Venezuelan Election Showdown: Competing Ideology Behind Competing Currencies

Yoraima can’t help but be frustrated with the cost of food in La Vega, one of the poorest barrios in Venezuela’s capital.

“A few days ago, I wanted to buy some things to make a salad and dough to make arepas,” said the 49-year-old nurse, referring to the cornmeal bread which is a staple of the Venezuelan diet. “But after buying the salad, I didn’t have enough for the arepas.”

In spite of increases in the minimum wage like the 95 percent hike which kicked in on May 1, incomes have not been able to catch up with the cost of basic goods.

“The salary is not enough even to buy me a kilo of cheese because prices of goods have hit the roof — every day they go up.” On May 20, Yoraima and millions of other Venezuelans will go to the polls with this on their minds as they cast their vote.

What won’t be on the ballot, however, is the choice between two currencies which some argue is the real contest on Election Day.

Historic Inflation

Venezuela’s economy is no stranger to crisis.

Oil dependence has meant high inflation for decades, and cuts in spending during downturns in world crude prices have led to major and often deadly social unrest.

However, no economic slump in the country’s history has been quite like the one currently gripping Latin America’s largest oil producer.

Venezuela’s currency, the Bolivar, has seen its value plummet dramatically since the 2014-15 drop in the price of oil. While no official government figures on inflation have been released, its impact on daily life is evident.

“It is 17,700 percent today — that’s the annual rate of inflation,” said Steve Hanke, an applied economist at Johns Hopkins University and senior fellow at the Cato Institute, who monitors high frequency data on Venezuela daily.

The government of President Nicolas Maduro attributes hyperinflation to an “economic war” meant to exhaust the population and in particular, the working-class base of support for Venezuela’s Bolivarian revolution. Maduro accuses websites like DolarToday of manipulating the real US dollar-Bolivar exchange rate by publishing other rates which then raise the price of non-subsidized goods across the country.

Opposition leaders say the government’s policies and spending — which has led to printing of more Bolivars — is to blame.

Maduro’s main challenger, Henri Falcon, is proposing the country adopt the US dollar as a means to address the economy’s woes.

“We have an irresponsible government that finances itself printing money, causing hyperinflation,” Francisco Rodriguez, Falcon’s main policy adviser, says on a social media video. “The prices are already dollarized; now we just need to dollarize your salary.”

Under Falcon’s plan, Venezuela would join Latin American neighbors Ecuador and El Salvador in dropping their own currency in favor of the greenback.

Ecuador ditched its currency, the Sucre, in 2000 following a banking crisis that wiped out people’s savings, prompting a mass emigration and years of political instability.

For Hanke, who has advised numerous countries, including Ecuador and Venezuela, on currency reform, dollarization is Venezuela’s best option at addressing inflation.

“The institutions are so weak in Venezuela that the only surefire way (to deal with inflation) is to dollarize, and if you dollarize, you don’t have any monetary institution.”

During the 1990s, Hanke proposed the creation of a currency board to Venezuela’s then-President Rafael Caldera, but now sees that and other possible measures as “futile.”

Falcon, who held the post of Lara State governor until his defeat in the 2017 elections and is a former supporter of late President Hugo Chavez, has suggested that Venezuelans will be able to exchange their bolivars for dollars at a rate of 68 to 1 under his dollarization plan — a far cry from the rate on DolarToday and on Venezuela’s streets.

Hanke calls this proposed rate “ridiculous,” adding that it could lead to further economic catastrophe.

“That would be a massive appreciation in the currency … the economy would completely collapse,” Hanke told Truthout.

The Cato Institute fellow maintains that the Falcon camp was merely engaging in hypotheticals, though he warned they lack any experience on currency reform.

While Falcon is the first presidential candidate to propose dollarization, he is not the first politician to do so.

Tomas Guanipa of the Justice First party was elected in the 2015 national assembly elections with a central platform of dollarizing salaries.

Political analyst Carlos Raul Hernandez says Falcon’s dollarization pledge has been “well-received” among the population, especially for “salaries for the public sector.”

Hernandez acknowledges there are other measures that could be looked at, including a fixed exchange rate, but “the only option that seems viable because a political force has taken up the banner is dollarization.”

However, not all of the opposition has jumped on board with Falcon’s call.

Opposition stalwarts, including Harvard economist Ricardo HausmannCaracas Chronicles and various opposition-aligned experts and politicians have balked at dollarization, while many of Falcon’s comrades under Venezuela’s famously fractured opposition umbrella have discarded the presidential vote altogether.

The leader of Democratic Action, Henry Ramos Allup, reaffirmed that his party — the largest among the opposition in the National Assembly — would not participate in the vote, while parliamentary head Julio Borges of Justice First embarked on an international tour to ensure that governments friendly to the opposition would not recognize the results.

Despite the calls by others like former presidential candidate Henrique Capriles for a “unified position” among Maduro’s opponents, the hardliners’ stance that the election should be boycotted make that an unlikely development.

Indeed, Falcon’s decision to keep his name on the ballot without the blessing of important factions of the opposition coalition and its backers has all but cemented the disintegration of the multiparty alliance.

Spending and Sovereignty

Sources closer to the government suggest the move to dollarize will, at best, bring short-term gain for long-term pain.

“Dollarization would not solve the existing financial stranglehold,” says Lucia Converti, an economist with the Latin American Geopolitical Strategic Center (CELAG), which has advised the Maduro government.

According to Converti, surrendering control over monetary policy would make the state more dependent on external loans and susceptible to fluctuations in the US dollar.

“If oil prices fall, you have no option [but] to resort to domestic debt to finance fiscal deficit. You would have to resort to a greater external debt,” Converti told Truthout.

Venezuela’s opposition seeks to adopt the dollar in order to curb government spending and the increase of fiscal deficit that they see as the main source of inflation, according to Converti.

Given the country’s long history of gas subsidies and more recent experience with social programs begun under Chavez, the potentially disastrous impacts of cutting back spending should be present in the minds of government and opposition supporters alike.

Falcon’s campaign has slammed Maduro for not releasing a campaign platform, though when it comes to his solution for tackling inflation, the Venezuelan leader has already set it in motion.

In March, Maduro presented a new currency called the Sovereign Bolivar, or Bolivar Soberano, that would shave three zeroes from the current bolivar. Maduro’s proposal, which comes on the heels of the launch of the petro cryptocurrency, mirrors one made by Chavez in 2008, when the current Bolivar Fuerte was introduced.

What impact it will actually have in curbing inflation remains to be seen, but even within pro-government quarters, other proposals that don’t mean the loss of monetary sovereignty are being tossed around.

For some like Carlos Raul Hernandez, the issue of sovereignty is a sort of “abstract luxury” given the extent of Venezuela’s crisis.

Yet, despite Venezuela’s economic plight and the daily barriers she has to steer, others like Yoraima plan to vote for Maduro and considers the dollarization proposal to be an affront to their sense of national pride.

“Do I see that as a blow to our dignity? Of course. Bolivar was our liberator and gave his life to liberate not only this country, but six Latin American nations,” she says, affirming the reverence Venezuelans have for their country’s historic figures like Simón Bolívar.

Couple this deep-seated nationalism with the central ideological pillars of Bolivarianism — anti-US imperialism and class consciousness — and Falcon’s proposal may have an uphill battle to win the hearts and minds of Yoraima and many of her neighbors.

“We know that this is a class struggle between the rich — who want to get much richer — and the poor who try to push this beautiful country forward,” said Yoraima. “Chavez opened our eyes and it is not that everything is perfect but … we know that if they come to power we will be totally screwed.”