A year ago, a gust of pure economic optimism swept through the capital of Venezuela. The Hard Rock Café reopened its restaurant in December, a new Ferrari dealership gleamed from a gleaming glass tower and some 200 new restaurants sprung up in the city. After 8 years of economic contraction, Venezuela’s GDP began to grow again, hyperinflation abated and food shortages abated.
The slight recovery was the result of a change in the economic policies of Nicolás Maduro. Breaking away from his predecessor Hugo Chávez, Maduro opted to remove price and exchange controls, as well as tariffs on imports, while allowing a de facto dollarization of the economy. Even the government’s relationship with the private sector became friendlier.
“Venezuela is entering a cycle of economic liberalization,” said Alberto Vollmer, a leading businessman in the rum sector, comparing the situation to China in the 1980s.
But without deep reforms, the mirage of an economic recovery is fading. The consulting firm Ecoanalítica reported that consumption fell 16% in May compared to the same month in 2022. According to the Venezuelan Finance Observatory, the economy contracted 8.3% during the first quarter of 2023.
By the end of 2023, Ecoanalítica expects GDP growth of 3.4%, a much lower rate than the estimate of almost 8% made by the firm in 2022. “A relevant rebound effect is expected when you have such a significant contraction ”, said Jesús Palacios Chacín, a senior economist at Ecoanalítica, “but the ceiling for growth is quite low”.
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While the recovery benefited the economy of goods and services, productive sectors such as agriculture, industry and hydrocarbons need financing. Ecoanalítica estimates that the private sector needs around US$6 billion in credit, but the loan portfolio of Venezuelan banks barely reaches US$730 million.
Venezuela is entering a cycle of economic liberalization
Similarly, the collapse of public services has reduced the competitiveness of companies by forcing the private sector to invest in electric generators, water wells and private transportation for their employees. Palacios Chacín also affirms that the “deficient legal framework”, considering Venezuela’s recent history with expropriations and government interventions, continues to keep foreign investors away.
The new tax on dollar transactions, enacted in April 2022, was followed by episodes of aggressive devaluation and inflation. The salaries of private and public employees – 60% are still paid in bolivars – plummeted. “They went from having a monthly salary of US$170 to barely earning US$80 or US$85 a month,” said Palacios Chacín. According to Ecoanalítica, the percentage of Venezuelans with an income of less than US$100 a month increased from 30% in July 2022 to 52.6% this year.
According to the local pollster More Consulting, the percentage of Venezuelans who perceive that their economic situation is better than that of the previous year went from 52.2% in May 2022 to 28.3% in May 2023.
The government has faced two waves of labor protests led mainly by public sector workers and teachers in less than a year. According to the Venezuelan Observatory of Social Conflict, in January 2023 there was a 136% increase in protests compared to January of the previous year.
Expectations of a post-war oil bonanza in Ukraine have also faded. After the United States sent a delegation to discuss restarting the flow of Venezuelan oil to that country, the Maduro government said production would reach two million barrels per day (bpd) by the end of 2022.
As of May this year, oil production had barely exceeded 800,000 bpd according to official sources. And the licenses granted by the US to companies like Chevron have turned out to be very restrictive, limiting payments especially to oil-for-debt swaps or not allowing the development of new wells.
According to Francisco Monaldi, a leading energy economics expert and member of the Baker Institute at Rice University, under these conditions oil production would peak at 850,000 bpd. Production of one million bpd would require new licenses, conditional on electoral guarantees, included in the interrupted negotiations between Chavismo and the Mexican opposition. Although production increased from 2021, it was mainly due to the exploitation of Venezuela’s unused crude capacity, Monaldi explains. But this capacity has been exhausted, he says, unless PDVSA, the national oil company, manages to drill new wells.
However, it currently only has two operating rigs, up from 120 in the late 1990s. (In addition, only 2 of the country’s 5 oil refineries are partially operational, causing gasoline shortages worldwide.) country and lines of cars of several kilometers to obtain fuel).
Elections ‘ad portas’
Venezuela appears to be strapped for money, and the administration is cutting gasoline subsidies, laying off doctors from public hospitals and teaching national guardsmen to bake and do hairdressing as alternative sources of income.
They ousted PDVSA executives along with the powerful oil minister after billions of dollars disappeared due to the use of middlemen to export their sanctioned oil (the lost billions could equal 27% of GDP). The lack of cash could affect any distribution of favors ahead of the 2024 presidential election, which will include the opposition for the first time in 10 years. “Public spending used to be 40% of GDP and now it is less than 10%,” says Palacios Chacín.
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The government remains highly unpopular and is trying to avoid any chance of facing a united opposition front. Some candidates are barred from running, and the Chavismo-controlled Supreme Court of Justice recently took up a case that could suspend opposition primaries scheduled for October 22. This could unleash an internal war between candidates.
In fact, on Friday – after figures close to the Executive threatened to ban the participation of the current leader in the polls, María Corina Machado – the Comptroller General of Venezuela ratified a 15-year political disqualification against the opposition, who leads the polls in intention of votes for the primaries.
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And all Chavismo-aligned members of the National Electoral Council (CNE) resigned, ending any possibility of technical assistance to the opposition primaries. “The government is not interested in the success of the primaries,” said Eugenio Martínez, a specialist in Venezuelan elections.
However, Martínez believes that Maduro’s new pragmatism and his desire to regain international legitimacy could lead him to make some concessions before the elections, despite the economic situation. “The nature of these concessions will depend on the opposition’s ability to articulate and mobilize by 2024,” he said. And he concludes: “The opposition should try to take advantage of even the minimal concessions granted by Chavismo.”
TONY FRANGIE-MAWAD
Americas Quarterly – Caracas
Independent journalist based in Caracas. consumption plummets The contraction of sales in the capital Caracas and
the central region of Venezuela reaches 21%
and the situation is much worse in the province, warns the Consecomercio merchants association, which presented in recent days an estimate of the behavior of sales in the first five months of 2023 compared to 2022.
The usual power cuts and fuel shortages in the interior make the difference with Caracas “abysmal”, emphasizes Consecomercio. The decline reaches 44% in the east of the country, which concentrates tourist destinations, and 34% in the west, the agricultural pole.
Rebound effect
The reduction in inventories is a mirror of the drop in sales, since many merchants have not replaced them since December. Last year, due to the “shy” economic recovery, “many merchants acquired inventories and now the merchandise is not moving,” explains the president of Consecomercio, Tiziana Polesel.
The rebound of 2022 was especially felt in Caracas with new establishments, although several have already closed in recent months or reconsidered strategies due to competition and low demand.
Thus, the timid signs of recovery last year are beginning to be overshadowed by signs of a worsening of the crisis that led seven million Venezuelans to emigrate, warn specialists.
“There are no economic policies that lead to sustained growth. The rebound effect that we saw last year had to do with oil prices,” comments economist Pilar Navarro, from the firm EMFI Securities, recalling that a barrel was above $100 after the invasion of Ukraine.
The slowdown in the economy coincides with a corruption scandal that rocked the state oil company PDVSA with the diversion of at least US$ 3,000 million of payments for crude oil in crypto assets in 2022.
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The situation affected liquidity and the government’s cash flow, also destabilizing the exchange rate in a de facto dollarized country. There was also an inflationary “rebound”. “With 436% inflation (interannual to May), it is difficult for anyone with any salary to maintain their purchasing power,” says the professor and former head of the exchange desk of the Central Bank Hermes Pérez.
January, in fact, was the month with the highest inflation in the last two years with 42.1%. The firm Datanálisis, in this difficult context, calculated the loss of consumer confidence at 23%.The economy has not collapsed, experts agree, thanks to the extra resources derived from the operations of the US oil company Chevron, authorized by the United States in a limited way at the end of 2022.
“The reason why we did not have a macrodevaluation between March and May is because there are dollars in the market
. And where do those dollars come from? There is no other source from Chevron,” says Luis Vicente León, economist and director of Datanálisis.
Pérez estimates that the exchange market receives around US$100 million a month from Chevron, an unrepresentative amount for Venezuela’s oil revenue history, but it is “enough” amid the complications to export oil due to the Washington embargo.
“The impact of this measure has been largely positive,” says Pérez, who, even with suspicion, expects a stabilization in the second semester.
BARBARA AGELVIS
AFP
Caracas
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