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Evo Morales tries reelection: what are the differences in the economic models of …

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Evo Morales tries reelection: what are the differences in the economic models of ...

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Both call themselves socialist governments. But if Bolivia and Venezuela approach the political spectrum, their differences are striking in the economic field.

In Evo Morales's nearly 14 years of rule, Bolivia has grown by an average of 4.8 percent a year, with inflation forecast by the International Monetary Fund (IMF) at 2 percent this year. It also cut poverty in half to 17%.

Nicolás Maduro's Venezuela, with its economic policies essentially inherited from Hugo Chávez, destroyed half of its economy in six years.

There, daily life is like a war: there is a shortage of goods and medicines.

The country's economic downturn has become a humanitarian crisis: more than 4 million people have fled, many to Brazil.

But if both governments claim to be socialist, how can their economies have such different results?

To answer this question, we need to go back in time and understand the success of Morales's policies. Nor can we forget the trauma of the Bolivians with the hyperinflation of the 1980s, a similar history to Brazil.

When it came to office in 2006, at a time of profound political revolt, the Bolivian left remained aware that its permanence would depend on macroeconomic stability.

Minister Luis Arce Catacora's economic team devised a mixed model based on two pillars.

The first and most important is the state sector. In 2006 Morales nationalized by decree oil and gas, as well as electricity. These strategic assets generate dividends that are then earmarked for social policies.

The other part is the private sector, which includes agribusiness in Santa Cruz (eastern) and the informal sector: artisans and small businesses employ more than 60% of the workforce.

With the nationalization of hydrocarbons, money formerly destined for multinational coffers remained within the country and multiplied, as did the power of the redistributing state.

"This has generated a much larger domestic market, for example enabling sectors such as construction and entertainment to become much more profitable," Bolivian journalist Fernando Molina tells BBC News Mundo, the BBC's Spanish news service. .

"And the other consequence is that the informal sector, which is nonetheless poor, improved activity, creates more jobs."

It is precisely this second pillar, the private sector that generates employment, that Venezuela lacks, a country whose crisis is so deep that millions of people have had to flee.

Those with the most money went to Spain or Miami. Those who did not walked across borders, like Brazil.

And, unthinkable ten years ago, there were also Venezuelans who emigrated to Bolivia.

In recent months, many Bolivians have been surprised by the arrival of Venezuelan migrants.

Several of them work as waiters or street vendors.

They also juggle currencies in the main streets of La Paz.

As in Colombia, Chile, or Peru, Venezuelan women are seen carrying small children asking for money, while others hold posters with the colors of the Venezuelan flag.

Different nationalizations

But unlike Venezuela, Bolivian nationalizations were limited to strategic sectors.

This idea establishes a clear boundary between the Bolivian mixed model and the state expansionism imposed by Chavez in Venezuela and deepened by Maduro.

In Venezuela, nationalization was closely related to Caracazo, the wave of violence unleashed by a neoliberal adjustment package in 1989.

So, with the price of oil in the clouds, Chavez even ordered the dispossession of the facilities around Bolivar Square in central Caracas, live during the "Hello, President," his television program.

"And this building?" Asks Chávez as he points to the building. "It is a building with a private jewelry trade," replies then-mayor of Caracas, Jorge Rodríguez, current communications minister.

"Expropriate," says the president as he talks about turning the area into a "historic center."

Lawyer Carlos García Soto, coauthor of the book "Exproprie: The Expropriating Policy of '21st Century Socialism'", describes Chavez's expropriations as "a disorderly policy."

"It was not the product of a strategic plan for the nationalization of economic sectors," García Soto tells BBC News World.

Not surprisingly, in many cases expropriations occurred because of social circumstances or political retaliation.

For example, in July 2015, in Maduro's first expropriation, some land was confiscated to benefit the families who were settled there.

In 2017, the president of the National Land Institute (INTI), Carlos Albornoz, denounced the confiscation of a farm whose owners participated in opposition protests.

The government has also expropriated construction companies due to conflicts with developers and, more recently, the holdings of US multinational Kellogg in the country.

Exchange control and other capital sins of Venezuela

But this state expansionism alone is not the only explanation for the disappearance of private enterprise in Venezuela.

Exchange and price controls are another "capital sin" that critics attribute to the rulers of the Venezuelan economy.

Established by Chavez in the face of the general strikes and stoppages of 2002 and 2003, they soon became an obstacle to economic development and a source of corruption.

It worked like this: to contain inflation, the government fixed certain goods, which soon disappeared from stores.

What was conceived as a measure to protect consumers against the excesses of "greedy entrepreneurs" because of hyperinflation soon caused damage.

After all, if the state-imposed price is lower than the cost of producing the commodity, there is no commercial interest in producing it.

The result, as we all know, was the lack of products in supermarkets.

On the other hand, exchange control, by which the state monopolizes access to foreign currency, has also become a source of scarcity and corruption.

Symbolic case occurred with toilet paper. To produce it in Venezuela, it is necessary to import the glue used to stick the sheets of paper to the cardboard tube and there is no access to dollars, so the product is not economically viable.

In addition, the perfect incentive for the emergence of a black market (the parallel dollar) was created due to increasing restrictions on access to foreign currencies as the price of oil was falling.

"The government decides to sell the dollars below the market with the idea of ​​ensuring that prices remain low. What happened? A big incentive for dollar holders to sell them in the shadow market," Luis Vicente León tells BBC News Mundo, President of the Datanalysis Research Institute.

In this context, according to Leon, the government decides who becomes a millionaire and who is ruined, and that is what destroys the economy.

"Discretion in price formation corrupts everything. It all ends in the same thing, a cascade of corruption that destroys the economic capacity of the country," says Leon.

Economic war

Another difference is that while in Bolivia the government struggled to "decolarize" the economy and build consumer confidence in its currency, in Venezuela, the solution to cash flow problems involved printing more money.

Money in circulation in Venezuela has risen from 127 billion bolivars at the end of 2017 to 8 trillion today.

And this in a context of economic contraction.

This impression of an unsupported currency in the real economy, "inorganic" money, sank the value of the bolivar, making it fuel for inflation.

Nevertheless, the Venezuelan government has never acknowledged its mistakes and claims that the country's hyperinflation is "induced and criminal".

In fact, the Venezuelan government has an explanation for all the country's problems: an "economic war".

Since coming to power after Chavez's death in 2013, Maduro says Venezuela has been the victim of an "economic war" and sabotage orchestrated by right-wing businessmen in collusion with the US.

More recently, he blamed US President Donald Trump's government sanctions against high-ranking officials in his government and the oil sector.

"Of course it is not true that the crisis is the fault of sanctions. The crisis is the fault of the productive model," says Leon. He acknowledges, however, that "sanctions are impossible to affect only the government."

"The sanction magnifies the problem, something that is seen as a sacrifice that must be made to try to get Maduro out of power," says the analyst.

The problem for Washington and the opposition sectors that support the sanctions arises, as Leon points out, when they are not enough to remove the Venezuelan ruler. The same strategy, he adds, did not work "either in Cuba, Iran, Syria, Zimbabwe …".

"Then you extend the process of internal deterioration and destroy the infrastructure, production, industry capacity … And the most affected is the people."

In contrast, "Bolivian socialism" nationalized the strategic sectors mainly with the aim of renegotiating contracts with companies …

(tagsToTranslate) evo morales (t) bolivia (t) hugo chavez (t) venezuela (t) socialist

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