Political crisis and dollarization

By Luis Manuel Aguana

What's first, the egg or the chicken? It is a question that has been asked by countless thinkers and the answer always ends up being the same: the one that suits whoever asks the question. The permanent insistence that it is the economy rather than politics that will get Venezuela out of this tragedy confuses many and screws the regime, not to mention adding more mess (if that is possible) to the discussion of how to get out of this regime.

In a note from 2015 I set out the correct order, not explained by me but by the 1998 Nobel Prize in Economics, Amartya Sen (see La Primacía de las Libertades Políticas,  http://ticsddhh.blogspot.com/2015/07/la-primacia-de-las-libertades-politicas.html): a guarantee of civil and political freedoms, human rights and democracy, so that in an ecosystem of freedoms, the economy can find its way to recover. That is, the political problem is solved first, then the economic problem. In that order!

It seems that this is difficult for many people to understand, that one does not know whether they are willing or not to complicate the already complex panorama to get out of this tragedy. At other times, in the midst of despair, we hear versions of qualified international specialists who, with their technical and economic opinions, alter the proposed order, and instead of helping to solve the complex underlying problem, they deepen it, prolonging the agony of the country, because in the end they do not solve the core of the matter, which is none other than the recovery of freedoms.

In a note from the journalist Alex Vallenilla of the Revista Zeta, the alert is given to the imminent destruction of the Bolivar as currency (see Alex Vallenilla, El Fin del Bolivar es inminente http://revistazeta.net/2017/08/21/fin-del-bolivar-inminente/). For Venezuelans, this is not newsworthy news. Every day, our monetary sign is devalued and we Venezuelans cannot do anything about it. But while it is true that we cannot stop inflation if we can try to defend ourselves from it, and that is why the natural refuge is the incessant search for foreign currency and its most representative exponent, the American dollar, which makes the purchase price of this currency does not stop rising permanently.

Vallenilla's note is based on an article by Steve Hanke of the Cato Institute, published in Forbes, which indicates that the Venezuelan economy is already dollarized without even the government having made the official decision to do so. Everything is bought and sold against the dollar. The Maduro regime ended up pulverizing the economy, leaving our currency worthless and the highest inflation rate on the planet: 1,195%. (see Forbes.com 08/15/2017 - Steve Hanke, Stop Venezuela’s Economic Death Spiral – Dollarize Now

Hanke's recommendation as an economist is to finish taking the official step of dollarizing the economy. He says he knows from experience: “I know because I operated as a State Counselor in Montenegro when it dumped the worthless Yugoslav dinar in 1999 and replaced it with the Deutsche mark. I also watched the successful dollarization of Ecuador in 2001, when I was operating as an adviser to the Minister of Economy and Finance”.

Hanke explains what he believes are the advantages of such a decision: “Countries that are officially dollarized produce lower, less variable inflation rates and higher, more stable economic growth rates than comparable countries with central banks that issue domestic currencies.”. He justifies them with this blunt judgment: “Stability might not be everything, but everything is nothing without stability”.

In other words, this economist understands only to reach economic stability without first going through political stability. This is part of a common economic reasoning that political stability would continue after economic stability; an assumption of political stability not given in Venezuela, a country that is being forced to change its system from one based on a liberal democracy to another based on a statizing castro-communism. And all that with Venezuelan oil money. We Venezuelans reject and will continue to reject this change that is being imposed by a criminal and narco militarized minority through a fraudulent constitutional change.  The Venezuelan case is not a booklet and cannot be based on previous experiences.

In the supposedly denied of assuming the recipe of dollarization, the regime could gain time to live through this way, although many of the economic barbarities that have committed could not continue to be made by losing control of the currency issue and other important variables of the economy, stabilizing the frightening inflation of the country and improving the rates of economic growth, as Hanke indicates. But they won't do that for ideological reasons or perhaps even ignorance (see statements of Aristóbulo Isturiz in YVKE Mundial http://www.radiomundial.com.ve/article/venezuela-no-ser%C3%A1-dolarizada).

But there are negative collateral consequences, as Orlando Zamora points out: “By dollarizing, Venezuela adopts both the value of income and the costs of the most industrialized country in the world, but its citizens are highly unproductive, lacking the technology of the first world and their salaries in dollars will be low, as happens in Ecuador because of their productive gap. They will pay the interest rates and commissions of the mighty country” (see Orlando Zamora, 03/27/2017, Is dollarization a solution for a Venezuela in ruins?
https://konzapata.com/2017/03/es-la-dolarizacion-una-solucion-para-una-venezuela-en-ruinas/). Regardless of the measure, we have come, whether we like it or not, to a deadly spiral, as Steve Hanke referred to it in Forbes.

It is definitely true that the economy is destroyed, with or without officialising a dollarization that in practice is already happening. And to top it off, the regime has illegally and irresponsibly placed the function of deciding the economic matter in the hands of a fraudulent Constituent Assembly, which, in accordance with powers backed by complicit bayonets, can take the decision to dollarize the economy, artificially prolonging the serious political problem of Venezuelans.

And although I do not believe that the ideologized talibans of the PSUV in the Constituent Assembly as Isturiz, proceed with a measure like that, as they have already said, the worsening of the economic crisis will probably force them to continue to escape forward, keeping in power at all costs, as they have done so far, using artifices as a measure such as this, backed by qualified international opinions and by a desperate population. What to do? As the Nobel Prize winner Amartya Sen said: to solve the political problem, which is our real problem. But that must be done as soon as possible, using all the help we can find...

Caracas, September 7,2017