Venezuela: the visible hand of economic warfare

venezuela 2017

Venezuela’s Bolivarian Revolution is in the cross-hairs of a covert war. For the last 19 years, the struggle to build socialism has been under siege, facing coup attempts, street violence, foreign threats and interference. Imperialists and their allies in the opposition’s Democratic Unity (MUD) coalition will stop at nothing in their quest to overthrow the United Socialist Party (PSUV) government and destroy yet another nation attempting to control its natural resources and redistribute wealth. Insidious economic warfare is central to this strategy. The Venezuelan economist Pasqualina Curcio Curcio offers a gripping exposé of how this financial sabotage functions. In her book, The visible hand of the market,* she meticulously illustrates how headline-grabbing shortages and inflation have been manufactured. Sam McGill reports.

Planned shortages and the boycott of supply

Though the media churns out lies about people forced to eat rubbish, pets and zoo animals, the population is not starving. Venezuelans face a daily search for prized products and supermarket shelves are empty of price-regulated goods, yet the same items can be found on the black market at exorbitant prices. There is a shortage of regulated milk and flour, but plenty of yoghurt and cake. Six million people receive subsidised food bags from the Committees for Supply and Production as a stop-gap measure. The MUD opposition, backed and funded by imperialist fronts like USAID, argues that the government refuses to allocate enough dollars, undermining the private sector’s ability to import sufficient goods or inputs for industry. However, shortages do not correspond to GDP or spending on imports. In 2015 total GDP was 34% higher than in 2004, yet the scarcity index was 30%, compared to 7% in 2004. Likewise spending on imports has increased 129% from $15.7bn in 2004 to $30.8bn in 2014 with $7.7bn spent on food alone. Yet as spending on imports increased, so did shortages.

In 2004 – when there were no medical shortages – $608m was spent on health imports. Then when medical shortages began to appear in 2013, the state increased its spending, allocating $2.4bn specifically for medicines and health needs. Despite this, pharmacies and hospitals still lack essential drugs and equipment.

So where are the imports? Ten well-known private multinationals receive 50% of all foreign exchange allocated for heavily subsidised medicine imports. Roche, Bayer, Astrazeneca and GlaxoSmithKline all report sales revenues of millions of dollars. Pfizer reported revenues of $716m from Venezuela in 2014, the year the nation suffered epidemics of dengue and chikungunya. Yet the drugs to treat these illnesses, manufactured by Pfizer, were scarce. A similar story emerges for personal hygiene products. In 2014 Johnson and Johnson received $11.6m a month, four times the amount historically allocated to them for imports and production, yet that year saw massive shortages of everything from toilet paper and razors to nappies and sanitary towels.

This is not a result of a lack of spending. Nor can the problem be blamed on an inefficient public sector: on average 94% of all foreign exchange for imports has gone to the private sector. Since 2003 the private sector has received $338bn for the importation of goods and services. This money has been stolen, smuggled, invested, hidden. Spending on imports has not been matched by an increase in volume. Between 1976 and 2014, imports in dollars increased by 366% whilst imports in tonnes only increased by 4%. The scale of this import fraud can be seen in huge deposits of foreign exchange by the private sector abroad which have increased by 232%.

Equally evident is the tactic of hoarding, a boycott of supply. Curcio shows how consumption of scarce goods like pre-cooked maize flour, coffee and pasta have all remained high despite their absence on supermarket shelves. Not all food items are scarce, neither are all price-regulated items. Scarcity mainly affects non-perishable items whose production and distribution are in the hands of a few monopolies. Pre-cooked maize flour is the main ingredient of arepas, Venezuela’s traditional dish. The Polar monopoly controls 50% of food distribution. Its own records show that annual production of maize flour remained fairly constant between 2003 and 2016, despite claims of decreased production due to price controls and a lack of dollars. It is no coincidence that Polar is owned by opposition politician Lorenzo Mendoza, tipped to stand in next year’s presidential elections.

Control of importation and distribution is in the hands of massive private monopolies, interested only in enriching themselves and destroying any movement to build socialism. The Venezuelan state desperately needs to establish a monopoly of foreign trade, subjecting imports to public scrutiny from purchase to port, truck to table. Continuing to throw money at the private sector will only strengthen the economic war. Revolutionaries have been arguing this for years. In 2010 the late socialist President Hugo Chavez remarked:

‘We look like assholes, giving bucks to the bourgeoisie, the petty bourgeoisie. And they import, sub-invoice, over-invoice, buy abroad anything worth a dollar and come here and sell it for five dollars and the equivalent in bolivars and also ask for more than it actually costs’.

Inflation, currency controls and price regulations

There is a gaping chasm between the official exchange rate and the illegal parallel market. Currency controls mean that for imports of essential food and medicine, an exchange rate of 10 bolivars to the dollar is used. For all other transactions, the government auctions dollars using a regulated but floating exchange rate; at the beginning of September this was 3,345 bolivars to the dollar. Parallel to this is the illegal market which fluctuates with the political situation, so as Trump announced new sanctions in August, the unofficial market rate hit 17,000 bolivars to the dollar whereas it was closer to 6,000 in May.

The opposition argues that currency controls drive up inflation, whilst regulated prices do not cover production costs. Currency controls were imposed under Hugo Chavez in 2003 as a measure to oppose capital flight. However, such controls have been a regular feature of the Venezuelan economy for decades, operating from 1983 to 1989, then again in 1994. Throughout this time, variations in the unofficial market did not deviate far from the fixed exchange rate until 2012 when the parallel exchange rate began to rocket, driving up inflation. This trend does not correspond to liquidity, drops in production or international reserves, neither is it closely correlated to the price of oil. Curcio notes that in December 2015, following the National Assembly elections where the MUD won a majority of seats, the price of oil plummeted, but the illegal exchange rate significantly improved. In fact the depreciation of the bolivar intensified with the announcement of Chavez’s illness in 2012, continuing to increase after his death in 2013.

The exchange rates for the parallel market are calculated by US-based websites like dollar today; this manipulated rate is then used to bump up import and production costs, outstripping wages and purchasing power. Country risk ratings (the estimated likelihood of a government defaulting on its debt) calculated by large banks and rating agencies also contribute to this pressure. Between 2013 and 2016, Venezuela repaid over $63bn of debt. Despite this its ‘country risk’ jumped 113%, placing Venezuela at the top of the table. The higher the country risk, the more expensive it is for a country to borrow money, pushing up interest on debt. Curcio argues that ‘there is a visible hand, enhanced with information technology resources and skills, which has distorted the market by publishing politically-motivated disproportionate exchange rate differentials without economic grounds’. She says: ‘a few powerful and visibly politically motivated hands are responsible for the distortion of the distribution and supply mechanisms of the most essential goods for the life of people in Venezuela’.

Capitulating to economic blackmail, removing currency controls or raising prices of regulated goods will not solve Venezuela’s problems; it will simply hand over more foreign reserves to imperialism’s financial vultures. Hoarding, speculation and import fraud are all methods of clawing back wealth, appropriating oil revenues through financial sabotage. Venezuela is susceptible to this economic warfare due to its reliance on imports controlled by a handful of monopolies. If the Bolivarian revolution is to weather the storm it must snatch economic power into its own hands.

Oil – black gold

Hugo Chavez tightened control of the state oil company PDVSA from 2003 onwards in order to fund social programmes as a step towards building socialism. In response the US has poured millions of dollars into opposition parties and sought to isolate Venezuela diplomatically. Meanwhile, Russia and China are staking their claims over Venezuelan crude.

Venezuela has less than $10bn in foreign reserves and $17bn in debts due in the next few years. From 2007 to 2014, China lent Venezuela $63bn, 53% of all its lending to Latin America. The debt is to be repaid in oil, a deal agreed when a barrel sold for $100. Due to the global crash in oil prices, Venezuela must now ship two barrels of oil to China for every one it originally agreed. This reduces oil available to sell for cash, driving the need for more loans and debt. Meanwhile Russia and its state oil company Rosneft have lent Venezuela $17bn since 2006. Rosneft now resells about 225,000 barrels per day of Venezuelan oil, 13% of total exports. Whilst this financial support has been vital in the short term, Rosneft is steadily increasing its control over Venezuelan oil production, owning substantial portions of five major oil projects and a 49.9% stake in the equity of CITGO (Venezuela’s largest foreign asset, operating refineries, petrol stations and a pipeline in the US). Rosneft is now bargaining for the right to sell Venezuelan oil itself rather than through PDVSA. Oil contracts attract corruption and bribery. Nine high-ranking PDVSA officials were arrested in September for awarding overpriced contracts to companies that could not fulfil them. An estimated $200m was embezzled in contracts for the Orinoco oil belt alone.

Responding to this aggression, Maduro resolved to ‘free the country from the tyranny of the dollar’, posting oil prices in Chinese yuan and replacing auctions of preferential dollars with other currencies, including the euro. This is crucial. Since 1971 when President Nixon abandoned the gold standard, OPEC oil producing countries have traded exclusively in dollars. The rest of the world had to buy dollars in order to import oil, heralding the era of the ‘petrodollar’. Whilst the US contributes 24% to global GDP, approximately 75% of foreign exchange trade uses the dollar and 65% of all dollars in the world circulate outside the US. Therefore, the dollar is overvalued relative to other currencies. This allows the US to refinance its debt at very low interest rates whilst importing goods at bargain prices. It is essentially a licence to print money and is central to sustaining US imperialism.

The National Constituent Assembly, tasked with finding collective solutions to the political crisis, now has the chance to take on the economic war. Since its election in July it has been discussing proposals to move away from oil dependency, substitute imports and confront corruption, hoarding and currency manipulation. Measures taken to root out corruption in the PDVSA and move away from the petrodollar are key, yet handing majority shares to Rosneft or PetroChina will erode Venezuela’s control over its natural resources. Whether the Constituent Assembly is successful will depend not only on proposals and policies, but also on the class forces backing these up. This will inevitably require a battle on all fronts – against multinationals hoarding goods, corrupt state bureaucrats siphoning off millions, petit bourgeois shop owners marking up prices and poor unofficial market vendors who survive by bulk-buying, then ripping off their neighbours in working class areas. Fighting back in this economic war is crucial to whether the Bolivarian revolution is able to survive and transcend the capitalist framework it currently operates within. The Constituent Assembly is faced with an historic task.   

* Pasqualina Curcio Curcio, The visible hand of the market: economic warfare in Venezuela and Myths about the Venezuelan economy I, II and III. Digital version available at

 Fight Racism! Fight Imperialism! 260 October/November 2017


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