VENEZUELA’S CRISIS – DEVISING SOME NEW REFORMS

-Subhashini

Introduction

Since the last one and a half year, we are witnessing a continual volatility in the economy of Venezuela. The international exchange rate of their currency ‘Bolivar’ has been depreciating persistently. We can find a number of write-ups explaining and analyzing the various reasons behind the economic crisis in Venezuela. More or less, every article talks about the same causes, which I have enlisted below:

• Food crisis
• Political problems- new power struggles
• Vulnerable Economy- The depreciation of the currency
• Substantial decrease in the prices of crude oil
• Increased rate of crimes due to no befitting punishment/trials/proceedings

A brief analysis

Devaluing the currency of a nation facing a crisis could prove beneficial for a short span of time only, as it eventually causes the inflation to increase many-fold. On one hand the exports become cheaper, but on the other hand the household essentials become expensive. Altogether, this method often used to improve the economic condition for a while in turn causes the nation to encounter another economic challenge.

The current situation of Venezuela could be very well explained with the help of an example- Suppose a person standing on the edge of the railing loses his balance and falls to the ground from the 2^nd floor of a building and cries for help. At first, a person from the ground floor sees him and says, “Are you a Leftist or a Rightist?” The wounded man replies “Leftist”. On hearing this, the other person says that being a Rightist he is not at all concerned with the condition of the wounded man and goes away. After a while, another person from the first floor sees the wounded man and asks him the same question. This time the wounded man replies “Rightist”. To this the other man replies that being a leftist he is least bothered about his wounds and leaves him in his state. Ultimately, the wounded man dies.

The political ideologies influence the economy largely and lead to a formation of Left-Right political spectrum.  The society itself gets divided into two sections- pro government and pro-opposition. But in the end, what really matters is not the Government or the opposition, but the well being of the citizens of the country who suffer because of this tussle created by the clash of ideologies.

Possible reforms that could be undertaken

Here I enlist some of the possible remedies that I believe, could help the countries facing economic crisis, particularly Venezuela to recover and improve its state and order. What is needed is the introduction of some subsidiary measures in addition to those that are already being practiced to improve the nation’s economy:

1. Formation of a think body- The countries facing a crisis similar to Venezuela should devise and organize a think body or institution consisting of intellectuals, scientists, economists, marketing experts, etc. This body’s job would be to carefully analyze the limited availability of their resources and also to come up with ways to import the highly demanded resources from other nations at cheaper prices. The resources could either be imported in the form of raw materials which could later be processed in their own country, (this would decrease the cost of imports and would provide employment to the people) or in the form of finished goods, which could be imported from that particular nation which provides cheaper goods of a fine quality, if not the best.
2. Privatization of Government Enterprises- The practice of the Government overtaking the private enterprises is a negative aspect and might lead to such a crisis. It decreases the work efficiency. It would be better if these industries are divided into several small sections and privatized at smaller levels, even if it requires the entrepreneurs from other countries to manage and also invest in them. The Government should legally support these small level privatized companies as per the policy.
3. National consumption should be decreased- What I’m trying to convey here could be explained through an example: Whenever there’s a financial crisis in a family, the members of the family try to reduce their spending by cutting off their unnecessary expenditures and requirements and also curbing their luxurious lifestyle for a while until their financial condition improves. In some cases, even the unemployed members of the family try to augment the family’s earnings by taking up jobs or some project. Likewise, the economic crisis of a country should be rectified in a similar manner. The nation should reduce their spending by cutting off expensive imports from other nations. The Government should also work towards employment generation in order to decrease the unemployed force in the nation. As a result, the amount of exports would increase, there would be a capital inflow, the currency would become stronger and the economic situation of the nation would improve.
   A similar sort of a situation could be well witnessed in India during the time of partition, when many families from Pakistan migrated to India and were struggling with severe financial crisis, as they had absolutely nothing. To improve their living standards, those families started getting self employed by setting up small-scale businesses. Slowly and gradually they were able to overcome the financial tension that once prevailed in their families and inch by inch moved towards prosperity.
4. Surplus of goods- When the national consumption decreases, it would generate a surplus of goods. This surplus could be developed as a separate export oriented commodity. Even if these goods are sold at almost cost to cost pricing to other nations, (i.e. there are no huge profits) it would help to minimize the foreign exchange deficit which is prevailing in the country. When the goods would be sold at low levels of profits, finding potential markets for those goods won’t be a problem, as the prices would definitely be lower than the market prices around the world. This procedure could be carried out until the economic condition of the affected country becomes stable.
5. Small transactions carried out in cash- The small transactions within the country should be carried out in cash, irrespective of the purchasing power of the currency at the time of crisis. Government should increase the limit of cash transactions so that the currency in the country is respected. If there is a large amount of direct payment involved in the transactions within the country, the currency would be respected and the common man would get the privilege of using their own currency according to their average requirement. The disrespect of a currency of any nation is very dangerous for the statehood and sovereignty of that nation, as currency itself is a goodwill of a nation.
6. Deposition of valuables- The government should appeal to the general public of the country very effectively to deposit a part of their valuables (gold, silver etc) in the Government banks and in return the Government should give them some interest per year. There should be some locking period (2 or 3 years) for which these valuables should be locked and could only be sold in case of an emergency in the family. This would give the Government hold of a declared and proved treasure, as there is an international value attached to these valuables. On that basis, the Government would be able to arrange funds from other nations within that locking period. These funds would primarily be used for export oriented natural resources utilization projects.
   These projects might also be given to the international entrepreneurs accompanied by certain limitations, so that the profits generated do not move out of the country in very large amounts. The entrepreneurs from the same as well as other nations should be bound to accomplish the targeted profits within a specified period of time so that it should not cross the limit of that period for which the valuable has been deposited in the bank. The calculation for all of this should be done on an average basis. This would also generate employment and would automatically improve the fiscal situation in the country.
7. Introduction of decentralized management for natural resources- The policy of handing over the project of excavation of a natural resource to a single enterprise should be done away with. Instead, that project should be given to several small companies by dividing that resource into small parts. That would lead to a faster establishment of projects and a quicker generation of profits. Employment engagement would also be faster.
8. Development of cheap housing- Due to the economic crisis, rents tend to sore very high. Government should develop cheap and affordable housing, where the constructors (laborers and masons) become the owners as well. This work should be done on a part-time basis instead of full-time, so that people feel that their extra or overtime physical labor is paying for that very house which would be owned by themselves in the future. The purpose of this would be to give the lower class an assurance that their hard work is compensating for their own future comfort, and they themselves would be the owners of their house once it is constructed and would not be required to leave their land. These houses should be made in a way that one part of the house could be rent out. The rental income should be given directly to the Government so that the expenses incurred during construction are met out in the long run. The key advantage of this policy would be the availability of a large number of skilled, semi-skilled and non-skilled workers in a specific area, i.e. availability of readymade workforce for setting up a new industry near that area any time. Besides, this possibly could attract the foreign investors to establish their enterprises.
9. Fixation of the prices of essentials- A policy should be introduced by the Government which states that the prices of the necessities and the essential commodities would in no circumstances be increased until the economy of the nation becomes stable.
10. Unemployment allowance- The unemployed force of the country should be given an unemployment allowance by the Government to involve them in agricultural, housing and industrial activities immediately so that the production of the necessary goods increases and the prices become stable.
11. Splitting of currency into smaller denominations- If possible, the currency should be split into smaller denominations. This would lead to numerous perks. Firstly, if the currency also exists in the denominations of 15, 25, 35 etc, then the repeated/double circulation of money would draw to a close. The printing of these denominations would involve a one-time expenditure. A quick example- say to pay for an amount of 15, one needs two notes- a 10 and a 5. If there is one note of 15, the cost of printing would decrease. Secondly, when the denominations would become easily available, they would lead to faster transactions. Thirdly, when the currency is available in smaller denominations, it would minimize the collection of unaccounted money because storing so many notes would be a tough task.
12. Consideration of unaccounted money- Whenever a currency is about to fail, people who have huge reserves of unaccounted money face the maximum threat, as their notes start turning into nothing but paper.  What the government should do is that they should initiate an open window, where the people could be able to declare their unaccounted money by allowing the Government to charge some part of that amount as a contribution towards the national economic crisis fund without any penalty, and in return the Government should issue a certificate. This would prevent the currency to depreciate further, and this money would be used to increase the national production. The Government may decide and declare to treat this certificate as a share holding in the enterprises/industries which would be established as soon as the crisis is over and the due dividend would be paid to the certificate holder. If the person declaring their money is willing to contribute an additional amount, he should be welcomed.

Conclusion

Apart from the immediate reliefs, the countries facing economic crisis like Venezuela should also emphasize on spreading awareness among the general public, that how important it is for the young generation to figure out a method of using their limited natural resources in a most efficient and productive manner, instead of just running in the blind race of development and squandering away what is still left on their land.

After reading this article, many of you might think that what I am talking here is to slow the pace of development and to pull the economy backwards for a while. I would like to give an example- while performing a pole vault, a player first moves backwards in order to obtain a higher momentum while running so that he can achieve the optimum angle/height and land correctly and suitably. Likewise, to attain a substantial and higher pace of economic growth in a nation facing an economic crisis, it is required to act cleverly and slow down the tempo for a bit, so that a higher momentum of development could be obtained in the future years and the economy could be restored and repaired.

In addition, there is a long term benefit to all these measures- people of the nation facing a crisis would learn how to survive using a limited amount of resources, and hence in this way the nation would be saving itself from any future possibility of crisis, since the citizens of that nation would have become tactical enough to face such setbacks wisely.

Altogether, this makeover would strengthen the economy and would work in the direction of making it growth-oriented.

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