Villalón: The country needs to encourage private production and diversify exports

Venezuela suffers high levels of hyperinflation and recession that have played against economic stability affecting the productive sectors, and consequently, limiting the subsistence capacities of citizens, but this is a problem with several edges, with more, such and as it is detailed by the economist Óscar Villalón.

“The biggest problem we are facing in Venezuela, in the economic area, is not only inflation per se in isolation. Another big problem we have is the recession, which is the fall in production. That fall is not small either, it’s very big. The last five years the Gross Domestic Product (GDP) has been falling. That means that this society of 30 million or more inhabitants is increasingly consuming less (…) greatly affecting the most vulnerable sectors.”

To avoid this unsustainable social situation, details the specialist in economic topics, it is necessary to apply policies not only to control inflation but to stimulate production.

“One way to moderate the growth of prices is by producing more. And for that, it is necessary to generate suitable conditions. In Mao’s China there was a similar process. When Mao disappears and assumes the reins of the country Deng Xiaoping, he observes an experiment where some farmers were given the freedom to produce and appropriate the profits, resulting in the production increase four times more than when it was controlled by the government . And that is what must be done in the country. People must be allowed to produce, no matter what conditions,” he analyzes.

Guarantees for production: Funeral sector case

Villalón strongly states that guarantees must be given to the private sector so that parallel to the companies in the hands of the State also produce, placing as an example the funeral sector, of which he is an advisor, and has been terribly hit by the difficulties, the economic instability that is lived in the country.

“In the case of the cemeteries sector they need implements to build the vaults where people are buried. Therefore, they require cement, rebar, among other materials, and all this should be produced by the State -because it has control of the state-owned companies that manufacture them- and it does not. Now there is a black market of all that, which makes the cost of a vault so high that people can not afford it.“ He says that if the authority wanted to impact funeral costs would have to assure cemeteries and funeral homes that they are going to get the raw material.

“They would not want to sell a very expensive coffin, but if it is made with an imported brass at a black market rate it inevitably comes out very expensive. Then, the costs of the sector would be cheaper if the State guarantees that the product arrives from the steelmaker to the ballot factory without intermediaries. Because the problem is intermediation. In this case, the price increases 10 or 20 times. A sack of cement of 42.5 kilos, that in the cementera sells in 220 ‘bolÍvares soberanos’, the cemetery pays it in 4800 BsS. If that chain of intermediation disappears, the cost goes down considerably. An urn that costs at this time about 20 thousand Bs.S would fall to 2,000 Bs.S”.

Complex therapy

The exit of the complex Venezuelan economic situation “needs a therapy” as it happens with a disease.

“The exporting apparatus must be diversified because the oil already has an expiration date. I make it hard for oil to continue to be consumed in the world 20 years from now. Venezuela can not continue to depend exclusively on oil. We must diversify our exports. But in this case of hyper stagflation mixed with hyperinflation, the measure for some of these misfortunes -to correct it- unfortunately strengthens the other. Milton Friedman showed that inflation was controllable by the monetary side: if I want to control it instead of expanding the money supply, as is happening, and the measure is taken to stop it then it will decrease, but at the same time it will discourage production. If to increase production we inject money so that more can be produced, that incentive would boost inflation.”

Recovery and zero expropriations

For the analyst if guarantees are given for large consortiums to be installed, excellent profits can be obtained given the country’s wealth. “Provided that guarantees are given that they will not be expropriated because if there is any risk of expropriated investors will not come. There must be sufficient guarantees, a reliable scenario, even constitutional so they will not be expropriated. “

Óscar Villalón knows and explains that there are no magic formulas, but recognizes and raises the need for the citizen to recover purchasing power. “If I am going to produce, I need someone who buys my products, so the purchasing power of the salary must be recovered. All factors must be taken into consideration. “

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Source: DobleLLave

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