Serrano: Unifying the Exchange Rate is Like Cheating at Solitaire

In an exclusive interview with Cronica.Uno's Mayela Armas, Nicolás Maduro's favorite economic advisor explains the whys and wherefores of Economic Warfare.

Translated by Javier Liendo.

Read the original in Spanish at Cronica.Uno

Spanish Economist Alfredo Serrano Mancilla is a key player in President Nicolás Maduro’s team of economic advisors. The president quotes him often and even calls him “the Jesus Christ of economics.” Serrano says that he doesn’t have the legitimacy to give advice, but adds that his texts are out there and the President is an avid reader. He said that  economic warfare, and not prolonged price controls, is to blame for the country’s crisis.

In a short interview, Serrano — also a member of the Podemos party in Spain and head of the Latin American Strategic Center of Geopolitics (CELAG) — as he left the Conference on Latin American Economic Dilemmas in Caracas today, said that the bolivarian agenda must draw out a masterplan for economic policy, adding that the underlying system for apportioning dollars must be settled before discussing exchange rate unification, a suggestion recently put forward by other government advisors such as the technical team advising the Union of South American Nations (UNASUR).

Mayela Armas:  What are your recommendations for President Maduro to face the crisis?

Alfredo Serrano:  I don’t give advice. I wish I had the legitimacy for that.

MA: But President Maduro often quotes you…

AS: President Maduro is an avid reader and I’ve written books and articles.

Amid an economic emergency, there are no easy policy solutions, the answers are complex. There’s the bolivarian economic agenda which draws the guidelines to keep branching the economic policy from there. Steps have already been taken in terms of tax policy like electronic billing which allows clearer transactions, to know how prices are assigned or resolve distribution problems. Exempting 2.3 million people from having to pay Income Tax was also a step forward.

MA: You talk about measures on taxes, but a tax reform has been formulated for years and never carried out.

AS: You have to study the matter well before saying there’s no progress. Big capitals (companies) have been prevented from applying inflation-based adjustments, impoverished families are exempted from paying taxes, there’s electronic billing which will start with big contributors, and will open the way for economic measures. Why not think about penalizing big capitals that aren’t producing? Those who have millions of bolívares in big warehouses that aren’t producing anything.

MA: You said during the conference that measures have to be taken regarding the banking system, because there’s a wide margin to implement more taxes, what’s your recommendations regarding the banking system?

AS: It has to be put to work in favor of the real economy. Financing must be redirected to the productive sector, credits for agriculture must increase, and urban agriculture must be financed. There are engines that work well, like tourism, and exports should promoted through financing as well. Credits should also be assigned more democratically and payments should be adjusted so that small and medium producers can access them, because they need a starting capital. If banks limit capital, it’s difficult for this sectors to be productive. It’s not a policy against the banks but rather for them.

MA: The government already imposes mandatory financing quotas for banks, and also credits are falling due to the contraction experienced by key economic sectors, which are unable to acquire supplies to produce…

AS: It’s true that they need other things, like supplies. It’s also important for the plan that will regulate how dollars are to be granted, which the President calls “Forex Accupuncture,” to include an amount for small and medium producers. It’s fundamental that what few dollars the country still has be divvied up intelligently, and that a portion be assigned to small and medium enterprises.

MA: The “Forex Accupuncture” isn’t about cutting back on dollar assignations?

AS: It’s not restricting. Foreign currency has to be considered carefully as a function of the country’s goals.

MA: It’s about assigning less to certain sectors?

AS: The sectors that produce the most wealth have to be at the front of the line. We have fewer dollars so we have to divvy them up more intelligently, being deliberate. Foreign currency has to be given to those able to produce more quickly. Dollar assignation has a number of purposes: the first is to cover the basic needs of the people, such as in 2011 when we created Misión Vivienda and chavismo tried to resolve everything as quickly as possible, the second thing is allowing the people the right to consume, and you do that with foreign exchange, and the third priority is installing productive capacity.

MA: What’s your proposal for the exchange system?

AS: It’s tough. Exchange systems depend on the economy they’re part of. There’s no single recipe. There is now an emergency decree because the president faces difficulties, but interesting steps have already been taken when the country went from four exchange rates to two.

MA: But there’s a third…

AS: Which one?

MA: There’s a Parallel Market.

AS: That’s what you say. You defend an illegal forex market. It’s important to be careful with that. If I say that in Spain there is no monarchy, I will have to be sentenced. Unless you consider that market as illegal.

MA: What do you suggest for that forex market?

AS: Currently there is Dipro (the protected dolar at Bs.10) which protects the food, health, and hygiene sectors, and there is Dicom (the complementary dollar, at over Bs.500) which is floating. How can we move forward with the Forex system? You have to worry first about who you assign foreign currency to, and only later about the rate. On which economic criteria did you assign them? A method has to be established. I have 15 engines and I have to see which is going to generate more wealth in the coming six months, and that’s where I will devote a greater share of the foreign currency I have, and within each engine you divvy it up between the agents. If you begin with the debate over exchange rate unification it’s like cheating at Solitaire. It’s a nominal discussion while the economy is a real matter.What do you care about the value of the excahange rate if there is no access to dollars?

MA: What’s your opinion about the proposal being put forward by Unasur’s team to the government about establishing a unified exchange rate?

AS: I have no knowledge of that proposal.

MA: You say the country faces an economic war, isn’t that war waged by the government itself when it cuts back on dollar assignations to industry and limits buying raw materials needed to produce?

AS: Economic warfare has two dimensions: one international, one domestic. There’s an external economic war, because two days ahead of December 6th country risk in Venezuela reached a high and that doesn’t correspond with country risk stemming from the payment of the foreign debt. Venezuela has paid every time. The internal economic war is the one waged with DólarToday. I have studied, since Chávez’s death, the behavior of Dólar Today and it rises with a political element.

MA: Isn’t economic war coming from the government itself when it keeps controls in place and cuts back on dollar assignations? When oil was at $90/barrel they handed out fewer dollars to businesses.

AS: Not at all.

MA: In 2013, the barrel was at $100 and dollar assignations were reduced.

AS: In 2009 and 2010 there was a contraction because oil prices fell, but notice the economy’s growth and inflation up to 2013. When there’s less foreign exchange, there are difficulties with the growth of the economy.

MA: Do you believe that foreign debt payments should cease?

AS: Foreign debt must always be paid.

Published in conjunction withCrónica_1_-Pos_lema