GUIDELINES OF MCM’S ECONOMIC PLAN

María Corina Machado (MCM) is emerging as the big winner of the opposition primary elections, if they are held as scheduled on October 22 of this year. The public opinion poll recently conducted by Delphos for the UCAB’s Center for Political and Government Studies shows that her candidacy is the most preferred.

Although during their campaigns the opposition candidates for primary elections have little addressed economic policy proposals or actions they would consider for Venezuela, MCM is the only candidate that has actually publicly presented a team to think over these issues, unlike other candidates that have leaned more towards highlighting the presence of certain figures or specific advisors in their campaign.

MCM’s liberal profile definitely suggests that her vision is associated with rescuing economic freedoms, searching guarantees of property rights and rethinking the presence that the State should have in the economic life of the country. She does not deny it and, instead, she stresses it in her speeches, when she points out that “a system must be defeated, displaced […] with republican, ethical and liberal pillars”.

Therefore, MCM is committed to a liberal discourse that some other candidates (such as Roberto Henríquez, or Benjamin Rauseo himself) try to identify with, but without the same success.

But her nomination has not remained in a vision or in that simple general framework of someone who openly embraces economic liberalism in a country where the State’s control has deteriorated and is a major obstacle for the economic activity, and has got into some more grounded proposals.

Her proposal concerning “expansive stabilization” seems to be an interesting and expected response for those who have seen and suffered an abruptly contracted economy that has endured for 7 years in a row, that in parallel experienced 4 years of hyperinflation and that has not successfully consolidated a process of sustained growth with low inflation. It is a proposal that also contrasts with the contractionary adjustment that the Maduro government has been deploying with a focus, as we have noted in other reports, on wage freeze, credit market rationing and the anchoring of the exchange rate.

The presentation made on May 15 by the team accompanying her, made up of economists Henkel García, Sary Levy, Rafael de la Cruz, Gustavo García, Carlos Blanco and Hugo Bravo, worked as an opportunity to deploy a set of ideas indicating what could be the ingredients of her macro proposal.

Harmonizing monetary, fiscal and exchange rate policies would be in the menu (as highlighted by one of her advisors, Sary Levy) and this will most probably mean, hierarchically, a fiscal consolidation that will lower the pressures on the Central Bank’s primary money issuance and, at the same time, the pressures on the exchange market.

The presence of Gustavo García in her team of advisors provides a slight idea of the fact that this fiscal consolidation will focus much more on a tax reform rather than on a reduction of public spending. Rafael de la Cruz, another member of her advisory team, highlighted that “a sustained program of massive public and private investment in infrastructure, public goods, health, education, among other necessary things, must be undertaken”.

These large investment needs required for the so-called “expansive stabilization” are conceived and seem to be met through three complementary channels: the private investment channel in the oil sector, the non-oil (national and international) private investment channel and the public investment channel with international financial assistance.

Regarding the investment channel in the hydrocarbons area, MCM herself has openly said that she will develop a strategy of swapping sovereign debt for ownership or shares in state-owned companies to be privatized. When she has spoken of the privatization of PDVSA, she seems to be thinking of an international investment program, where the State divests itself of assets and shares in oil projects in exchange for resources that are then reallocated into a debt repayment fund.

Regarding the channel that would stimulate non-oil private investment, in an interview given to the Politiks team in Caracas, MCM clearly said:

“I believe in the State must be a subsidiarity of individual initiative, for you must open the market under clear rules and the rule of law.” In other words, her strategy to attract investment also seems to be leveraged on a set of institutional reforms that, although well targeted, may have an uncertain implementation horizon.

The need for multilateral financial support in her program does not seem less important. Much of what seems to be a public investment program will have to be sourced from concessional loans and resources that can be obtained from multilateral entities, where Venezuela has been absent for years. The presence of two former BID officials in her team of advisors (Gustavo García and Rafael de la Cruz) seeks precisely to reestablish those links effortlessly.

A key point that MCM and her team seem to be clear about is that any attempt to get Venezuela out of international economic and financial isolation requires a solution to the issue of the debts and obligations of the Venezuelan State (including PDVSA) that are currently in default. In MCM’s words for Politiks: “If we don’t achieve a sensible restructuring of all our debt, including both financial and labor debt, we should forget about reactivating our economy.”

The press has been reporting that on July 18, MCM will virtually present at the Americas Society/Council of the Americas in New York a plan based on friendly agreements with bondholder that includes the restructuring of Venezuela’s $60 billion of defaulted bonds issued by the government and PDVSA.

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