Viability for the Venezuelan Monetary System: expectations
Author
Br. Yolmar A. Delgado S.
The term dollarization, according to the Economist and Professor of the University of Zulia, Alberto Castellanos -2007-, was strengthened in the late seventies, just when the exchange rate regimes are abandoned and transits in systems where the type prevails Flexible change. This situation implies the loss of credibility in the currency of legal circulation and the impulse to the economic agents a safeguard in currencies considered strong (currencies), historically the currency that has fulfilled this requirement is the dollar, reason why is the term with What this process is identified.
The Economist Héctor Jiménez (2017) states that, within economic policy measures, there are degrees and variants of dollarization: official - according to law - as an act of government or de facto, when prices are priced in a foreign currency for later 'Translate' them into the local currency as a formality in transactions. It can also be total, when the national currency is completely replaced by the foreign currency; And partial when it allows the coexistence of two or more monetary signs legally. Among the countries close to Venezuela that have implemented formal and total dollarization of their economy are Panama (since 1904), Ecuador (since 2000) and El Salvador (since 2001).
Because of the above, economists have proposed dollarizing the Venezuelan monetary system as a formula to correct the economic imbalances in the country. This decision must be submitted to a discussion with experts and economic interest groups, for an objective diagnosis where the causes and consequences of the implementation of the same are projected. For this reason, it is necessary to answer questions such as: Why is the dollarization of the Venezuelan economy proposed? To give an answer, the article published by the newspaper El Mundo Economía y Negocios (2017) indicates that the bolívar, like any Currency has the function of serving as unit of account, means of exchange and deposit of value. For this reason, when the process of a deterioration of economic dynamics begins, it naturally tends to use another currency that can better fulfill its functions.
In addition, the country has three macroeconomic imperfections that require an urgent correction: a first place, a fiscal deficit of around 20% of GDP, which is covered by the issuance of inorganic money, according to unofficial figures published by El Impulso newspaper (2017) . Following an annualized inflation of 741% that subsumes the salary, according to what was exposed by the National Council for Investment Promotion (CONAPRI, 2017). And finally, three types of change that hinders the financial planning of companies and a correct formation of prices.
Added to lotion, the reduction of the productive apparatus, the large money issues without support for the financing of the fiscal deficit and the fall of the international reserves have been the fact that it has reduced considerably the power of the purchase of the bolivar and has implanted the tendency To the dollarization of the Venezuelan economy.
In view of the discrepancies among economists in reference to the subject, emphasis should be placed first on positions in favor of potential dollarization, against the arguments raised against it, in this way to remain in a single document the differences opinions suggested together A Estimates of the behavior of the economy once these monetary policy measures are applied.
Main Economists who are in favor of Dollarization in Venezuela
In an interview by Panorama newspaper Gomez (2016) to one of the 30 most influential economists in the world, Steve Hanke, the question arises: Do you think that dollarization in Venezuela would be a successful process?
"It is that right now you are unofficially dollarized, of course it will be a successful process, it always is." There are 33 dollarized countries in the world and all are doing very well, the transition can not be strong for Venezuelans, it would be great. Do dollarization will be a hero. "
Although the answer lacks its own arguments to the subject, it is still important. A position that second to the previous one in the economy José Guerra (2015)
"... Ecuador in the middle of a severe economic crisis and rampant inflation that ended with the sucre, the currency of Ecuador, was a traumatic process but stabilized the economy.The other way to dollarize an economy in the facts , As has been happening in Venezuela, where little by little but steadily a portion of the prices are priced in dollars, with the authorization of the government, by the action or omission "
Likewise, the Center for the Dissemination of Economic Knowledge for Libertad (CEDICE) and Tren Venezuela in February of this year organized an event where the proposal to dollarize the Venezuelan economy was presented as an alternative to solve the serious deterioration of the bolivar in recent years; In which Venezuelans participated, including the Doctor and author of the book "The Second Death of Bolivar" José Luis Cordeiro, who indicated the following in reference to the process of dollarization:
"It is very easy to change the monetary base. In 2008 a bad coin was changed to a worse one, now what we have to do is to change that currency for the better. "
On the other hand, the Director of the Chamber of Commerce of Caracas, Victor Maldonado, stressed that the impediments against dollarization must be overturned. He affirmed that statism in Venezuela has become a model that generates interventionism and submission.
Similarly, the Director of Tren Monetario, Ruben Pérez Silva, stressed that dollarization would not devaluation. He calculated that inflation would be between 3% and 4% in one or two years after applying the measure. He also opined that, although the Constitution establishes that the legal tender is the bolivar, both Ecuador and Panama maintain their local currencies after dollarization.
On the other hand, the Ecuadorian Economist Miguel Dávila, who worked as general manager of the Central Bank during the dollarization process of his country, expressed the following
"Dollarization is not allowing a few to devalue the wage. Without dollarization there is monetary sovereignty but not consumer sovereignty, "he added:" Venezuela could become dollarized and obtain greater profits than Ecuador ... This measure is necessary but would not change the whole economy or reduce corruption, but the former would stabilize and The second would be evident. "
Likewise, he explained that currently 9 out of 10 Ecuadorians support dollarization and that changing the monetary base is the only way to generate absolute confidence.
Main Economists who oppose the dollarization process in Venezuela.
The Economist of Ecoanalítica, Asdrúbal Oliveros (2015) considers that it is unfavorable a measure of dollarization of the economy, due to the economic and oil condition that Venezuela has
(…) "No, I'm not agree. Venezuela has some particularities as a revenue and oil country that would make the dollarization process unviable. The crucial element in this particular is the marked dependence that Venezuela has on oil revenues and their volatility. In a context of dollarization of the economy, the rigidity that this mechanism imposes to face that volatility is counterproductive.
It then states:
"I believe that one can look at other experiences of countries, including Latin American countries, such as the case of Peru, Colombia, Mexico, Chile, and Brazil, which have managed to reduce inflation sharply without having to go through such an aggressive and abrupt process As is the dollarization "
According to the above, Oliveros adds to the most common discrepancy among experts in reference to the issue of dollarization by including the following:
"In the first place, Ecuador's oil sector is not equal to that of Venezuela, nor the size of its economy. The elements that have spread the oil sector in Venezuela are not equivalent to those of Ecuador, and in the case of Panama, which is the other example that many people think, this is a country with an economy mainly services and much smaller "
Likewise, it ratifies its inclination against this process as follows:
"It is clear that Venezuela needs an adjustment program, and that one of its objectives is to significantly reduce inflation, but not necessarily you can reduce that dollarization, since there are other policy options that you can Achieve that goal without such an extreme measure, such as dollarization "
On the other hand, economists and professors of the School of Economics of the University of Zulia (LUZ), Rodrigo Cabezas, Blagdimir Labrador and Eddy Aguirre, expressed that dollarization is not a reasonable option for the Venezuelan economy, here is a synthesis of His statements:
• Dollarization eliminates sovereignty in the exercise of monetary and exchange policy, which would limit the action of the national state in the face of economic, social or natural disasters
"This is to put a straitjacket free of charge as far as fiscal policy is concerned"
• They stated that the dollar as a legal tender would confine Venezuelan integration experience with Latin America and the Caribbean with regard to intraregional payment mechanisms with the currencies themselves, such as that established in the reciprocal payment agreement of the ALADI and the virtual currency test Unitary System of Regional Compensation (SUCRE)
• The dollarization of the monetary system in a context of falling oil revenues is absolutely impracticable from the perspective of the real and circulatory economy
"The impact on economic growth and the poverty of the population would be devastating" ...
For such positions, they assumed the role of proposing the possible solutions that would face the current economic debacle without the need to dollarize the monetary system. Likewise, they indicated that in order to undertake a fight against inflation and speculation, the exchange regime should be rationalized and stabilized, so that the National Executive and the Central Bank of Venezuela (BCV) should immediately proceed to simplify the exchange system ; Correcting the significant differential between DICOM and DIPRO, since overvaluation stimulates imports and discourages domestic production.
"The stability and confidence in the exchange system, will contribute to increase the flow of financing required for the reactivation of the economy"
In short, Professor Rodrigo Cabezas assures that a post-income Venezuela must accelerate the process of industrialization for exports with the objective of progressively increasing the income of foreign exchange, as well as emphasizing an education of excellence, generating scientific-technological innovation , Which is fully incorporated into the global knowledge society.
Although public opinions, such as those expressed in the previous paragraphs are relevant, through an article published in Prodavinci (2017), the Economist Cesar Gallo explains, convincingly, all the edges left by the debate of economists Against the aforementioned process, the following are some of their most relevant observations:
• One of the main disadvantages that stands out for dollarization is that the BCV loses the function of assisting the banking system in cases of crisis, in response Cesar Gallo asks:
"Is this a disadvantage? Without this possibility, banks would have to apply a very rigorous discipline to ensure that they survive in the midst of crises, to manage their solvency and liquidity more efficiently, to guarantee them with the opening of lines of credit with international banks and The creation of reserve funds ".
• It has also been considered as non-viable that an officially dollarized economy must generate enough dollars to maintain its operation and that until a solid productive apparatus capable of substituting imports and diversifying exports, that objective can not be achieved. In response:
"The problem is precisely that we have been unable to build that productive apparatus, which seems to be possible only by forcing the situation, forcing the rulers and economic policymakers to reorient the course of the economy towards that goal, ) In an officially dollarized economy there is no other way than to impose rigid fiscal discipline, to save for times of crisis, to diversify and to activate the productive apparatus. "
• It is also argued that another of the great disadvantages of dollarization is that it is an irreversible process. In the face of this, Cesar Gallo mentions:
"This measure would force us to go that way without a return, if we want to survive as a country, to be truly sovereign and not just be in the speech of politicians. Once citizens become accustomed to receiving their income in a stable and secure currency of their preference, how many of them would be willing to give up this privilege to receive their income again in strong bolivars?
• In addition, it is said that in the face of an unexpected drop in oil prices or some other external financial shock; Income, dollarized wages and salaries would fall, with no way of adjusting them to that adversity. There would also be no possibility of maintaining the level of loans for investments, while on the other hand, if the local currency is maintained, it could be devalued to increase the working capital, thus adjusting wages and salaries. Given this perspective responds that:
"Thinking about this possibility as an argument against dollarization reveals the lack of willingness to diversify our sources of foreign exchange, to structure and strengthen the productive apparatus, to create reserve funds and the desire to continue to have the machine for Print money if necessary. "
• Another issue that has generated doubts and concerns are the effects that dollarization can bring on employment, inequality and poverty, in response the same author mentions:
"If they accept the premise that such a measure would create confidence and attract capital by boosting domestic and foreign investment in the country and being directed to the productive sector with an emphasis on work, What prevents job creation? "
Complementing this, it should be noted that statistics from the International Labor Organization (ILO) do not seem to support the view of a negative effect on employment in the Latin American economies that have been dollarized.
In conclusion - and as a personal opinion - the dollarization of the Venezuelan monetary system, despite the disadvantages mentioned by different experts, is feasible to the extent that adequate institutionalization is implemented that is capable of carrying out the process. A national day to educate the citizen in reference to everything consistent to the subject, due to the uncertainty that can generate the same and the willingness of the government of turn to face the challenges that this imposes them. To assert the above, it is based on the premise that the Venezuelan government, regardless of who it is, must be pressured to take decisive action for current economic problems, the irreversibility of dollarization generates that kind of pressure that is so necessary, Where it is doing well, or dying in the attempt.
Bibliographical sources
• The World Economy and Business; "Why is the Venezuelan economy said?"; 2017. Information available at:
Http://www.elmundo.com.ve/firmas/victor-alvarez/-why-dolariza-la-economia-venezolana-.aspx
• Currencies of Venezuela; Dollar or not Dollar. A debate always in force "; 2017. Information available at:
Http://www.monedasdevenezuela.net/articulos/dolarizar-o-no-dolarizar-un-debate-siempre-vigente/
• PANORAMA.com.ve; "Dollarizing the country to end inflation"; 2016. Information available at:
Http://www.panorama.com.ve/politicayeconomia/Economista-Steve-Hanke-a-PANORAMA-A-petroleo-a-100-no-rescatara-a-Venezuela-audio-20161219-0002.html
• RunRun.es Guerra José; "The bolivar and dollarization"; 2015. Information available at:
Http://runrun.es/opinion/205517/el-bolivar-y-la-dolarizacion-por-jose-guerra.html
• El Nacional newspaper; "They propose to dollarize Venezuela to leave the economic crisis"; 2017. Information available at:
Http://www.el-nacional.com/noticias/economia/proponen-dolarizar-venezuela-to-salir-crisis-economica_80543
• CEDICE Libertad; "The debate about dollarization Venezuela", 2017. Information available at:
Http://cedice.org.ve/el-debate-on-dolarize-venezuela/
• eumet.net; Alberto G. Castellano Montiel; "The process of Dollarization"; 2007. Information available at:
Http://www.eumed.net/ce/2007c/agcm-b.htm
• The Oil Community; Asdrubal oliveros; "According to the Economist Asdrúbal Oliveros dollarization in Venezuela is not feasible"; 2015. Information available:
Https://www.lacomunidadpetrolera.com/2015/05/segun-el-economista-asdrubal-oliveros-la-dolarizacion-en-venezuela-es-inviable.html
• Panorama Journal; "Economists: Dollarization is not a reasonable option for the Venezuelan economy", 2017. Information available at:
Http://www.panorama.com.ve/politicayeconomia/Economistas-Dolarizacion-no-es-una-opcion-razonable-para-la-economia-venezolana-20170420-0047.html
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