The Venezuelan December Mirage, 2020 Edition

Maduro is trying to use Christmas to produce the illusion that everything’s relatively fine. But this time, his sleigh has no gas to fly

Photo: Sofía Jaimes Barreto

Venezuelans are obsessed with December. It’s the month when we connect more profoundly with what it means to be Venezuelan: through local religious traditions; loud, continuous partying; a need to gather the extended family; and spending it all in new clothes and Baby Jesus gifts. All governments know it, and usually take advantage of the December frenzy to create, via public spending, a temporary sense of normality—in a way trying to convey that “everything’s fine, and you’ll have a happy holiday sponsored by our rulers.” It’s become a standard about ruling modern Venezuela which we like to call “the December mirage.” We know it shatters on the morning of January 1st, when we realize that, besides the hangover, we end up with an inflation spike, but we jumped into it anyway, closing our eyes and dancing to Billo’s Caracas Boys big band guarachas.

Today, with virtually no oil income to give away, the Maduro regime needs to be creative to appease a population full of reasons to protest. One measure was to suspend lockdowns in December. “It’s my gift to Venezuela,” the dictator said, as if the pandemic was anything but his caprice. The rest implies the management of what remains of the formerly prosper Venezuelan economy: a miniaturized, informal, dollarized market, able to provide a good living only to a small group of people. 

The Individualistic Paradise of 2019 

Back in December 2018, the regime was as despised as today, but unchallenged. Politics were off the radar. Most people didn’t even know elections were about to go down, a nation more focused on day-to-day survival. Then came January 2019, with its surprising, sudden influx of political optimism, another kind of mirage but this time about the promise of change around half of the world saying that Juan Guaidó was the legitimate president. 

That didn’t last. After the failed humanitarian operation in February and the Guri dam crisis in March took us back to reality, Maduro had to restart the confection of a sense of normality from square one, while Venezuelans had to learn how to deal with an even harder life, with heavy shortages of power and fuel. Caracas, which used to be privileged and untouched by these events, started feeling the crisis, and some rural areas had no energy for most of the day. 

Today, with virtually no oil income to give away, the Maduro regime needs to be creative to appease a population full of reasons to protest.

In that context, some people in our cities found new ways to do business during the second half of 2019, while the all-controlling State was leaving the country alone, once the regime realized its lack of capacities to enforce price controls everywhere. With no enforcement of exchange and price controls, taxes, and import tariffs, some sense of stability was felt in certain places and markets. The de facto dollarization had gained ground throughout the year, so affluent folks started visiting bodegones, restaurants, and focusing on Christmas gifts, and the perception of a Venezuela that was still screwed but was at least liveable, grew. There was even a music festival for those who could pay with hard currency, while Maduro publicly sympathized with a dollarized street economy. Venezuela also experienced its first Black Friday ever, when store owners and mall directives agreed on a bet to draw customers in; that November, in what Arnaldo Espinoza described for Caracas Chronicles as a “Black Friday on a budget,” lines made a switch from their usual (depressing) hangouts to appear outside of clothing and TV stores. Chavista officials praised the utterly capitalist experiment as the sign of a recovering economy, with so many people with moneyAmerican dollarsto spare on more than basic, non-survival items. 

Again, this was an exclusive bubble that perhaps grew to allow a few more people in, but remained a bubble nonetheless, and those who earned wages in bolivars, or even worse, earned bolivars and lived away from the urban centers, were on their own, particularly if they were sick. For folks on the street, though, it was a much needed fresquito.

How 2020 Shattered the Illusion

The mirage of December 2019 had started to brew a new kind of economic “normalization” through dollarization. Guaidó had to go abroad to get some headlines. Maduro went on trying to survive sanctions. And people continued their search for ways to survive. But then, the normalization came to a violent halt, mainly due to two factors: lack of gas and COVID-19. They hit it with enough intensity to show that it would be way more difficult to make the mirage happen again at the end of 2020.

First, the pandemic affected the migration flow, and therefore the input of remittances from abroad to a country where even dollars are buying less and less things every month. We don’t have exact figures of how many migrants have left or returned to the country this year, but with 5.4 million migrants, we’re getting close to the estimates made by the Regional Inter-Agency Coordination Platform (also called Response for Venezuelans, or R4V), which projected that there’d be 5.5 million Venezuelan migrants and refugees, given official figures, in Latin America and the Caribbean by the end of 2020. The global number would reach 6.5 million. 

With closed borders and few (if any) flights, emigrating was extra challenging. And perhaps not many of us imagined that Venezuelans would be returning to the country by the thousands this year. Facing job losses across the world, many saw no other choice but to return, even when that meant to be confined by the regime in dangerous places. 

After a devastating 2020 in terms of oil production, Venezuelans became acquainted with the brutal reality of the destruction of its capacity to refine gasoline.

Second, the pandemic added another level of complexity to living in Venezuela, worsening an already exhausting situation of survival. With covid killing in unknown numbers, Venezuelans wear their masks and hope for the best when doing neverending lines outside of gas stations, braving the severe fuel shortage periods that popped up all through the year. Power cuts also made sporadic appearances in the lives of Venezuelans during all of 2020, particularly for those away from the capital, with very little changed from the final months of 2019. Even the little distraction available for common folks across the country was under siege, when DirecTv went through a period of uncertainty, to come back under a new disguise.

While the citizens were forced to survive under police, soldiers, clerks and colectivos trying always to make a buck off the shortages, what the regime was doing? Well, it was working to build an economy custom-made for life under sanctions. 

A Sanctioned Petrostate

During 2020, new sanctions arrived. The first ones came in January after chavismo’s attempt to take over the National Assembly. The U.S. sanctioned seven of the regime’s officials. Then, in February, it sanctioned the state-owned airline CONVIASA and Rosneft Trading S.A., a Russian company, for selling and transporting Venezuelan oil and thereby helping the regime. In March, the Treasury Department sanctioned TNK Trading International S.A. (TTI), the other Russian company where cargoes of Venezuelan oil were allocated.

The government was expecting this. Before the pandemic changed the pace of the year, and became a reasonable excuse for putting off complicated business for later, Maduro was exploring new alleyways to please its international oil partners. It’s true that the Russians were being cautious and were backing away from their deep involvement towards the end of 2019, but the Iranians became important new players. A new commission promised to take PDVSA to the butcher shop and sell its parts to the highest bidder, a plan to sort of reprivatize the state-owned oil industry strongly pursued by China and Russia for years that was limited by chavismo’s lack of control of the parliament. This is one of the main reasons the regime called for parliamentary elections for December 6th: they need a loyal AN to approve all of this.

The “privatization” speech and initiative was packed into the “Anti-Blockade Law”, a device concocted in the illegitimate National Constituent Assembly (ANC) to introduce this idea of an economic reform, protected from consequences derived from the sanctions, for a roadshow with investors that may be looking for a high risk investment and that are used to dealing, let’s say, isolated economies. A prelude of things to come, according to chavismo.

In January, Maduro will have an illegitimate but obedient parliament, although his problems will still be there, even without Trump and with Guaidó out of the AN.

The problem is that harnessing and “controlling” will always have the same kind of impact in an economy as weak as Venezuela’s. In trying to drive the dollarization, the regime has managed to exponentially increase the price of the dollar. Last week, the greenback’s price soared over the Bs.S 1,000,000 markon November 30th, 2019 it was at Bs.S 41,594. However, the regime created a new tax on foreign currency transactions in local banks and a large increase in allowed limits for debit cards in bolivars, to “let people who have bolivars use them”, while also authorizing more foreign exchange operators. In summary, a measure to stimulate spending and a measure to get a cut of that, with the December mirage in mind, that at the same time shows that Maduro isn’t ready to go for full, official dollarization.  

As we wrote on our Political Risk Report, “the use of the U.S. dollar has brought some much-needed stability to prices, and allowed Venezuelans something that was unthinkable under the bolivar: to save, even if just a few dollars at a time for a rainy day. However, the government isn’t all in on dollarization: they still hope the bolivar can be saved, and are reluctant to allow dollarization to grow outside their control and take over the banking system. As much as the dollar—coupled with a lapse of price controls—has driven a modest revival of the retail sector and given private importers incentives to bring more goods to the markets, the government is severely short on dollars and can’t keep up with a dollarized economy.”

An Unaffordable Christmas

After a devastating 2020 in terms of oil production, Venezuelans became acquainted with the brutal reality of the destruction of its capacity to refine gasoline and the impact that it had on the economy, and the government seems to be trying to harness what they learned in 2019 into a plan that they can “control”. We must not expect that even with the hardships of 2020 Maduro will quit controlling the economy, at least until a certain extent. The revolution isn’t over and is in charge, we like it or not.

Yes, many countries still call Juan Guaidó the legitimate president of Venezuela, but the fact is that it’s Maduro who retains the capacity to impact the lives of millions. Many things happened in the world and in Venezuela during this year, but the catch-22 of the Venezuelan economy remains the same. We can say publicly, with a political and diplomatic purpose, that the Venezuelan government is illegal, that Maduro isn’t the real president, that the ANC doesn’t exist, and that the chavista parliament that will be elected in an illegal process on December 6th will also be an illegitimate entity. But go and ask lawyers working for international clients with some kind of interest in Venezuela what kind of advice they are giving to their clients. Are they recommending transnational companies to avoid paying a certain tax because it was created by the ANC or to ignore certain government requirements because they may be unconstitutional? No.

In January, Maduro will have an illegitimate but obedient parliament, although his problems will still be there, even without Trump and with Guaidó out of the AN. He can’t make the pandemic disappear. He cannot go back to the glorious times of oil bonanzas enjoyed by Chávez. People will still be mad; their suffering won’t remit with Christmas. Even some migrants who returned during the pandemic have already considered leaving again. Some of them are already trying to do so, with coyotes, to Colombia.

This December, the mirage will be one of dimmed lights and distorted music.