According to a calculation by the Venezuelan Financial Observatory, Venezuelans saw prices rise by 8.5% last June. Cumulative inflation in the country is 100.75% up to mid-year, according to the same body. And there’s some consensus among economic analysts that it could hit 200% by the end of the year. The three-digit average, while startling, is well below what the country has suffered in its recent history, say in 2018, at the peak of hyperinflation and mass exodus of citizens.
After the historic collapse of the economy between 2014 and 2020, which took 80% of its gross domestic product as a result of a sharp drop in oil production, Venezuela is desperate for room to expand. And that expectation, for the moment, seems doomed to have an upper limit: its own political crisis.
Venezuela’s economy is growing, albeit at a clearly insufficient pace, supported by an improvement in oil GDP. Late last year, a devaluation of the exchange rate almost brought manufacturing activity to a standstill, exacerbated by fresh instances of government corruption. The country needs several years with double-digit growth rates to get back to its old face.
Today, the accumulated stock has allowed many retail chains – Farmatodo, Central Madeirense, Excelsior Gamma, Beco – to face adversity by making offers touched by the need to move their goods. The traditionally very high imports have declined. The decline in consumption has left many users with choices about what to take care of and often sacrifice brand loyalty as a result. Domestic products, which are less common, are also more expensive.
The monthly minimum wage is just $5. Private sector pay scales are much more reasonable, often supplemented with dollar bonuses, but they are not sufficient. Nicolás Maduro has ordered an increase in government-supplied supplemental bonds as well as food bags. There are many people who have two or three jobs, each of which pays very little. It is becoming increasingly common for people to live on funds sent abroad by their relatives.
There is some expectation among economic players about the impact of the so-called “Chevron Effect” now that this multinational has been licensed to expand its operations in the country and relieved the Venezuelan treasury.
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Weak production from Petróleos de Venezuela (PDVSA) appears to be regaining some momentum with the efforts of Pedro Tellechea. Mixed companies Sinovensa and Petromonagas have gained ground. The interest of other international oil operators in obtaining production licenses under international sanctions is evident. The country is producing nearly 800,000 barrels a day, a far cry from the traditional 3 million barrels of the past. The licenses to Eni and Repsol for national gas production will have a positive impact on the treasury. The Maduro government has improved its tax collection and applies strict fiscal greed to some economic activities.
“At the beginning of 2023, there was a drop in sales that shattered many people’s illusions. We have an excellent year behind us. “They have recovered, but less than expected and much less than in previous times,” says Rafael Montaña, a businessman dedicated to the commercialization of food, especially coffee, at the national level. “The businessman at this moment is struggling to keep up even under the same conditions.”
The market of the fourth largest economy in Latin America has shrunk dramatically since 2014. César Petit, former chief economist at the Department of Economic Analysis of the Central Bank of Venezuela and now a financial analyst at BancTrust and Co., reiterates that in a new political uncertainty, many private investment plans could be postponed.
Tamara Herrera, economist and director of Síntesis Financiera, believes that the introduction of the financial transaction tax at the end of 2022 had a serious impact on economic performance. “The biggest problem in the country is that we need investment incentives and internal and external financing. None of that exists,” he says. “Without bank credit there is no production and no consumption. The basic needs of the economy require profound changes.”
Amidst the information filter promoted by the Central Bank of Venezuela and the country’s authorities, economic actors are working to develop their own analytical monitors and embed technicians that will allow them to produce reliable data around their location.
“This team of Ecuadorian advisors supporting the government has maintained the same four elements of economic policy since 2018, alternating the intensity of one and the other,” says Herrera. “The focus is on capping the amount of bolivars in circulation so people don’t buy dollars and relieving pressure on the exchange rate. Hyperinflation is over, but these policies are having recessionary effects and inflation rates are still very high.”
The differences between the standard of living in Caracas and inland are very clear. In the capital, problems with public services are felt far less. “To make what I used to sell in a week, I have to work a month,” says Euclides Do Nascimiento, the son of Portuguese expats who runs a winery in Boleíta, an industrial area east of Caracas. “Many people come into the store to ask for food and help. I can’t please everyone, I have to tell them to go.
“It doesn’t seem very likely that international sanctions will be eased again,” observes Petit. “If María Corina Machado continues to rise in the polls and Maduro loses in an election, there could be a radicalization that will trigger a crisis and affect Chevron’s operations. In this case, the inflationary effect would be felt immediately.”
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