For economist Hermes Pérez, Venezuela must urgently reform its state apparatus to “control future debt payments” and “reduce inflation.” We recently spoke with the researcher, who used clear and accessible language to explain Venezuela’s complex economic situation.
Yahvé Álvarez – Journalist and Historian
Hermes Pérez is a distinguished researcher and university professor. During his 31-year career at the Central Bank of Venezuela (BCV), he rose to become Head of the Foreign Exchange Desk, the body responsible for implementing the country’s exchange-rate policy.
In a direct and engaging conversation, we explored the main areas of his research, including state institutions, economic growth, external debt, and inflation. He also shared valuable recommendations on managing personal finances and household budgets, offering practical tools for families navigating life in a country facing severe economic challenges.
— You have argued that Venezuela must reform the state apparatus to keep debt and inflation under control. Could you explain what this reform entails and why it is so important for the country’s economy?
— Reforming the state apparatus is essential and involves several areas, but the central pillar is the recovery of Venezuela’s institutional framework. As researcher Daron Acemoglu explains in his renowned book Why Nations Fail, strong institutions directly contribute to economic success and citizens’ well-being. Achieving that goal requires an efficient state.
— What does an efficient state look like?
— The United States provides a useful example. Areas with stronger institutions—where the police, courts, and central bank operate independently, economic policy functions properly, and governments act within established rules—tend to generate higher incomes, longer life expectancy, and lower mortality rates. They achieve this without the instability and uncertainty that arise when clear rules are absent.
In Venezuela, institutional deterioration has unfolded over many years, particularly during the past 26 years. That process has disrupted and distorted the country’s normal functioning. We must restore institutions at every level, from municipal and regional governments to the police and the judicial system.
— Do you have another example?
— Colombia offers a clear example of effective state functioning. By equipping its police forces adequately and establishing clear rules against extortion, Colombia strengthened its institutions and improved both economic growth and social well-being. These may seem like small changes, but strong institutions and economic success are directly connected.
— Professor, you have emphasized the importance of institutional stability. How do economists measure it, and where does Venezuela stand?
— The World Bank evaluates institutional quality through six different dimensions, including citizen participation, control of corruption, and government effectiveness. Institutional strength means that all actors in society—public and private institutions alike—operate coherently and that the separation of powers exists in practice. Citizens should be able to take a complaint before a court and receive a timely response. They should also have mechanisms to challenge abuses by public officials.
— How does Venezuela compare with the rest of Latin America?
— Compared with the region, Venezuela ranks very low in most indicators: government effectiveness, corruption control, citizen participation, and political stability, among others. We need to rebuild these areas because stronger institutions create the conditions for economic success.
— You mentioned debt. How could debt restructuring contribute to this institutional reform and to economic stabilization?
— To address our enormous debt burden, which stands at roughly $190 billion, we must appoint a negotiating committee. The committee should consist of internationally recognized figures whom global financial markets trust as credible negotiators. We need individuals who inspire confidence and whom Venezuelans can clearly identify as the people responsible for negotiating and refinancing our debt.
— How should people understand debt restructuring?
— A debt restructuring process—potentially the largest in the world—could become a springboard for genuine economic development. We could link debt payments to new financial instruments such as green, sustainability, or growth-linked bonds. For example, we could direct refinancing mechanisms toward preserving environmentally valuable areas of the country, promoting tourism opportunities, or financing infrastructure projects.
However, we need accurate information before we can move forward. We still lack basic data, such as the number of retirees in the country or the size of the public payroll.
— What role does state reform play in controlling inflation?
— Inflation control, which remains extremely challenging—some estimates place it at around 612%—depends directly on transparency and access to information. The Central Bank of Venezuela stopped publishing the country’s absolute Gross Domestic Product figure in the first quarter of 2019. Since then, it has only released growth variations rather than the actual size of economic activity. Without that fundamental information, no one can produce a complete and accurate diagnosis of the country’s economic situation, and such a diagnosis is a prerequisite for any effective anti-inflation strategy.
— What steps are necessary to begin reforming the Venezuelan state immediately?
— The government must publish key information that has remained unavailable since 2009, including the size of the public payroll, spending on security, healthcare, and education, as well as revenues from oil, VAT, and taxes. Without that data, diagnosing the economy resembles a doctor making a diagnosis without ordering a blood test. We cannot accurately assess the country’s economic condition because we do not know exactly how much the government spends or how much revenue it receives.
— The government frequently highlights consecutive and exponential economic growth. How should people interpret those claims in light of inflation and the economic disparities visible across the country?
— The Central Bank of Venezuela stopped publishing the absolute GDP figure in the first quarter of 2019. Since then, it has only reported growth rates. We no longer know the actual size of the economy. Once we recover that information, we will be able to evaluate the country’s situation more accurately.
The projections for the first quarter indicate growth of approximately 2.5%, but also a contraction in economic activity of around 2%. We need more information to determine exactly what is happening. Since 2019, we have lost access to the official growth series published by the Central Bank. As a result, evaluating government announcements about economic growth remains difficult without complete data.
— Given the current economic situation, what recommendations would you offer Venezuelans for managing their personal finances?
— Many Venezuelans left the country because of inflation. Inflation remains very high. The priority is to bring inflation under control so that the country can achieve genuine economic growth.
Second, citizens need to find ways to increase their income and restore purchasing power. Every adult in a household should contribute to building healthy, efficient family finances.
Third, families need to monitor their spending and identify unnecessary or luxury expenses that they can reduce or eliminate.
— What does controlling household expenses involve?
— I am not just talking about creating a budget. Financial experts also emphasize the importance of monitoring what they call “small daily expenses.” Take the coffee someone buys every afternoon, for example. Families should create a detailed budget of income and expenses and identify areas where they can exercise greater control.
It is not easy, especially in a country where wages remain extremely low. Increasing income is often difficult, but people should continue searching for ways to earn more while reducing expenses whenever possible.
Today, social media and digital platforms offer additional opportunities. People can use Instagram, WhatsApp, and other channels to compare prices and find more affordable options. The margin for savings may be small, but it exists, and households can use it to optimize the way they spend their resources.
