said the document raises important issues that warrant being debated by the party, government and the people.


Left versus right?

Unsurprisingly, Chavismo’s harshest critics have responded to Giordani’s letter by describing it as akin to a falling out among thieves. On the right, former presidential candidate Henrique Capriles Radonsky wrote on his blog that the letter simply “confirmed the level of corruption that exists within the government” and that the government’s handling of the economy was dictated not by the needs of the people but by “personal interests and those of a political party.”

Coming from the other side of the political spectrum, former Chavez vice-minister and leftist dissident Roland Denis wrote that Giordani’s letter was evidence he is part of “a leadership that is in conflict with itself…. Without a doubt, our friend is a typical example of the moral and political bankruptcy of a state leadership that knows full well the mess that it is in, but does not want to assume full responsibility…. he tries to appear as the person least involved in corruption, even if he let it all happen.”

Most commentators however have viewed Giordani’s sacking as the latest step in an ongoing pragmatic shift by the Maduro government.

Francisco Rodriguez, a former head of the Office of Economic and Financial Advisory of the Venezuelan National Assembly, wrote an analysis piece for Bank of America less than a week before Giordani’s removal. In it, he describes Giordani’s prior oust from the boards of the Central Bank and PDVSA as a “strong sign of the waning influence of the radical Marxist wing on economic policy issues.”  Taken together with the government’s moves towards softening currency and price controls, Rodriguez argues “a strong consolidation of the pragmatist wings control of economic decision making is occurring.”

The idea that Maduro has been gradually steering the government in a more moderate direction has also been voiced by some left sectors within Chavismo, such as Marea Socialista, a small internal current within the PSUV. Marea Socialista argued back in February that Maduro’s attempts to initiate dialogue with business sectors, and the government’s decision to the implement SICAD II (a mechanism which grants private business easier access to US dollars, but at a much high rate than the official fixed exchange rate) represented important concessions to the capitalist elite and their demands for control over a larger share of the country’s oil wealth.

Seemingly adding weight to this argument was the appearance, only a few days before Giordani’s removal, of an article by Temir Porras, a vice-minister under Maduro when he ran the Foreign Ministry. Porras wrote that a “change in the strategic path” is need as soon as possible if the revolution does not want to lose what it has achieved to date. In the economic sphere, he called for more “pragmatism”, and argued the need to deal with a policy of currency controls that have got out of hand.

Not all however, are convinced that Giordani’s oust is a sign of a struggle between pragmatists and radicals, nor that Maduro is necessarily pursing a fundamentally different path to the one charted out by Chavez.

Neftali Reyes, a regular contributor to the pro-revolution website Aporrea notes that many of the concerns Giordani raises can be traced back to Chavez’s time in power. Reyes points out, for example, that Chavez also convoked a number of meetings with business sectors, and initiated mechanism (such as SITME) that periodically freed up the flow of dollars to the private sector. Similar, the fact that Rafael Ramirez has been reaffirmed in this posts of Vice-president for the Economy and PDVSA president (the latter of which he has held for the last decade), is a sign of strong continuity in the government’s economic team.

Ex-minister of Basic Industries Victor Alvarez wrote that Giordani’s exit at most signified the speeding up of the existing process of dismantling the current exchange rate regime. This regime, said Alvarez, has greatly contributed to the country’s economic problems and converted itself into “the principal incentive for corruption and speculation.”

This process, which so far has led to the creation of a three (or four)-tiered exchange rate system, was begun under Giordani. The main tier of the system, which is used for 80% of Venezuela’s foreign trade, continues to be fixed at 6.30 bolivars and is administered by the state-run National Centre for Foreign Trade (CENCOEX) which provides dollars to companies that import basic goods.

The second tier, SICAD I (which Giordani acknowledges in his letter was originally his proposal), came into effect in July 2013. Under this mechanism, companies involved in specific industries are invited to bid in a weekly auction for access to $220 million at a rate that fluctuates between 10 and 12 bolivars.

In March 2014, the government announced a third tier with the creation of SICAD II. This mechanism allows PDVSA, the Central Bank, banks and private entities to buy and sell dollars at a free-floating rate, although the Central Bank reserves the right to intervene when it so desires. SICAD II has operated at a rate that has hovered around 50 bolivars.

Finally, a “black market” rate, which has fluctuated around 60-70 bolivars for the last few months, essentially operates as an unofficial fourth tier.


From currency controls to popular control

Alvarez argues that any real change in the direction of economic policy would require the unification of the existing exchange rates within a limited, free-floating system. According to Vice-president for the Economy Rafael Ramirez, this is precisely what the government is working towards. Those that argue a shift away from strict currency controls is a move towards pragmatism have generally not explained why one must flow from the other.

Writing on the debate over Venezuela’s currency controls and economic policy more generally, Mark Weisbrot, a US economist who has been invited by Chavez on numerous occasions to visit the country, writes: “The majority of the media tends to view changes in policies – particularly in a country like Venezuela, so disliked by the business media – through a binary prism. Changes are either ‘pro-market’ or favor greater ‘state control’. Many on the left have a similar opinion, but with an opposing preference: the market is bad, while state influence is good.”

Yet, as Weisbrot notes, when it comes to supporting fixed exchange rates, neoliberal economists and the International Monetary Fund have had little problems supporting them in certain situations. Moreover, currency controls have at times breed situations of complete instability, as they have contributed to speculation, corruption, capital flight and the rise of a black market.

Few doubt that Venezuela’s existing system of currency controls have led to serious distortions in the economy. Giordani himself denounced that fictitious companies illegally acquired some $20 billion dollars via state regulated channels in 2012 (when Chavez was still president). This is just one example of how the existing system of currency controls is failing as a viable mechanism for controlling the flow of dollars coming out of the state oil sector.

However, simply removing the controls, without any accompanying measures, could end up on further complicating the situation.

For example, any move to unify the existing exchange rates will result in the establishment of an exchange rate somewhere between the current fixed rate and the black market rate. Private businesses will undoubtedly use this to justify further price hikes, claiming they are due to the official devaluation. Yet it has been demonstrated time and again that most private businesses have been rorting the system by importing goods at the lower exchange rate and selling them as if they had been bought at the black market rate.

The best way to prevent this would be to allow workers and communities to monitor how private business set their prices. Similarly, increasing worker participation might not only stimulate production but also help clarify ongoing disputes over whether the shortage of imported parts is due to a lack of dollars or corrupt practices (by business owners, state officials or both). Legislations for such actions already exist; they have simply not yet been fully implemented.

These are just a few example of why an increase in popular power over production and distribution are vital if the government wants to ensure that any loosening of control over the exchange rate does not lead to a loss of control over the future of the country’s oil wealth.

[This is the first of two articles dealing with the fall-out following Giordani’s sacking and subsequent open letter. The next article will deal with the different approaches that have been taken on issue of public criticism.]


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