Giordani's dismissal appears to be the result of protracted infighting within the Venezuelan Cabinet. Since the death of former President Hugo Chavez in 2013, influence over the administration of the country's day-to-day economic activities has fallen to several powerful ministers whose responsibilities often overlap.
One of the most important of these is Mines and Energy Minister Rafael Ramirez, who is also president of Petroleos de Venezuela and thus is in charge of the country's only meaningful source of revenue. Ramirez has acted accordingly to protect Petroleos de Venezuela's influence and interests within the Venezuelan government. For instance, in 2013 Ramirez backed efforts by Maduro and Central Bank President Nelson Merentes to implement an alternative foreign exchange mechanism to bring the fixed exchange rate in line with the higher value of the dollar on the country's black market. The new mechanism, which would devalue the bolivar, would provide the energy firm with a better exchange rate on the dollars it earned from exports.
However, the left-wing Giordani has opposed any devaluation and defended currency controls. Giordani played a central role in crafting such controls to halt capital flight after the 2002-2003 oil strike protesting Chavez's policies. According to Venezuelan media reports, Giordani favored maintaining three separate currency exchange rates and firmly opposed the first major post-Chavez devaluation in February 2013. Giordani was able to delay the implementation of the foreign exchange mechanism, but ultimately appears to have been outmaneuvered by his political opponents.
Giordani As Opposition
Giordani's intransigence on changes to the Chavez administration's economic model seems to go against the prevailing current within the ruling United Socialist Party of Venezuela. In March, April and May, the government increased food prices at state-run stores and negotiated higher food prices with the private sector. Venezuela also implemented a mechanism known by its Spanish acronym Sicad II in March, which began disbursing dollars primarily to the public sector. On May 20, United Socialist Party of Venezuela legislator Ricardo Sanguino said that the National Assembly finance commission is analyzing the possibility of unifying the country's three exchange rates, which, according to media reports, would likely be at a rate similar to or higher than the Sicad II rate of 49 bolivars to the dollar. Giordani reputedly continued opposing these measures, which likely resulted in his dismissal.
Giordani's removal from the Petroleos de Venezuela and Central Bank directorates effectively isolated him from the two most important economic decision-making bodies in Venezuela. The move seems intended to reduce opposition within Venezuela's economic Cabinet to the ongoing changes in the post-Chavez era. However, implementing this reform package will be challenging for the Venezuelan government.
With Giordani's removal from the Central Bank and Petroleos de Venezuela, influence over the country's economic policy largely rests with Ramirez, Maduro, National Assembly Speaker Diosdado Cabello and the military bureaucracy. Ramirez in particular appears to be expanding his presence in the country's economic decision-making. For example, Maduro is reputedly considering a proposal to give Petroleos de Venezuela direct control of disbursing foreign exchange received from oil exports, a decision which could give the company and Ramirez more discretion in terms of distributing foreign currency throughout the Venezuelan economy.
In May, Maduro named bureaucrat Franklin Mendez to the board of directors of the Central Bank. According to media reports, Mendez is a close associate of Ramirez, and Giordani opposed his appointment. Cabello's presence in government has also grown in recent months through the appointment of his brother as industries minister and to the board of directors of the National Foreign Trade Center, which administers distribution of foreign exchange.
Maduro's Priorities and Challenges
Because of Venezuela's deteriorating finances, the government is making economic stabilization its top priority. The stalled dialogue with the opposition political parties appears to be a lower priority. On June 11, Maduro publicly stated that the dialogue is suspended; the two sides have not met publicly since May. Maduro, Cabello, Ramirez and other government officials have chosen to focus on reaching out to private-sector businessmen within the opposition instead. The ongoing negotiations with the private sector are focusing on streamlining the imports process to alleviate shortages of basic goods, but major obstacles such as the disbursement of foreign exchange to businesses continue to hamper production. However, this negotiation likely will persist as the government tries to counter shortages, which threaten to reduce Maduro's already declining popularity.
The path to implementing reforms will be fraught with difficulties and constraints for Maduro. The Venezuelan executive is currently considering two scenarios for devaluing the bolivar. In the first, the government would maintain a lower exchange rate at 11 bolivars to the dollar for necessary items such as food or medicine and another at 50 bolivars to the dollar for other transactions. The second possibility is to unify the country's three exchange rates into a single rate of 50 bolivars to the dollar. Either scenario is likely to be politically unpopular, as both choices will increase inflation, but such action may be economically necessary.
The government is also trying to raise revenue. Ramirez has been securing investment deals into Venezuela's oil fields, but such investment may only stabilize Venezuela's declining oil production and not significantly raise it. The government will continue seeking ways to reduce expenses that place pressure on Petroleos de Venezuela, but a vast reduction of social spending could cost Maduro support among the ruling party's political base.
For now, Maduro has postponed drastic measures like raising the price of gasoline, and it remains to be seen whether he will allow an increase in electricity prices planned for July. The most likely reason behind his hesitation is that such measures could reignite the country's political unrest. Because street protests are the opposition's main tool to influence government behavior, it could try to spur further protests against the government's economic measures.
Giordani's reduced influence only lessens opposition to the reforms from within the party. Maduro still will have to contend with the country's cash flow problems and reduced oil production and his own declining popularity. His administration will struggle to implement economic reforms over the next few months and could face increased unrest as a consequence.
