This week, Nicolás Maduro celebrated the double-digit figures of the economic recovery of the first quarters of 2022 in front of the entire business union gathered at the Miraflores Palace. On the street, Venezuelans spent a tense week watching the dollar shoot up day after day and with it prices. There have been rumors of looting and the closing of businesses that the government once again calls speculators. A new black week in the economy of the South American country, which after seven years of precipitous decline in GDP, was beginning to show signs of life.
The official exchange rate increased 12% overnight this week and accumulates a 35% increase in the month of August alone. The policy of containment with which Maduro’s economic team has subdued inflation is leaking. The Chavista government has applied a high-cost strategy. On the one hand, the credit market has been cornered with the imposition of a high legal reserve that has left the productive sector without financing and more than a million cardholders without purchase options, in order to reduce the supply of bolivars. It has also sacrificed workers’ wages. With injections of dollars into the market, in which international reserves have been burned, it has managed to make hyperinflation disappear and, during this year, keep the exchange rate stable, until now.
In almost all of 2022, the dollar has remained at a rate of around four bolivars, when in reality economists’ estimates indicate that it should be above 20. This week it has reached nine bolivars, an abrupt jump that also triggers uncertainty. “The exchange rate in Venezuela is very overvalued. There is growth in prices, but the exchange rate is held back, because the Executive sells cheap currency. That creates a dam that was going to break sooner or later. And what is happening is the slippage to an equilibrium exchange rate that should reflect what the bolivar has really lost in purchasing power, ”explains Manuel Sutherland, director of the Workers’ Research and Training Center.
Economist Leonardo Vera reminds that the exchange rate is a thermometer. “Having wage repression and anchoring the exchange rate when you don’t have more currency ammunition is not the most successful. We have the highest banking reserve in the world, which has also slowed down the recovery, and also an inadequate exchange market, where there are not many incentives for private companies to inject dollars and the only provider is the Central Bank of Venezuela”. What has happened this week has shown that the incipient recovery has a limit and that the stability of the exchange rate has not made people trust the bolívar again. “Such a scheme bursts at any moment.”
This exchange rate shock comes from March. After 10 months without any adjustment, the Government decided to increase the insignificant minimum wage by 1,700%, which went from one dollar a month to 28 dollars, in its equivalent in bolivars. To assume the labor commitments of this unplanned increase in annual spending, the Government issued an administrative rule from the National Budget Office (Onapre) that cut the clauses and benefits of public administration contracts, where some three million people work. Venezuelans. This measure further lit the fuse of labor conflict in an impoverished Venezuela.
Since then there have been protests against the rule, but in August discontent escalated. The government was forced to give in to a scenario of daily and massive protests throughout the country by teachers and university professors who demanded to receive their full vacation bonus and respect union agreements. Thus, he had to deposit 3,000 million bolivars to the public payroll, which produced a rush to buy scarce dollars.
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Maduro is going through this pothole with a drop in oil production, due to operational problems at PDVSA in addition to the sanctions, and a drop in the price of crude oil. In July, Venezuela reported to OPEC the production of 629,000 barrels per day, the lowest level this year, almost 30% less than at the end of 2021, when the industry showed signs of reactivation and the Chavista leader dared to consider the goal of closing 2022 with a production close to two million barrels of oil per day.
Until a few years ago, trading in dollars was illegal in Venezuela, where the government imposed restrictions on the sale of foreign currency for 15 years. In 2019, an undecreed opening ended up pushing a dollarization forced by the economic debacle. In this week’s currency crisis, Chavismo has gone on the offensive. Maduro called on the people “to fight the parallel dollar”, although the officer also experienced the rise. Prosecutor Tarek William Saab threatened to charge merchants who sold at a rate different from that of the Central Bank of Venezuela. A declaration that reissued the fears of the years of price controls and aggressive inspection of businesses. The Supreme Court of Justice, where the workers went to demand the repeal of the so-called Onapre rule, this week dismissed their demands and fined those who filed the request for annulment, a group of pensioners and retirees from a public institution.
Although some sectors and regions have experienced growth, basically driven by an increase in consumption capacity, Vera sees that what has happened this week may compromise the positive forecasts for the end of 2022. At the beginning of this black week, the ECLAC predicted a 10% growth for Venezuela and placed it second in the region hit by the throes of the pandemic and the rise in fuel prices. “Things have been happening that do not predict that we will have growth as vigorous as expected: oil production is stagnant or falling, wages in dollars have not grown in the last three months,” says the professor at the Central University of Venezuela . “A country that has fallen so much does not need to grow for a quarter but for a decade.”
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