It was 25 years ago to the day when Black Friday exploded like an atom bomb over the Venezuelan economy. On that day, banks did not open their doors and the government of then President Luis Herrera Campins (RIP+) with a Central Bank almost devoid of foreign exchange reserves was forced to devalue the local currency, the Venezuelan bolívar by 100% and impose exchange controls.
From 1961 to 1983 the exchange rate to the US dollar was fixed at Bs./US$4.30.
The foreign debt of the country was around US$37 billion in 1980 and for months before the economic crisis hit, there were lines outside exchange houses to buy US dollars. In fact, capital flight of US dollars had been occurring for the two previous years and all but sucked the Central Bank dry of its reserves.
Oil prices reached their peak in 1979 during the Islamic Revolution in Iran and in the wake of declining world oil prices from 1981 to 1983 the value of Venezuelan oil exports fell from US$19.3 billion to US$13.5 billion, triggering the economic crisis.
The Herrera Campins government declared it was insolvent before the international banking community, placed a total ban on the purchase of dollars by the general public and devalued the Bolivar. The Black Friday “shock treatment” came after rich Venezuelan individuals and companies had been tipped off in advance, bought dollars and then cashed in more than a 100% profit overnight thanks to the machinations of Central Bank Governor, Leopoldo Díaz Bruzual, or the “Buffalo” as he popularly known.
Having been forewarned of the impending devaluation in 1981-1982 corporate sectors managed to spirit around US$90 billion out of Venezuela in what must be one of the biggest cases of "insider trading" in Latin American history. No one has ever been called to explain these actions which led Venezuela to being declared "insolvent" by the government which made this information available to its corrupt capitalist cohorts.
As usual, under the auspices of a capitalist minded regime, the preferential rate of 4.3 was still granted to companies and individuals with debts in US dollars and in effect this subsidy was paid at the cost of the whole of Venezuelan society – in other words robbing the majority poor to pay the excesses of the minority rich.
The effects over the next 15 years were devastating for Venezuelan society. In 1980 28.8% of Venezuelans were “middle class”. By 1999 this figure had fallen to just 4%. The Venezuelan middle classes which had benefited from the 1970’s oil boom were all but wiped out in just 18 years.
Inflation took off and peaked in 1995 at around 100% - see graph. In fact, during the Chávez years inflation has been an average of 18.4% per year. From 1984-89, during the Lusinchi presidency it averaged 22.5%; from 1989-1993 with Carlos Andrés Pérex at the helm, inflation averaged 45.5% and then during the last administration of Rafael Caldera from 1994 – 1999 it skyrocketed to 59.4%.
At the same time as the middle classes were being destroyed from 1983 – 1999, poverty rates reached more than 80% of the population especially in the 1990’s with 100% inflation plus a wage freeze for two years. Now, in 2008, overall poverty has fallen to 30.4% and absolute poverty (included in the above figure) to just 7.2%. Source: Venezuelan National Statistics Institute
 |
Graph: courtesy of www.oilwars.blogspot.com
At the same time the Venezuelan bolívar went from 4.3 on February 18th 1983 to 517.10 to the US dollar on February 3rd 1999, when Chavez took office. This is a devaluation of some 12,025% in 16 years or 752% per year.
Compare this disaster to recent devaluation in Venezuela from 1999 to 2008 during the Chavez years.
February 1999 517.10 bolivares to one US dollar
February 2008 2150.00 (or Bs.F. 2.15) bolivares to one US dollar
Effective devaluation is: 415.78% or 46.19% per year.
Even allowing for the doubtful validity of the parallel exchange rate, which hardly amounts to 5% - 7% of all dollar transactions, which is running around 5,000 (Bs.F 5.0). Thus, even on this spurious basis 9 year devaluation would be 967% or 107% per year.
Compare 752% to 107% devaluation per year, on average. Neither is acceptable but mathematically, the Chavez government has done a much better job of keeping devaluation under relative control. The same can be said by looking back at the inflation graph. Chavez’s economic policies have reeled in inflation to a reasonable level when compared with the performance of the last 3 governments.
At the beginning of every year since 2003, opposition expert economists (this could be an oxymoron in itself!) predict doom and gloom and an economic crisis. The same is happening now in 2008.
With the IMF forecasting economic growth of 8.5% this year for the Venezuelan economy, and more than US$34 billion in foreign exchange reserves and bearing in mind that the economy had doubled in GDP size in 9 years, the chances of an economic Armageddon appear to be more than remote……....
……Except, of course, in the fevered imagination of the opposition economists who want to hand over Venezuela’s economic and oil sovereignty to US and European transnational corporations to feather their own nests after 9 years of meager pickings.
Press reports in the corporate media concentrate on “inflation” as being caused by the government and - that this is “the worst government in Venezuelan history”, as well as other such hysterics born out of desperation.
A brief look back at the performance of the governments of the IV Republic’s economic debacle from 1983 -1999 should make any Venezuelan voter do anything to prevent these incompetents from returning to power.
Notes:
-
Exchange rate data: Venezuelan Central Bank
© Copyright 2008 by AxisofLogic.com
This material is available for republication as long as reprints include verbatim copy of the article its entirety, respecting its integrity. Reprints must cite the author and Axis of Logic as the original source including a "live link" to the article. Thank you!