VENEZUELA--Reflections of the crisis in petro-"socialism"

Venezuela: Reflections of the world economic crisis in petro-"socialism"
By Max Trinidad Cerén
Sunday, November 30, 2008

One of the elements that shows that the government of Chávez is moving without foresight and is adrift in the context of the international economic crisis, is the fact that among strong international economic storms and a clear world recession, it approved a national budget of 167.4 billion bolívares fuertes, based on US$60/barrel, and after just a few days, it found itself forced to rush out to correct the numbers, given the sudden drop that has already hit the floor of US$45/barrel on average for crude so far this month. In this context, the situation of world economic crisis and the repercussions of the recession that are happening in the economies of the main countries of the world, and their impact on oil prices, will have an effect on the national [Venezuelan] economy, to become the determining element for the certain adjustment measures they will apply, that highly-placed members of the [Venezuelan] government are already expecting.

For the last week of November, according to figures from the Ministry of Energy and Petroleum, a barrel of Venezuelan oil was at $40.68 US, the lowest level recorded since the first quarter of 2007. In July, it had reached the maximum of $129.50 US, which shows it is not a matter of just any decrease. If this dynamic continues, the loss of income will be considerable, which could worsen as the recession of the world economy deepens. For some analysts, although an average price of $60 US/barrel will prevail during 2009, Venezuela will experience a reduction in its oil income of almost 40%, around $25 billion US, and that is sufficiently serious for a country where public expenditure is the motor that keeps the economy active, a country more closely tied than any other, to what happens in the unpredictable casino of oil prices. Taking into account the fact that oil represents 94% of Venezuela’s exports, and that only oil makes it possible to pay for imports, obviously shows the extremely volatility of the Venezuelan economy and its great dependence on international fluctuations.

During the whole election campaign, the [Venezuelan] government did everything possible to avoid talking about the subject of oil, because it wanted to create the feeling that things are going well, and that the Venezuelan economy is immune to what is happening with prices. But the specter of the world crisis is hanging over Venezuela; it is sufficient to recall that around 1998, the price of oil approached less than $10/barrel, also because of the effects of an international financial crisis – in that case, because of the 1997 crisis in Asia. Now with a barrel below $45, which looks like a breaking point in Chávez’ plan, marked by the bonanza in crude oil.

In spite of the government’s insistence at the beginning of the world crisis that Venezuela was not in the path of the hurricane, the faces have begun to change, and quite rightly, since, if the crisis deepens, big contradictions will come to light, and the crisis will unmask the rhetoric of Chávez’ “twenty-first century socialism,” that is no more than “socialism with businessmen.” And the problem is, Venezuela is a country that is closely connected to the international economy, like all the dependent countries, but it has the characteristic that it is a net exporter of oil and importer of everything needed for consumption and production. It is a country in debt to the international financial markets, with a public debt of about $50 billion US.

And by way of example, regarding only current conditions, the Venezuelan economy slowed down in the third quarter of 2008, with an index of 4.6%, reflecting a drop compared to the second quarter that had an index of 7.1%, and for the end of the year, a GDP rate of 2% was predicted, when the economy was growing. While petroleum activity kept growing from 3.2% to 6%, the non-petroleum sector fell from 7.8% to 4.5%; in that sector, construction activity went from 12.8% to 7.2%, manufacturing fell from 4.4% to 0.3%, transportation and storage, from 6.6% to -0.5%, etc. At the same time, inflation continued to be out of control, with a cumulative rate of 24.7% in the first ten months of this year, a much higher figure than the initial goal of 11%, and now it is estimated that in 2009 inflation will reach about 39%. If a more severe economic slowdown, combined with high inflation, develops, it will open up the unflattering prospect of stagflation in the country.

The oil bubble created incentives on which the government bet a lot, in view of the exuberant expansion of public expenditure and state economic activity. The impact of that global economic recession environment will come from an extreme slowdown of economic growth, from increased fiscal costs because of a drop in oil income, given the lower prices of oil production and of a likely fall in the Venezuelan oil supply.

In spite of the cushion of economic reserves, we will suffer the consequences already in 2009

It is true that the quantity of funds that Chávez' government would have cumulatively, for discretionary use, in organizations like the Central Bank, the Economic and Social Development Bank BANDES, and the Treasury Bank, have created a shock absorber to be taken into account; the point is, what will happen after the surplus resources run out? Because the behavior recorded by prices up to October is what allows the year's average to be around $97, guaranteeing a surplus of $62/barrel, since a reference price of $35 was anticipated for hte current year. Beyond the fact that in immediate terms the abrupt drop in Venezuelan crude is not affecting the fiscal accounts, since income continues to come from invoices signed three months ago and bought and sold at prices above $100/barrel, when it makes itself felt, the government will have to apply belt-tightening measures to make up for this abrupt drop. A report from the International Energy Agency (IEA) stressed that Venezuela needs prices between $85 and $100 to keep its accounts balanced in 2009, and for some analysts, like Maza Zabala, Venezuela, with the reserves it has, could enjoy a truce of one and a half years or two, which is really an excessively optimistic forecast.

But, outside of the effects on ordinary expenditure, the drop in prices is affecting the so-called "parallel budget." Given the increase in prices, the government manipulated the tax on the sudden profit in crude oil, which is applied when Brent exceeds $70, and the resources that originate in that way nourish the National Development Fund. Between June and September, that tax generated $5.8 billion, but in the face of the behavior of Brent this month, there is a reduced possibility that the industry and mixed enterprises will make those additional payments. As a result, an international scene with reduced growth or prolonged recession would impact the levels of income of Venezuela both for oil income and fiscal income that results from a reduction in tax collections from the petroleum and non-petroleum sectors, owing to less growth of export prices and royalties, as from our economy in the different sectors.

And beyond all the anti-Bush rhetoric that the government has maintained, economic dependence on the US, the main epicenter of the world economic crisis, is large and significant: the bulk of petroleum exports continues to be directed to the main North American power. For Venezuela, this is intensified, taking into account the fact the crisis we are now witnessing originated in the heart of the world capitalist system, the US, and has spread from there like a poisonous stain, seriously striking the European Union, Japan, Russia, and the countries of the capitalist periphery.

From the government, they had been talking about diversification of the oil market, taking China as a market, but that country is also feeling the crisis with the collapse of the myth that the Chinese economy could be “unfastened” from the crisis: the numbers reveal that China continues to be an economically dependent country that lacks the ability to act like a great power: it occupies position number 100 in terms of per capita income and represents only 6% of the global economy.

In the face of the deepening of the crisis, a workers’ solution

Although in the context of high oil income, the distribution of the national income left much to be desired, in the economic scene, the contradictions for the government will be sharper, taking growing demands into account, since the limits will be more serious for any policy of distribution Workers’ demands have been making themselves felt, where the struggles for readjustment of wages is spreading throughout the country and through the most diverse sectors of the working class, forming a very widespread picture of struggles such as has not been seen for many years, the result of big political polarization and Chávez’ immense leadership over the entire mass movement.

As James Petras states, about the government, “Venezuela will blame the fall of profits coming from oil and world recessions on the coup; the flight of capitals is increasing in spite of controls, and private capital is reducing investments or withholding credit in spite of considerable incentives. The government is unable to continue its large-scale financing of public social and economic projects, and, at the same time, subsidize private exporters, the food and agriculture, and, above all, importing luxury articles.” But in a more general sense, the proposals from the government and the local and continental chavista movement, do not go beyond being utopian. A meeting of economists was promoted by the Miranda International Center and the government; the economists published their “Responses to the world economic crisis from the South,” which proposed as a solution, the strengthening of ALBA and the Banco del Sur, new, regulated economic institutions, and a Latin American monetary agreement, to face up to the crisis, turn out to be completely utopian, These projects, which could not even be seriously set up during the previous period of economic growth, clearly remain without any foundation.

Faced with this situation and the crisis that could begin, the working class and the people must fight for a program that strikes at the material bases of the capitalists, that Chávez’ “socialism with businessmen” has limited itself to concealing, instead of taking serious measures. Faced with threats of layoffs, we must demand that the accounting books be opened and the expropriation without compensation of any firm that closes or has layoffs, and its being put into operation under workers’ control. Not a single bolívar to save the banks and capitalist enterprises. To prevent the flight of capitals and guarantee cheap credit for working-class families, small-business owners and the impoverished middle classes, it is necessary to fight for the state monopoly of foreign trade and for expropriating and nationalizing all the banks into a single state bank controlled by workers and depositors’ committees. It is a matter of setting up the power of the working class and of showing the only realistic road so that they do not unload the crisis on our shoulders: the struggle for a government belonging to the workers and impoverished people.