Monday, January 11, 2010

Venezuela Enters 2010 Fighting for the Future

Venezuela is one of the world's largest exporters of crude oil and the leader of one of the world's only existing experiments in democratic socialism.

In 2009, oil prices plummeted and the Venezuelan government was spending more money than it generated from revenues causing internal debt to grow. As a central component of the 'Bolivarian' socialist revolution, President Hugo Chavez has refused to reduce government spending on social programs despite opposition criticism he needs to do more to curb simultaneously the debt and inflation. In response to evidence that its social policies could not be sustained, the government has decided to devalue its Bolivar currency against the U.S. dollar to encourage exports and discourage imports. Venezuela will alter the official exchange rate of the bolivar currency and create a second rate for "non-essential" imports. Venezuela like other developing countries is notoriously dependent on imports of both primary and consumer goods. With Venezuela receiving more bolivars for each dollar of oil revenue, more funds will be available to service debt and continue his popular social programs. At the same time the government intends to make imported consumer goods more expensive than imported basic purchases of items the country is lacking, such as basic foods and medicines.

FOREXYARD has a snap analysis of the Bolivar devaluation that weighs both costs and benefits of the devaluation policy. In the final analysis, the report says the Venezuelan government should be able to dampen the regressive impact of higher prices on the poor through state subsidies and industry will be more competitive in the global market.

"The devaluation will make Venezuela's hard-hit industry and agricultural sector more competitive by increasing the cost of imported goods and making the country's exports cheaper. Venezuela suffers from an economic condition called "Dutch disease," where high oil revenues cause an overvalued currency and lead other economic sectors to wither."

The reaction of the Venezuelan government to economic turmoil reveals the character of the Bolivarian revolution. Other developing countries have responded to economic crisis through cuts in government subsidies, privatization, external aid and strict monetary policies. The Venezuelan government however, has remained true to its left-wing nationalist principles and moved to lessen dependence on either external goods or advise from international financial institutions. The results of the government's response could have important implications for the structure of power and privilege in Venezuelan society. Hugo Chavez and his party the PSUV will be contesting parliamentary elections in September. The vote will be a referendum on the government's performance thus far. As prices rise, opposition leaders may seize upon social unrest and hope voters loose faith in Venezuela's socialist policies.

I am one among a few open American supporters of the Bolivarian project in Venezuela but fear future bureaucratization and poor service delivery could destroy whatever hope people had for socio-economic transformation. 2009 was a bad year for the Venezuelan government and a repetition of its performance could spell the end of President Hugo Chavez, his party and alienate the very social movements that brought him to power.

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