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Venezuela: Coping With Controls
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13589 |
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Section : |
CURRENT ISSUES
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| Issue
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4 / 1988 |
1,097 Words |
| Author
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Vladimir Chelminski
Vladimir Chelminski is executive director of the Caracas
Chamber of Commerce and the author of Inflacion y Pobreza an
America Latina (Inflation and Poverty in Latin America). |
At the end of this year Venezuelans will elect a successor to Jaime Lusinchi. It will be, essentially, a choice between the Social Democrat Carlos Andres Perez and the Christian-Socialist Eduardo Fernandez.
The problems the new president will have to face have never existed before in Venezuela. Inflation has practically wiped out the vigorous middle class that came into being during the decades of the fifties, sixties, and seventies. What remains of the great petroleum boom of 1974-1983 is a very rich class and a very poor class. An official bureaucracy of more than one million persons governs a population of six million. A tangled jungle of laws is choking free enterprise and does not respect the most elemental rights of private property. There are exceedingly high taxes for those in the production sector, compounded by the "tax" of inflation, which in 1986 stood at 40.3 percent, almost double the previous record in 1980.
Labor demagoguery, probably the principal factor in the Venezuelan economic debacle, threatens to grow and transform this country into a replica of Argentina. In 1974, then-President Andres Perez--now a candidate in the December presidential election--thought it legal and economically viable to set all workers' salaries, including those in the private sector. That measure was paid for by inflation, and the supposed beneficiaries in effect gained nothing at all. The next legal salary increase for all workers occurred in 1979, the first year of Luis Herrera's presidency. A similar move was taken in 1984, the first year of Jaime Lusinchi's term. There has been an obligatory pay raise every year since, which has multiplied inflation.
During 1988, price controls will be strictly enforced--though there probably will not be any pay hikes--and the government will assuredly spend more than ever. Currency in circulation will increase even more than it did in 1986. Thus, the next president will have to face the pressures created but contained during the electoral year. Prices will have to rise drastically in 1989 unless the government opts to curb them. If the government takes this tack, it will have to enforce the curbs as a police state, patrolling and even punishing thousands of producers and distributors of goods and services. In order to subsist, businessmen would have to disobey price controls or, as a last resort, close their doors, which would create scarcity and unemployment. On the other hand, labor's response to price increases could be a demand for a more drastic pay raise than any allowed previously. This would fuel even more the problem of inflation. Even worse, this situation could exact
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