According to calculations by the Venezuelan Financial Observatory, Venezuelans’ prices rose by 8.5% last June. Cumulative inflation in the country was 100.75% as of mid-year, according to the same agency. The consensus among economists is that it will reach 200% by the end of the year. The triple-digit average, while alarming, is far below what the country has experienced in its recent history, such as in 2018, the peak of high inflation and mass exodus of citizens.
After a historic collapse of the economy between 2014 and 2020, as a result of a sharp drop in oil production that accounted for 80% of its GDP, Venezuela is looking for room to expand. That expectation, for now, seems doomed to have a ceiling: its own political crisis.
Venezuela’s economy is growing, supported by an improvement in its oil GDP, but clearly not at a sufficient rate. At the end of last year, exacerbated by new corruption measures by the government, an exchange rate depreciation occurred that almost paralyzed manufacturing activity again. The country will have to have many years with double-digit growth rates to regain its old physical character.
Today, accumulated inventory has made it possible for many commercial chains—Farmatoto, Central Madrin’s, Excelsior Gamma, Pego—to meet the hardships by offering touch-and-go offers because of the need to move their goods. Imports, which were traditionally very high, have declined. The crunch of consumption has put many consumers up against a wall, having to choose what to pay attention to, and for this reason they often abandon brand loyalty. National products are less abundant and more expensive.
The monthly minimum wage is just $5. Private sector salary scales are more reasonable, often supplemented by dollar bonuses, but are often low. Nicolás Maduro has ordered an increase in the government’s complementary bonds with food bags. There are many people who have two and three jobs, each of them paying very little. It is becoming common to find people living off remittances from relatives abroad.
There are some expectations among economic agents about the impact of the so-called “Chevron effect”, now that this multinational company has received a license to expand its operations in the country and free up the Venezuelan coffers.
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Weak production at Petroleos de Venezuela (PDVSA) is regaining some momentum thanks to Pedro Tellechea’s efforts. Joint ventures Sinovenza and Petromonagas have reclaimed the land. Other international crude oil operators are clearly interested in obtaining production licenses within the framework of international sanctions. The country is producing 800,000 barrels a day, a far cry from its traditional 3 million barrels in the past. Licenses to Eni and Repsol for national gas production will have a positive impact on the exchequer. The Maduro government has improved its tax collection and is using a strict fiscal stimulus for some economic activities.
“Upon entering 2023, there was a slowdown in sales that broke the illusions of many. We came from a great year. They are recovering, but less than expected and much less than previous periods,” says Rafael Montana, an entrepreneur dedicated to food commercialization, especially at the national level. Coffee. “At this point the entrepreneur struggles to make the mark even under the same conditions.”
The market, once the fourth-largest economy in Latin America, has shrunk dramatically since 2014. César Petit, former Chief Economist of the Economic Analysis Department of the Central Bank of Venezuela, is today a financial analyst at BancTrust and Co. In the new environment of political uncertainty, many private investment projects may be postponed.
Tamara Herrera, economist and director of Síntesis Financiera, believes that the implementation of the tax on financial transactions by the end of 2022 has had a serious impact on economic performance. “The country’s biggest problem is that it needs incentives and internal and external funding to invest. There is none,” he says. “Without bank credit there is no production or consumption. The basic needs of the economy require profound changes”.
Amidst the information filter promoted by Venezuela’s central bank and the country’s authorities, economic actors are creating their own analytical monitors, engaging technical experts to allow them to create reliable data around where they stand.
“This group of Ecuadorian advisers helping the government has maintained the same four elements of economic policy since 2018, varying the intensity of one and the other,” says Herrera. “The focus is on limiting the amount of bolivars in circulation so that people don’t buy dollars and reduce pressure on the exchange rate. Hyperinflation has passed, but this policy has backfired effects, and inflation rates are still high.”
The differences between the quality of life in Caracas and the interior of the country are very noticeable. In the capital, problems with public services are much less felt. “To get what I sell in a week, I have to work for a month,” says Euclides do Nasimiento, son of Portuguese immigrants, who manages a winery in Polita, an industrial area east of Caracas. “Many people come to the business to ask for food, help. I can’t please everyone, I have to tell them to go.
“A new relaxation of international sanctions is unlikely,” Pettit observes. “If María Corina Machado continues to rise in the polls and Maduro loses the election, a radicalization could come that creates a crisis and affects Chevron’s operations. If so, the inflationary effect will be immediate”.
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