Protests in Venezuela: Understanding the Core Economic Issues

The driving forces behind the Venezuelan peoples growing anxiety, insecurity, and desperation stem from economic and social policies that previously defended national independence and self-determination, now these policies confronted by a powerful consortium of interests. What’s wrong? And why?

Home and food product scarcity has generated widespread insecurity. Not being able to get everyday needs, when you want them, at an affordable price is understandably a problem. This, after all, is directly related to the instability of the currency exchange rate that drives the prices of products up and down. Some supermarkets and vendors price goods at black market exchange rates rather than government rates. Constantly fluctuating exchange rates obviously leave everyone worried. Anxious consumers now fear hyperinflation as a possibility because of rising black market exchange rates.

Those who profit from high inflation and product scarcity are in fact the wealthy sector individuals and groups who are either leading or encouraging the protests with economic and/or political aims. Shrewdly enough, the elites have benefited from insecurity, largely participated in its escalation, and don’t stand to lose as much as middle class people do from widespread anxiety. The those who participated in currency speculation, illegally exchanged currency through the black market for financial gain, with no regard for its detriment to the Venezuelan people or the legitimacy of the Venezuelan government.

Exploiting people’s fears, black market exchange rate manipulation increased, further exciting fears, to extract bolivars or dollars at the behest of profiteers. This form of exploitation became a valuable tool for the opposition to undermine the government. Seemingly less visible and divisive, this type of economic opposition successfully placed blame on the government. Further, capitalists purposely withheld and hoarded goods to inflate speculation, create scarcity, and widen insecurity. All of this created a snowball effect, driving Venezuelans to feel like they are walking blindfolded towards an edge of a cliff. By exacerbating collective fear and anxiety, the wealthy know the first to receive blame is the new president and his administration for allowing this to happen, not them.

Maduro’s administration isn’t just letting this happen. Last month, Reuters reported, the top economic official of Venezuela, Rafael Ramirez, unveiled his new currency exchange platform for SICAD 2 (Ancillary Foreign Currency Administration System), as a result of the product shortages mentioned above. This much-needed reform will combat the poisonous black market that infected the previous currency controls. Previously, under the Exchange Crimes Law, the Central Bank of Venezuela was the only entity that provided foreign exchange transactions. Adding a third rate to the previous two rates will allow individuals and businesses to partake in foreign exchange transaction based on supply and demand.

The new reform, if implemented speedily and efficiently, will give more security to not only the people, but also investors who can expand the Venezuelan economy. The people will have the necessary goods, and the ability to trade currency will give businesses and individuals more flexibility to import and compete in order to sell at favorable prices, and finally give investors more confidence to buy Venezuelan bonds. Evidence of this is already substantial, with the price of Venezuela’s global bonds rising 4%, and PDVSA bonds rising 3%. Along with other new legislation, these reforms promise hope for the future of imports, products, and the Venezuelan economy as a whole.

So reforms are taking place, and the question persists, why protest now? Why February 2014? I ask these questions because though these problems are perceived to be the spark that ignited the firestorm, they were widespread and just as severe a year and a half ago. Since then, inflation has steadily been between 50% and 60% (it was higher before Chavez came into power), the crime and murder rate has actually gone down, and prior to mid-last year purchasing power has risen. Shouldn’t the protest have taken place a year to a year and a half ago? Did the Venezuelan people reach a breaking point after a year or so of high inflation and scarcity?

Or did this protest, small in comparison to 2002 coup attempt and 2004 referendum, come about because of the prevalence of selective media coverage, U.S. and elites providing finances, and the desperation of the right wing opposition to attempt to regain power in a delicate time? In essence, is it not, really, an attempt to forestall much-needed reforms to the economic policies of Chavismo? Because if Maduro were to stabilize the economy, the opposition would have to provide a viable alternative, instead of just a program of rejection.