[Economics] Venezuela: 5 signs of economic recovery (and its limits)

[#Wittels-]

"Venezuela was fixed" is a phrase that has been circulating for months on social networks creating controversy inside and outside the South American country.

Many pronounce it with a strong charge of irony, while others see in it the reflection of changes that have been taking place in recent years and that point to improvements in some of the serious economic problems that the country has faced in recent years.

Some users attribute that phrase to a supposed strategy of the government of Nicolás Maduro to project a more favorable image. The Venezuelan president, however, has not endorsed that sustained, although he has wanted to gain revenue from the recent changes in that country.

"Venezuela today can say that we deserve the Nobel Prize in Economics because we have gone ahead alone, alone, humbly alone with the Bolivarian economic agenda," Maduro said at the end of March, who sees how certain liberalization policies are having positive consequences. .

A month later, he made direct reference to the phrase. "Some people have come out to say that 'Venezuela has been fixed'. No, it hasn't been fixed. It is improving, Venezuela is going to improve, grow, but there is still a lot to do," he stressed at an event with entrepreneurs, according to local media reports.

Maduro affirmed that Venezuela deserves the Nobel Prize in Economics.

Luis Vicente León, president of the consulting firm Datanalisis, points out that the perception of improvement depends on the point of comparison and that Venezuelans have just experienced a "macro-crisis" in 2018, in which they experienced "brutal hyperinflation", with food shortages. and medicines throughout the country; in which you had to stand in long queues to buy basic products and that these times were obtained above their international price. In addition, people could go to jail for carrying out operations with dollars.

“So, when you compare yourself against 2018, there is no doubt that you are better off,” says León, who warns, however, that between 2013 and 2021 the Venezuelan economy shrank by 75% and that in the last year there was hardly any a growth of between 6% and 8%.

"It's like a plane that was flying at 10,000 feet and started to plummet and before it hits the ground it manages to lift its nose and now it's flying at 2,500 feet. It didn't crash, but it's a long way from its initial height." comment.

The effect of this long crisis is reflected in the daily reality of Venezuelans, as shown by the Encovi study on living conditions, carried out in 2021 by the Andrés Bello Catholic University and which reveals, for example, that there are 24.8% of Venezuelans in a situation of extreme poverty and that 60% of the po[CENSORED]tion lives with moderate to severe food insecurity.

That does not mean that there have not been changes or improvements.

Below we will explain the causes of this recovery, but now we will tell you 5 factors that indicate the change in the economic conditions of the country.

 

1. End of hyperinflation
In January 2022, the Central Bank of Venezuela announced that the country had completed the cycle of 12 consecutive months with an inflation rate below 50%, for which it formally abandoned the hyperinflationary spiral in which it had been immersed since 2017.

Hyperinflation caused the Venezuelan bolívar to lose so much value that its bills ended up being used for decorative purposes.

That good sign was granted shortly after, in March, when the South American country had a monthly inflation rate of 1.4%, the lowest recorded since September 2012.

Last April, the latest date available, monthly inflation rose to 4.4% but is still well below the 24.6% registered in April 2021.

2. Increase in oil production
Venezuela's oil production peaked at over three million barrels a day in 1998, then began a slow decline under Hugo Chavez that accelerated under his successor, Nicolas Maduro, in power.

 

In 2020, oil production in Venezuela fell to mid-20th century levels.

As of January 2019, Venezuela was extracting just 1,106,000 barrels per day, indicating a reduction in production by two thirds over 20 years.

It was then, when the United States government sanctioned the Venezuelan oil industry, from which crude oil production suffered a historic setback that led to levels typical of the mid-20th century, registering an extraction of just 434,000 barrels per day. for November 2020, always according to OPEC data.

However, in the last semester of 2021, the production of crude oil, the main source of wealth for the State, began to increase until reaching some 718,000 barrels per day by December of that year and has remained slightly below 700,000 barrels since then.

A very small figure for the country that presumes to have the largest proven oil reserves in the world, but almost doubles that registered during the historic fall in 2020.

 

3. Economic growth forecasts
Among institutions and economic experts there is an almost unanimous consensus regarding the possibility that the Venezuelan economy will continue to grow in 2022.

A Credit Suisse report projected 20% economic growth for Venezuela.

The estimates, yes, vary significantly. Thus, the International Monetary Fund projects a growth of 1.5%, while a report by the Credit Suisse bank quoted by the Reuters agency estimates the increase in Venezuelan GDP for this year at 20%.

Asdrúbal Oliveros, director of Ecoanalítica, points out that this consulting firm expects GDP to grow 8% and private consumption to grow 12%.

"That has to be understood in the context of a GDP that has shrunk by 80%, so we're talking about an economy that's in the pit, that has fallen too far. That makes it entirely possible to grow at that rate because you're growing 8%. over 20 and not over 100, which is where you were in 2013. To put it in numerical terms: 8% of 20 is just 1.6, so you're going from 20% to 21.6% compared to your starting point which is 100", explains the expert to BBC Mundo.

It also analyzes that this growth is very focused on sectors such as commerce, technology, the food and health industries, while others such as manufacturing, construction, banking and insurance continue to be highly affected.

He warns that territorially the growth is not generalized, since it is focused on Caracas and a few other cities.

"It should also be noted that it is an unequal growth because in Venezuela the gap between those who have access to goods and to be able to cover all their needs and those who do not is very wide," he points out.

 

4. Product Sourcing Improvements
In recent years, stories about the shortage of products in Venezuela have gone around the world.

From the intermittent lack of basic products such as milk, toilet paper or corn flour to make the typical arepas, it went in a few years to a general shortage of all kinds, including essential medicines and even gasoline.

 

Currently, the images of the long queues of citizens waiting to be able to purchase basic products in Venezuela have disappeared with an important exception in the case of gasoline, which still requires queues and waiting by those who want to purchase it at subsidized prices.

"Today you are not queuing at the supermarket to buy milk. Today you get practically full supply. The problem now is prices," says León.

Oliveros agrees and points out that the food shortage index prepared by Econanalítica shows a very significant reduction, which has gone from 80% in 2016-2017 to 15-20% today.

However, the problem of access to the goods that are now available to those who can afford them is not a minor issue due to the low income of the majority of Venezuelans.

According to Oliveros, a study he carried out in January shows that around 50% of the Venezuelan po[CENSORED]tion earns less than US$100 a month, while another 30% receives between US$100 and US$300.

"With these levels, it is clear that people's ability to feed themselves properly is extremely limited, since the minimum food basket (an indicator that includes the food that a family must consume to survive) is around US$350 a month, for which, in the end, the gap is very large," he explains.

 

5. The return of airlines and international artists
After an absence that lasted for years, many international airlines and many foreign artists (or Venezuelans residing abroad) are returning to Venezuela.

Oliveros warns BBC Mundo that he is not aware of any economic literature that uses these elements as indicators of economic growth. However, both have been strongly incorporated into the debate around the phrase "Venezuela fixed itself."

 

Air Europa is one of the few international airlines that flies to Venezuela.

The economic debacle experienced by Venezuela in recent years led to a massive reduction in the number of international airlines operating in the country, whose number ended from 25 to 5 between 2014 and 2022.

Many of these companies decided to leave the Venezuelan market because they were unable to get the Venezuelan government to pay them an outstanding debt that was then estimated at around US$3.3 billion, derived from the sale of air tickets in bolivars at an original price subsidized by the State through exchange control.

However, recent statements to the press by the president of the Venezuelan Airline Association, Humberto Figueras, indicate that at least eight international airlines have initiated approaches with a view to the possibility of operating in Venezuela again.

In the case of the visit of international artists to the country, their concerts turned out to be reduced around 2014 -in principle for political reasons since there were artists like the Spanish Alejandro Sanz who criticized Maduro's repression of the protests against his government- and, then, they stopped for economic reasons around the year 2017.

In recent months, however, there has been a remarkable return of international artists (and local artists but living abroad) to the Venezuelan stages.

Among the groups and singers that have performed in the country is the Colombian band Morat, the Mexican singers Emmanuel and Christian Castro or the Mexican singer-songwriter Fonseca, who had not visited Venezuela for a decade.

 

Mexican Emmanuel is one of the first artists to sing again in Venezuela.

Among the artists who have concerts planned soon is the duo Sin Bandera, the Puerto Rican singer Olga Tañón, the Venezuelan singer José Luis Rodríguez "El Puma" and the Argentine rocker Fito Páez, among others.

Show producer José Luis Ventura explained to BBC Mundo that the dollarization of the economy has been key to the return of international artists to Venezuela because these artists are paid in foreign currency.

He added that the estimated cost of tickets for this type of show ranges between approximately US$30 and US$200.

But, how is it possible that in a country where the minimum wage is around US$30, people can afford these concerts and, in some cases, fill the venues where they are held?

"I think that all of us who worked on this are clear that they worked for a sector that still has purchasing power. It is a minimum sector, I don't know if it will be 5% of the po[CENSORED]tion, but it is working," Ventura responds.

Line
The reasons for the economic recovery and its limits

Asdrúbal Oliveros points out that there are three factors that have come together to improve the supply in Venezuela: the abandonment by the government of the "draconian" policies of exchange and price controls; the dollarization of the economy and the opening to imports.

As he explains, these measures allowed the private sector to operate in better conditions, knowing that it would be able to adjust its costs and guarantee its profitability, at the same time that thanks to dollarization it obtained certainty because it could set its prices in that currency and reach agreements with its suppliers to pay them in the same currency.

 

The frequent electrical blackouts that Venezuela suffers are an obstacle to its economic recovery.

However, both Oliveros and León agree that this incipient recovery of the Venezuelan economy is very limited - "a recovery in the background", as Oliveros describes it - that it will be difficult to take it further if other important changes do not occur.

And, at the same time, a growth rate like the current one of around 6% or 8% is insufficient for the Venezuelan economy to experience a full recovery.

"If you decreased 75% in GDP, in order for you to recover the levels of 2013 you will have to grow in GDP around 400%. You were at 100, you ended up at 25 and, then, to return to 100 you will have to quadruple and that you raised was 6% to 8%. At that rate you will need decades to be able to return to the level of 2013, "says León.

Both point out that these higher rates require infrastructure that can count on electricity, water and all kinds of services that currently lack and for which investments are needed that the government is not capable of making.

"Venezuela does not have access to services. It is a very important element. Neither public nor private financing. The big problem that companies in Venezuela have is the lack of credit. It also has a collapse of the State and a collapse of the public, which also it is reflected in a significant decrease in production capacity. The most emblematic case is the lack of electricity. Without electricity, it is very difficult for the industry to grow," says Oliveros.

The expert believes that the required growth cannot be achieved without a profound reform and without the construction of a political agreement that allows Venezuela to access financing from multilateral organizations with whose support, added to the arrival of foreign investment, a payback within 8 to 10 years.

 

"We cannot access the Monetary Fund, nor the World Bank and their support -which is essential for a program of certainty and reconstruction- we will not have it until the political issue is resolved. Nor will we achieve the elimination of economic sanctions until that this political issue be resolved," he says.

Government and opposition have been at odds for years and many countries do not even adopt Maduro as president.

But what will happen to the Venezuelan economy if there is no such political agreement?

"If the conditions do not change significantly, Venezuela may take between 40 or 50 years to recover. Now what we have is an economy that has stopped falling and if those political and economic conditions do not change, it will stay there. It will probably not continue to fall. , but it is not going to grow either. It will remain stagnant and that is the danger that we see moving forward," concludes Oliveros.

 

Link: https://www.ecuavisa.com/noticias/internacional/detectan-el-primer-caso-de-viruela-del-mono-en-venezuela-HI1965696