VENEZUELA: Neoliberal Shock Therapy Generates Tense Expectation

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, Apr 15 1996 (IPS) - Venezuelans flocked to petrol stations and stores on Monday, in a mad rush to fill their gas tanks and stock their homes before the second structural adjustment programme in seven years goes into effect.

Last week, President Rafael Caldera announced another wave of neoliberal shock therapy designed to control inflation and help the economy get back on its feet, to go into effect on Monday night.

Prices and the cost of public services are expected to skyrocket for the next few months, but the government has promised better times next year if the country hangs on.

Fears of social unrest have led to a quartering of military and police forces. In 1989, a week of protests that followed the implementation of a similar International Monetary Fund-backed adjustment programme led to hundreds of deaths.

Public schools have been closed for over a month due to a strike by 180,000 teachers. And university students are gearing up for protests, after two young activists were murdered over the weekend.

Monday’s headlines reflected the atmosphere of tense expectation. Those who could find a free moment rushed to fill their gas tanks, before a fourfold increase in petrol prices goes into effect on Tuesday.

Meanwhile, encouraged because the reforms pave the way for an accord between Caracas and the IMF, financial markets reacted with rising values for the Venezuelan foreign debt, from 48 to 58 percent of nominal value over the past few days.

The president was busy in government headquarters, taping the speech to be broadcast on radio and television stations at 24:00 GMT. His economic ministers will also address the nation, to explain what the measures will mean for Venezuelans.

Among the reforms that will have an immediate impact, the most visible will be a rise in petrol prices from 3.4 to nearly 18 cents per litre, at the current exchange rate – a particularly meaningful move as Caldera has always defended subsidised petrol prices.

Interest rates in commercial banks will rise around 20 percent: savings will be remunerated with a 43 percent rate, while 67 percent will be charged on credits, compared to 45-47 percent current rates.

“The entire banking system will experience a contraction in its financial margin, due to the temporary imbalance in terms of outflows and inflows, and the changes in the structure of assets and debts, and in the quality of its credit portfolio,” warned financial analyst Jose Grasso.

The costs of public services will also be affected. Venezuelans will pay 40 percent more for electricity, 35 percent more for potable water and 30 percent higher rates for sewer services, according to sources tied to the negotiations between the government and the IMF.

Sales taxes, which Planning Minister Teodoro Petkoff admitted are applied at a wholesale level but transferred to the consumer, will rise from 12.5 to 16.5 percent – although parliamentary approval is still pending.

Exchange controls will be lifted. The controls were set by Caldera in June 1994, during his fifth month in office, to keep foreign reserves from crashing. But Central Bank president Antonio Casas has admitted that the move failed to meet its objective.

The freeing up of exchange rates will be accompanied by a nearly 60 percent devaluation of the Bolivar, following a 70 percent one that was implemented in December.

The dollar will now be worth some 450 to 500 Bolivars – its current value on the parallel market – compared to an official rate of 290 Bolivars up to Monday.

The dollar could be bought for 170 Bolivars in 1994 and 1995. It will now be worth 100 times less than in the boom decades that came crashing to an end in 1983.

Caldera is preparing to announce 14 new social programmes aimed at the 80 percent of the population that lives below the poverty line, and especially the seven million who live in absolute poverty.

Additional funds will also be injected into the programmes inherited from the 1989 structural adjustment plan.

Social programmes consumed 0.6 percent of the Gross Domestic Product (GDP) up to now. The government will begin to earmark up to two percent for social subsidies – some 1.4 billion dollars at the current exchange rate.

More than one million poor families will receive 17 dollars a month in food subsidies. Aid to expectant and nursing mothers will be increased. And some 200 locales, where food will be sold at below-market prices, will be opened.

To keep the cost of public transportation from ballooning, some 120,000 private operators will receive a direct subsidy for up to 75 percent of what it costs to fill their tanks.

But the measures will mean prices will rise more than 14 percent in May and June, compared to a 24 percent rate in the first three months of the year, 57 percent in 1995 and 70 percent in 1994.

Annualised inflation is currently 78 percent. By the end of the year it is expected to hit a three digit figure – although according to the Planning Minister, “without adjustments it would be worse, and would reach 150 percent.”

It is hoped that inflation will slow down in the second half of the year, by which time interest rates will have overcome inflation. In the meantime, the banking sector will be assisted with a special protection fund that will start out with 300 million dollars.

The government has promised to speed up the privatisation of aluminum companies, assets of the Aeropostal airlines (which has been closed), the 49 percent of shares it still holds in the telephone company that was privatised in 1991, and shares in electric and tourist enterprises, in order to bring in resources to reduce the fiscal deficit.

The government is also gearing up for spending cuts, perhaps amounting to six percent of the budget. The budget is nearly 17 billion dollars at the current exchange rate, and without the adjustments will show a deficit of five billion dollars or seven percent of the GDP, according to Petkoff.

Caldera, an 80-year-old christian socialist who has dedicated 60 years to politics and labour law, will also announce a review of the system of social benefits for workers, which the business community and liberal economists argue are a paternalistic and populistic hangover.

The reforms will fall on a population that has been impoverished by 18 years of steadily falling real wages, in a country where the official unemployment rate is 11 percent, and half of the labour force works in the informal sector of the economy.

Venezuelans, who spend 70 to 80 percent of their income on food, have packed supermarkets over the past few days. Their fears were made tangible by the nearly empty supermarket shelves, the scarcity of goods in electric appliance stores, and the long lines in front of petrol stations.