A devaluationist sends a message

Due to my work as a financial advisor, I have been able to see the damage being done to our economy by the overvaluation of the Bolivar firsthand. I therefore reiterate with urgency my call for a readjustment in the exchange rate of between 30% and 40%.

I am a bit disconcerted by the fact that by calling for this adjustment, for some strange reason that I don’t understand, I know I will be branded as a member of a group named “the devaluationists”. This group apparently has been attributed characteristics similar to those of a gang of hoodlums or even worse, of some type of malevolent sect. It is said that “the devaluationists” operate in the name of, and to the benefit of, evil speculators.

Jesting aside, the truth is that during the past weeks we have seen the birth in Venezuela of a campaign against the use of the devaluation as a normal and legitimate economic policy tool. Before the credo of “No Devaluation” acquires religious status, I wish to say the following: I wish for a devaluation now! This does not make me a “devaluationist”. Not any more so than a doctor who diagnoses the onset of gangrene and immediately orders the amputation of the affected limb cannot be labeled an “amputationist”.

For a long time now Venezuela has suffered through a period of inflation which is far and above the devaluation of it currency. The latter, therefore, has slowly but surely been revalued. A devaluation today would simply serve to bring the past up to date.

In order to sustain the actual overvaluation of the Bolivar, the government has had to resort to a policy of exorbitant interest rates which have only succeeded in shrinking our economy even further. The fact that Government officials maintain that the stability of our currency is the result of their excellent handling of the economy while they have to resort to high interest rates in order to support the same, would be funny if it were not for its tragic implications.

To blame inflation and other such diseases on devaluation is similar to believing that a fever causes illness, to the punishing a messenger because he delivers bad news. And as if that were not enough, the poor behavior of oil prices should cause enough to implement an immediate and anticipated devaluation without having to wait for our foreign reserves to be depleted.

Surely a devaluation will benefit some speculators. However, all speculation has two sides to it. Should we not devalue, speculators who dedicate their time to taking advantage of the high real interest rates offered by the financial system in Venezuela will benefit.

I recently read some illustrative declarations issued by Dr. Bradford DeLong of the University of California about the debate between those that propose a fluctuating exchange rate, represented in this case by Dr. Milton Friedman of Stanford University and those that favor a fixed exchange rate, represented by Dr. Robert Mundell of Columbia University.

DeLong explained the debate as follows. According to Dr. Friedman, the exchange rate is a price. To fix it, therefore, would be to violate human freedom. On the other hand, Dr. Mundell maintains that an exchange rate implies a promise. Therefore, to change it would be to default on an obligation. The concept of a solemn “promise” must be what inspires today’s fervor in Venezuela.

Evidently, should someone in Venezuela have issued a promise such as that mentioned by Dr. Mundell and should this promise have been accompanied by economic policies that at least gave us some hope that it would have been kept, I would be able to join, at least hypothetically, the group that defends a fixed exchange rate. To embrace the credo of a fixed exchange rate in the Venezuela of today, in which economic chaos reigns and without having received a formal and credible “promise” simply seems foolish.

I entreat my colleagues to go to the interior of the country. I will undoubtedly horrify them to see the number of jobs that are disappearing, some of them for ever, simply due to the overvaluation of the bolivar or the recession caused by the sky-high interest rates. The jobs I am talking about are not those created by illusions of the past such as the production of apples. No Sir, I am talking about real jobs in developed sectors in which we are solidly competitive. In the face of global recession that depresses prices and promotes dumping, these sectors deserve support, not punishment.

Those that say today that we should not devalue, simply have not analyzed the realities of the Venezuelan economy. Due to the lack of internal and external demand, most people are simply working in order to satisfy, precariously, their cash flow needs. In this sense, we also have a considerable repressed inflation which must be reflected somehow before we reach an equilibrium.

The lost jobs are civil fatalities caused by the war against the use of devaluation as the government’s fiscal tool. In this war, we are not taking the proper precautions in order to correctly identify the weapons to be used as well as to avoid aiming at civilians. Many of my colleagues simply are closing their eyes, or worse, are clamoring for the use of more napalm.

Excited about the Constituent Assembly 2000

Like many Venezuelans, I have reflected on the Constituent Assembly. At first, I was one of those who believed that although it was true that it seemed necessary to make some changes to our Constitution, these, in any case, could be made through reforms, without the need to resort to what would undoubtedly be a process cumbersome.

Today, when the Constituent Assembly, due to its reception, is almost an accomplished fact, my approach becomes one of "if we are going to do it, let's do it well." Analyzed from this point of view, shaken off the fear of the process and embraced the hope of its potential, I must admit that I have become a fervent and enthusiastic defender of the Constituent Assembly.

My enthusiasm multiplied when I discovered that Venezuela has, at this moment, the unique opportunity to create, for the world, the first Constitution of the next millennium. To be able to live up to these circumstances, I believe it is essential to apply the Chinese proverb, which asks us to aim high for the stars because, even when we do not reach them, we will reach much higher than if we aim for something closer.

I do not downplay the importance of history and I believe that we can and should extract a lot of knowledge from it, when drafting a constitution. However, giving excessive importance to constitutional experts could make us lose an opportunity to thoroughly modernize our constitutional reality.

I accept that there are necessary reforms, which are situated within the context of a traditional constituent debate, such as those that concern the judicial power and the tax capacity of states and municipalities.

Likewise, we require reforms that arise from our own realities. Among these and given our disastrous experience, is that of limiting the State's debt. Because I am absolutely certain that, from time to time, we will have governments incapable of resisting the siren songs, ending up, at no cost, by mortgaging the future of other generations of Venezuelans, I believe that the limitation on the State debt must be have constitutional rank. If Venezuela had not incurred its external public debt, because there is a constitutional provision that prohibits it, I swear to you and I bet you my entire professional career, that thanks to that Constitution, Venezuelans today, "would go better to the supermarket."

Another reform, one of those originating in our own reality and that I consider necessary, is one that establishes the obligation that in the administration of State companies, there is effective representation of civil society. For example, I believe that a PDVSA Board of Directors, whose members were elected by popular vote, rotating a certain percentage of them in each national election, could be an excellent option, to ensure that there is no undue pressure from the political sector or of the oil technocrats.

Notwithstanding all of the above, at this time, what I most wish to highlight is the fact that, as a result of the great changes that have occurred in the world, there is an urgency to introduce constitutional considerations on aspects that have never been contemplated. , in their Magna Cartas, for any country. Allowing me, for these purposes, to suggest the following:

• The information revolution. If it can be stated that "a Democracy with hunger is not Democracy", it must be more valid to say that "a Democracy without information is not Democracy either." Is it not a citizen's right to be able to know the public payroll, the amount of the country's external debt, the “real” recoveries of Fogade, etc.?

There is no doubt that the technology that exists today, to collect and disseminate information, allows a society to have the right to demand from its rulers a level of information, dramatically different, than what could be contemplated when the constitutions currently in force were drafted. I believe that in our 2000 Constitution, the right of the citizen to be informed about government management, in a valid, detailed and real-time manner, should be enshrined.

• The power of advertising. Had they known, in their time, the impact that advertising media have today, I am sure that the drafters of the current constitutions would have introduced limitations to official advertising. The Nation, states, municipalities, government entities and/or state companies should be prohibited from spending a single cent on paying for advertising, clearly aimed at promoting the personal and political image of any public official on duty.

• The globalization. Without a doubt, just trying to redefine the concept of Nation, within what is a world, where global relations intensify, second by second, is a challenge whose importance is lost from sight. How proud it would be for Venezuela to be able to rediscover itself, in a way that guides and illuminates other countries that are lost, which is probably all of them.

Let us enthusiastically face the challenge of showing the world that Venezuela is capable of producing a Constitution that will be an example for the next millennium. Otherwise, not only will we have wasted a historic opportunity, but, to make matters worse, soon after, we would surely have to convene another Constituent Assembly...

Economía Hoy January 12, 1999

My Constitutional wish-list

As do many Venezuelans these days, I have dedicated some time to reflection about the infamous Constituent Assembly (La Constituyente). At the beginning I was among those that believed that, although it is true that our Constitution requires some changes, these changes could be made without having to go through what seemed to be an unnecessarily complicated process.

Today, this assembly, due to its enormous public appeal, is basically a done deal. My outlook, therefore, is now more in the realm of “if we are going to do it, let’s do it properly”. Having analyzed this point of view, having expunged my fear of the process and having embraced the hope in its potential, I must admit I have now become a fervid supporter of the Constituent Assembly.

My enthusiasm is based on the fact that Venezuela now has the opportunity to create the first new Constitution of the next millennium in the world. It is our challenge and our responsibility to ensure that this Constitution is in line with the requirements of this next millennium. To achieve this, we must follow that ancient Chinese proverb that states something like: aim for the stars, and although you may not reach them, you will surely reach higher than if you had aimed at something within easy reach.

I certainly don’t wish to minimize the importance of history. Certainly, we must take heed and learn from the past if we wish to come up with a good Constitution. However, if we allot excessive importance to the gaggle of “constitutional experts” that surround us today, we will most surely miss the opportunity to truly modernize our Constitutional reality.

I accept the fact that there are various reforms that are based on traditional constitutional debate. Among these are, for example, those that correspond to reforms in the judicial system and in the fiscal capacity of decentralized entities such as the States and the Municipalities to create and collect taxes.

Likewise, there are other reforms that are born out of our own particular realities. Among these, I have given special attention to the following two reforms. The first is a strict constitutional restriction on public indebtedness, specially in light of our disastrous experience in the past. This is vital for our country, since we know with absolute certainty that every now and then, the government of turn will not be able to resist the bankers’ siren song, incurring in debt and mortgaging the futures of several generations of Venezuelans without producing tangible results. These limitations on indebtedness should be established in our Constitution.

The second reform born out of our own realities, is one that inserts an effective representative of civil society between the political and technocratic sectors. I personally consider that the Petroleum sector as well as other productive activities undertaken by the State (Sidor, CVG and Pequiven) should be governed by a Board of Directors whose members are elected by popular vote, rotating a percentage of them at every national election.

Notwithstanding the above, what I really wish to address is the fact that as a result of the profound changes that have occurred worldwide, it is urgent that we introduce aspects based on today’s realities that were never taken into account by any country in the world when drafting previous Constitutions, simply because similar problems never existed before. Among these I can highlight the following:

The information revolution: If we can say that a democracy with hunger is not democracy, we can also safely state that a democracy without information is also not democracy. Without a doubt, new technological advancements that make the collection and dissemination of information quick and easy also give societies the right to demand of its governments a level of information that dramatically exceeds the level present at the moment the world’s existing Constitutions were drafted. In this sense, Venezuela’s next Constitution must include the citizens’ right to be informed as to the government’s management of the Nation’s affairs. This information must be valid, truthful, detailed and in real-time.

The power of publicity: Should the drafters of previous Constitutions have been aware of the immense power that the public media can wield, I am absolutely sure that they would have included an article that limits the amount of publicity that governmental entities can undertake. To begin with, they would have put a stop to the spending often undertaken by a Nation, a State, a Municipality or a governmental agency or company on behalf of, and to promote the name of, a particular public official.

Globalization: Without a doubt, to try to redefine the concept of a “Nation” within a world in which global relationships intensify second by second is a challenge of incredible importance. What a source of pride it would be for Venezuela if we could find our way forward in a way that would guide and illuminate the other countries around the world (probably all of them) that have lost their way. 

Let us face this challenge with enthusiasm and show the world that Venezuela is capable of producing a Constitution that is an example for the world of the coming millennium. If we don’t achieve this, we will have wasted a golden historic opportunity. Worse still, we will soon have to call for another Constituent Assembly.