How long is it going to take to crawl out of this hole?

Miguel Angel Santos and Douglas Barrios get specific on a question we usually answer in airy generalities.

That’s a question I get a lot, and one I never feel comfortable answering. I say things like “We don’t even know exactly how bad things are: the longer we wait, the longer it will take for us to recover.” Or, “there are no shortcuts for economic growth, it takes time…” I have all sorts of sage sounding ways of saying “hell if I know!”

Even the question itself is tricky, what does it mean to “recover”? to get out of the humanitarian crisis? back to the “Venezuela Saudita” years? Just to start growing again?

Lucky for us, economists Douglas Barrios and Miguel Ángel Santos tackled that very question over at Prodavinci, giving it the scientific treatment it deserves, and man, things are looking grim.

They start by defining how bad things are.

If we add the 18.6% fall in GDP that was leaked to the press in 2016 to the official data that Central Bank (BCV) stopped releasing in 2015, Venezuela will have lost 29.2% of its economic activity per capita in just three years.

To get to 1977 levels in 5 years we’d have to grow at least 10.3% every year.

That’s no Traki discount. Shrinking per capita GDP by 29.2% in three years is a cataclysm. As they point out, only four countries have experienced worse numbers in a three-year period in the last 20 years: Libya, South Sudan, Irak and the Central African Republic: war does that to you.

They set out two recovery scenarios: 1977 and 2012, both bonanza petrolera years by the way.

Say a meteorite falls on Miraflores this morning and all the communists were there and Venezuela starts growing tomorrow. How much and for how long do we need to grow to reach the GPD per capita levels of 1977 and 2012? How likely is that to happen based on our experience? This is where the number crunching comes in:

To get to 1977 levels in 5 years we’d have to grow at least 10.3% every year. Again, this is no small feat: in our recent economic history (1961-2015) only 2% of the periods have managed to achieve this kind of performance.

So 5 years is too fast, what about 15? We’d need to grow at 4.0% every single one of those 15 years. Only in 10% of the periods in our history have we managed that.

And 25 years? 2.7% yearly growth. Just like the 20% of the periods in our history.

The Venezuela of the 70s seems like a distant dream if you put it like that, so let’s review the other recover scenario before we get hopelessly depressed.

To get to 2012 levels in 5 years we’d need yearly growth of 8.3%. Pretty unlikely, Venezuela has done that only in 2% of the periods studied.

Say we want to get there in 25 years, that should be plenty of time. We need a 2.3% of yearly growth, something that has happened in the 50% of the periods studied.

Dudes, you are killing me.

Venezuelan economic history is pretty bad; we hardly ever managed to string together more than four years of steady growth. That’s why Barrios and Santos throw oil production and the international experiences to the mix.

I recommend you go over there and read it for yourself, or at least spend some quality time looking at the tables and graphics. Let’s just say that the scenarios above aren’t that unlikely: Venezuela may not have experienced the kind of sustained growth needed to recover, but many better-run countries have. It’s totally doable, it’s just that we’ve never done it.

The next time someone asks me when will we crawl out of this hole, instead of glibly throwing back the 10 years thing, I can say something like: “if we manage to achieve a growth in oil production on the scale of of the “IV republic”, 1,420,000 barrels a day, and it still sells, we might get to 2012 GPD per capita levels in 10 years, we’ll just need a non-oil GPD of 4,4%. And 49,5% of the periods in economies worldwide have done that, we could too.”

Better, ¿no te parece?

Carlos Hernández

Ciudad Guayana economist moonlighting as the keyboardist of a progressive power metal band. Carlos knows how to play Truco. 4 8 15 16 23 42