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Ibsen Martinez

Venezuela

Ibsen Martínez is a Venezuelan playwright and novelist. A former telenovela writer based in Caracas, he is now a freelance writer and regular contributor to a number of newspapers, magazines and websites in both Spanish and English. He writes a weekly column for the Caracas daily "Tal Cual." Spanish language newspapers such as Madrid's "El País" and "ABC" as well as Buenos Aires's "La Nación" run his articles on a regular basis. His essays on literary and political subjects have appeared in prestigious magazines such as "La Nouvelle Revue Françoise", Mexico's " Letras Libres", Washington's "Foreign Policy" and The Washington Post's "Outlook" magazine. He also writes a monthly column on Latin American economic issues for the Liberty Fund's website, "Econlib Library (www.econlib.org). Close.

Ibsen Martinez

Venezuela

Ibsen Martinez is a Venezuelan columnist, journalist, and award-winning playwright. more »

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In Venezuela, Dollars Still Reign

If only I were Paul Krugman, I'd try to delve into the true, long-term meaning of that 16 percent loss against the Euro. Is the dollar fundamentally weakening? Or is this two-year long plunge just a seasonal malaise? I have no way to know.

What I can tell you is what the sight of a dollar - and by that, I mean an actual one-dollar bill - means to anyone living in this populist Caribbean petro-state as it moves toward 21st-century socialism.

What exactly is a petro-state? Some describe it as a mining country with weak institutions and a malfunctioning public sector. Its most important feature are laws that grant subsoil rights to the government, from which spring extraordinarily large "petro-profits” - much, much greater than any profit to be made in the private sector.

Large oil revenues usually imply exchange rates that inevitably encourage imports and hinder exports. Stiff exchange controls not only undermine the Central Bank's capacity to implement monetary policy; they also boost black market activity and encourage corruption. Venezuelan private companies have only limited access to U.S. dollars, and individuals have access to foreign currency only on a limited annual quota basis.
But despite Mr. Chávez's anti-imperialist rhetoric, the U.S. is still Venezuela's primary oil customer. So there is a thriving secondary exchange (or should I simply say "black"?) market that deals not in Euros but exclusively in dollars. That secondary market's exchange rate is now quadruple the official price.

An unsettling behavior happens with amazing regularity when petro-states go through oil booms. Their governments seem to be seized by a sort of schizoid "manic" spell and urgently demand from their citizens special powers to direct the capital accumulation from oil revenues into other productive activities, in a valiant attempt to catch up to the developed world. "We have plenty of resources so now is the time,” they say. “Everything can be done so everything must be done!" These become the catch-phrases for these governments. It's no wonder that for Venezuelan politicians of all colors, including Lt. Col. Hugo Chávez, "sowing our petroleum" has been the sole item on the agenda for almost 80 years.

So, during any given boom, it is only natural that new agencies and jurisdictions are born. We now have 30 new government ministries; seven years ago, we had 13. Since it is the state, not the private sector, that has first access to petro-profits, profit-seeking becomes the name of the game for everyone, including of course the small private sector. Deadly fights over who controls the country's oil revenues become the only important issue in domestic political life. These "wars" over petro-profits gut already weak institutions, favor the concentration of power, promote the bending of the law, and, last but not least, increase corruption where it is already pervasive.

Furthermore, the very large oil revenues that fall into state hands put pressure on exchange rates, encouraging imports and discouraging exports. Inevitably, inflation sets in. The market is soon saturated with imported automobiles, electronic gadgetry, luxurious home appliances and name-brand whisky. The currency becomes overvalued because the oil sector is the core of the economy and extensive reliance on imports undermines local production.

That's why down here it's much easier to get premium scotch whisky and all sort of imported deli good than to buy milk, eggs, sugar or local essential staples like black beans and corn flour.

Chávez sneers at the 18-year-old Scotch whisky and brand new Hummers favored by his cronies', the so called "Bolivarian Bourgeosie", while at the same time he springs for four billion dollars of Russian jet fighters, combat helicopters and Kalashnikov assault rifles. Meanwhile, at "Mercal", the popular supermarket network where scarce basic goods are supposed to be subsidized by oil revenues, a Cuba-like rationing card system is at work. Venezuela has the highest inflation rate in the Americas (20%) and is set to redenominate its currency in January 2008. Given those circumstances, the dollar has become the most sought-after commodity in Venezuela.

Last night I walked down to my neighborhood supermarket for a bottle of relatively inexpensive Chilean red wine. As I approached, I ran into an upset and disappointed neighbor of mine.

She usually knows when basic goods are about to arrive, so I asked her if she had found milk at the supermarket.

"It's all gone now, again,” she said with a grimace, "but I still have some dollars to sell. Interested?"

Most of Venezuela’s high-ranking corrupt officials would have declined her bid. They always ask for their payoffs in Euros.

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