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 approval by the National Congress of a new labor law, now under discussion, which would encourage inflation, inefficiency, disinterest in investing, and unemployment. If that isn't enough, it would concentrate wealth even more than it is already.
Since 1983, the government has controlled the rates of foreign currency exchange by means of an absurd system of various differential exchanges. Presently, for example, a preferential exchange of 14.5 bolivars (Bs.) to the dollar exists for the majority of imports and exports, and a free exchange of around Bs. 30 to the dollar for urgent imports, travel, and movement of capital. This differential has lent itself to all kinds of corruption. Too many people want to buy cheap dollars at Bs. 14.5 to sell them at Bs. 30. What's more, these rates of exchange used to pertain to all imports and exports. The assignment of preferential dollars based on the
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