Public spending, production and money in economic war | Pasqualina Curcio

It has not only been the salary that has deteriorated in the framework of the criminal and all-out attack on our Bolivar. Public spending and investment have also been the target of these attacks.

What imperialism intends with this attack is not to alter the exchange market, not even the prices of the economy, these are the means to achieve its true purpose: to try to bring the Venezuelan people to their knees due to hunger and misery and thus overthrow the Bolivarian revolution. Affecting public spending has a direct impact on the living conditions of all Venezuelans, making the day-to-day more difficult in circumstances, in addition, in which the salary is not enough. Weakening the State is also an objective of imperialism that is framed in the antisocialist discourse.

Not having, for example, high-cost medicines for free or the school feeding program, or a good health, education, transportation, electricity, telecommunications, water or gas service, or the fact that in this CLAP bags arrive with fewer products, implies that from our homes we must provide ourselves with those goods and services that the State regularly provides, appealing to our pockets, which are increasingly empty as a result of the pulverization of wages caused by the war itself.

Let's see with a simple example how the attack on the bolivar affects the performance of the public administration and therefore all the common people.

Imagine a nation whose government only provides health services. For which, every year it must prepare an income and expenses budget based on the goals that it has programmed to serve the town. Suppose you planned to purchase 1000 medications in addition to paying salaries to all health personnel. By the time the budget was approved it implied having, according to market prices, an amount of 1.000 BsS. That money was available in the economy, the exchange rate was 1 BsS / US $ and the budget was equivalent to 1.000 US $.

Suddenly, the next day, an agent external to the economy, through web portals, published that the exchange rate was 1.000.000 BsS / US $ and not 1 BsS / US $. Immediately, those who produce drugs, who are from the private sector, in their logic of maximizing profits and with the argument of "replenishing the inventory" remarked their prices in the same proportion that the exchange rate varied. To meet the same goals programmed by the government, the budget would no longer amount to 1.000 BsS but 1.000.000.000 BsS.

In this scenario, in which that government suddenly faces a shortfall of 999.999.000 BsS, not because it decided in a populist way to spend more than it had budgeted for, but because all prices increased as a result of the attack on the bolivar. Where is he supposed to get that millionaire of money overnight to cover the budget and, above all, guarantee health care for the people?

One option is to increase taxes and collection, which would make it possible to redistribute the income that, incidentally, in a hyperinflationary situation has become even more concentrated in the hands of big capital. But that will not be enough. There is not enough money in that economy, 1.000.000.000 BsS are needed and only 1.000 BsS circulate. The only way to cover the budget shortfall caused by an external agent is by increasing the amount of money.

This is where the monetarists appear on the scene with their dogma and their famous proposal: We must reduce public spending as far as the blanket reaches! They claim that the amount of “inorganic” money cannot be increased. They say that this money is not backed by the real economy, that this would lead to inflation, as if prices had not already risen 99.999.900% overnight. They finish by saying that it is necessary to produce in order to finance the government. Again they fall into contradictions and get caught up in their own theoretical logic.

If the amount of money is not increased, what will happen is that the government will not be able to demand the 1.000 drugs that it had programmed and will not be able to adjust the salary of its workers. The pharmaceutical companies that, incidentally, are from the private sector because we remember that the government only provides health services, will obviously reduce their production. What sense does it make to produce 1.000 drugs if the government can only demand 1 pill?

Here's the catch: according to the monetarists, we must wait for production to increase in order to finance the government, but in turn, drug production will not increase until pharmaceutical companies perceive an increase in demand, which will not happen until the government, which is the main buyer, has no way to finance its insufficient budget. Are they trapped or not?

The budget for public sector expenditures in Venezuela for fiscal year 2021 was approved in October 2020. It amounted to 3.972 billion bolivars, at that time they were equivalent to 8.137 dollars, the exchange rate was 488.177 BsS / US $. It is the case that, in the framework of the parliamentary elections of December 6, imperialism attacked the bolivar, and without economic explanation they set the exchange rate at 1.500.000 BsS / US $ and all the prices of the economy increased in the same proportion as the change in the exchange rate. That budget, which in October was equivalent to US $ 8.137, was reduced to US $ 2 in less than 2.648,20 months (the result of dividing 3.972 trillion bolivars by BsS 1.500.000 / US $).

2021 had not started and the budget was already 67% insufficient, that is, it would be enough to cover 33% of the programmed goals, not because the government of President Maduro decided to spend more than budgeted, but because they increased all the prices of the economy as a result of the attack on the bolivar. Today, not even two months after 2021, that budget will reach 27% because the exchange rate is already at 1.800.000 BsS / US $. There is no way to cover such a budget shortfall if the quantity of money is not increased in the same proportion as the variation in prices.

Trapped in monetarist dogma, between 2013 and 2020 the BCV has reduced the amount of money in Venezuela by 92%, preventing, among other things, the financing of the fiscal insufficiencies generated by the attack on the bolivar and forcing a cut in the goals, which We have seen it reflected in a deterioration of all the services provided by the public administration. Government consumption has decreased 30% between 2013 and 2018 (we do not have recent figures, but most likely the drop has been greater in 2019 and 2020). As for investment, this has decreased, according to the BCV, 88% between the public and private sectors.

The economic blockade imposed by the US governments has undoubtedly had an influence, but not to recognize that fiscal insufficiencies are generated by the attack on the bolivar and, therefore, fall into the trap that, in these circumstances, monetizing the fiscal deficit generates inflation, in our view, has been a mistake.

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