The End-of-Year Slump

The relative peace that came with dollarization and economic recovery is losing steam. Price increases in dollars are spoiling the merry climate Maduro is interested in promoting

Photo: Sofía Jaimes Barreto / @avilacomposicion

“I’m sorry if I don’t agree with the perception of many, but I think that the country is worse than ever,” tweeted Ricardo Ramírez, director of La Poeteca literary foundation, in mid-October. “Worse than 2017. Worse. And the immediate future isn’t better.” Ramírez’s tweet was retweeted over 670 times and got almost 3,060 likes: it went viral in Twitterzuelan terms. “At least, in 2017 we had the expectations of being able to make change possible,” writer Mirco Ferri replied, “now we are trying to stay afloat.” However, not everyone agreed. 

“In my case and my family’s (which is not the whole country, although they live in Petare) we feel an improvement,” tweeted Jesús Piñero, a young historian and journalist. “In 2017, we were being asphyxiated and although we are not good, we don’t feel like that year.” In 2020, Piñero had his own viral tweet, defending the present against “the blackouts of 2019, or the famines of 2017 or 2018. Yes, famines: crushed corn, mango, yucca, plantain. Fructus [a Tang-like drink].” 

“That some people say we are worse than in 2017 is surprising,” says Tomás Straka, a historian and professor at Andres Bello Catholic University (UCAB). For Straka, during the worst years of the crisis we lived “a sort of cataclysm of Biblical proportions.” In fact, the economy is growing for the first time since 2014 and UCAB’s 2022 National Poll on Living Conditions (ENCOVI) shows a reduction of both multidimensional and income poverty—alongside a reduction of food insecurity. Then, why are some Venezuelans feeling that the situation is worse than in 2017? 

For Straka, some people saw an “illusion” in the recovery, “which is always being mistaken: it’s made by an illusionist, it’s not true.” While the economy is growing, salaries are not increasing as fast as inflation (both in dollars and bolivars), the bolivar continues to lose value and lukewarm economic reforms are limiting an economic recovery that is highly unequal, not benefiting everyone. Situations like the recent tragic landslides, the release of the “narco-nephews” and the Darien Gap migrant crisis could also be negatively affecting people’s moods and perceptions, especially with the over-informed oppositional middle-class users that tend to populate Twitterzuela. 

Oh, Disappointment Is in the Air

But are Venezuelans perceiving things as better or worse than previous years? According to polls by More Consulting, in October 2018, 73% of Venezuelans perceived the economic situation of their households worse than the previous year. This group continued being the majority in November 2021, with almost 60%. But by May 2022, those who considered their household’s situation better than the previous year had risen to 52%: the new majority. 

Yet, this perception seems to be conditioned by inflation and the devaluation of the bolivar. In September, following a currency crash in August, those that perceived it as worse became the majority again with 51%. Nevertheless, by November, the percentage of those perceiving it as better rose again to 49.9%, against 48% that perceived it as worse: “better” achieving a tight plurality. 

“The November results precede the [bolivar’s] November devaluation,” says Luis Vidal, the director of More Consulting. “I suspect the December percentage [of people perceiving an improvement] will decrease.” According to Vidal, while the variation of the perception of improvement hasn’t changed much through the year, its growth pace has decreased compared to the beginning of the year.

But even when most of the population perceives their household’s economic situation as better than the previous year, the percentage of those who believe it’s worse is almost half of those polled: that is to say, almost half—and in some recent months, more than half—of the country believe their family’s economic situation is worse than during the previous year. 

The recovery is disappointing for a large part of the Venezuelan population. 

Dollar Inflation

The economic trends of this year seem to reflect such variations in people’s perceptions of improvement. According to Jesús Palacios Chacín, senior economist at consulting firm Ecoanalítica, the industries that cover basic needs were the ones that especially grew during the first semester of the year: health, food, personal care, and payment methods. 

Nevertheless, the Tax on Big Financial Transactions (IGTF)—which adds a 3% tax on Zelle and cash transactions in dollars—generated new frictions in the economy after its creation in March, as people sought methods to avoid the tax.

“It slowed down the consumption we expected for the second semester,” Palacios Chacín says. According to him, the numbers of some major companies right now are like those of late 2018 but “many companies are having worse results in the last trimester than they had during the beginning of the year.” 

In Caracas, many restaurants and nightclubs that were packed before the summer look half empty now. While the opening of more than 200 new restaurants this year in the city (with supply clearly surpassing demand) could be atomizing the small group that can afford these places, the consumption rate has slowed down compared to the beginning of the year according to Ecoanalítica. In fact, seemingly to promote consumption and a festival environment that soothes discomfort, Maduro declared October 1st as the beginning of the Christmas season—holiday decorations at public offices and buildings two months before December included. 

I was invited to a birthday dinner at a rooftop in Las Mercedes this week, where a top executive at a well-known chain of eateries-marketplaces in Caracas was complaining that November had shown a “horrible” decrease in commercial activity. “Everybody says November has been [commercially] super slow,” a consultant who works near the restaurant in Chacao replied. “Well, we used to go [to the restaurant] every week and now we never go.” The top executive explained they had to “adjust” prices two months ago.

Similarly, people’s disappointment with the economic recovery might be related to the rise in dollar prices: “It’s determining why the economy isn’t growing by the end of the year as much as many envisaged during the first semester,” he says. While earlier predictions by Ecoanalítica and UCAB’s Institute of Economic and Social Research were just slightly higher than the actual end-of-year results (between 7-9% growth), Credit Suisse predicted in April a 20% growth that never came. 

Besides the massive economic contraction of the last eight years and a long period of hyperinflation that wrecked the purchasing power of Venezuelans, “you have to add an inflation in dollars that is five times larger than the rest of the world” in a country where “the average income is below $200 a month,” says Palacios Chacín. According to Ecoanalítica, prices in dollars rose between 47% and 50% this year, after a 60% increase last year. “Prices in dollars in Venezuela are increasing 3% a month,” the firm’s director, Asdrúbal Oliveros, said. It’s even higher in certain sectors, like health (52%), and hotels and restaurants (78%).

According to studies by the firm and Caracas-based think tank Anova Policy Research, average monthly wages in the private sector rose from an all-time low of $60 in 2018 to $150 this year. Yet, while dollar inflation is rising by 50% this year, the average increase of monthly wages in the private sector between 2021 and 2022 was only 20%.  Wages are rising in the private sector, but the purchasing power doesn’t always increase at the same time. 

“While salaries have increased, they haven’t increased at the rate that prices in dollars are,” Palacios Chacín says. “A professional that had an increase of less than 50% by this time of the year, definitely has less purchasing power,” he says. 

“It was different in the beginning. In December 2021, I could go and get a drink or eat at a restaurant because I could afford more with my salary,” says Andrea Regalado, a young chemical engineer who used to work as a psychochemical analyst at one of the country’s biggest drugstore chains, “the dollar inflation cut what was already meager.” Nevertheless, throughout the whole year her monthly salary—including bonuses, all deposited in three different debit cards—remained around the equivalent of $220 in bolivars. “The raises were eaten by inflation immediately, literally the day after they were made,” she says. Regalado lives with her family, she says that if she had depended “only on my income I wouldn’t even go out past the corner.”

The situation is worse for public sector employees and workers—23% of Venezuela’s workforce nowadays—whose lower salaries (a monthly average equivalent of $113, according to ENCOVI if bonuses, benefits and CLAP food boxes are included) are still being paid in a continuously and rapidly devaluating bolivar. 

According to Palacios Chacín, Venezuela’s high dollar prices are the result of low competition in the markets, a less diverse offer, older technology, unskilled staff, and no technological innovation that makes the prices more expensive than in the rest of the world. Besides, “a lot of times companies have to substitute the lack of services from a collapsed state,” says the economist. “They have to install electric generators, water wells, direct gas line connections, satellite internet… private substitutions that make companies’ operations more expensive.”  

It’s the (Macro)Economy, Stupid! 

In absolute terms, the economy was bigger in 2017: it had a GDP per capita of $4725 (nowadays it’s only $1505) and an absolute GDP of $143 billion (compared to around $50 billion now). Nevertheless, “on a micro level it was really bad,” Palacios Chacín says, “people didn’t have any access to goods and services.” Average wages in the private sector were less than half than in 2022 (and paid in bolivars, affected by constant devaluation), inflation was considerably higher, and food and medicine shortages were widespread. Nevertheless, “the flow of economic activity, what industries produced and what was generated in main cities was more dynamic,” says the economist.

Many of these problems were alleviated by “reforms that in a given moment were applied with an important velocity,” says Straka: de facto dollarization and removal of price controls, the abolition of currency exchange controls, an open ports policy and a symbolic “reconciliation” between the Maduro government and Fedecámaras—the chamber of business and commerce. “This created somewhat high expectations,” he says. 

Yet, this process slowed down. “The government took its foot off the gas,” he says. For the historian, the Maduro government is now seeking to reconcile its reforms with the revolutionary project and the interests and values of different factions of chavismo. “We went from Maduro saying ‘thank God for dollarization’ to Maduro talking about rebolivarizar the economy,” says Palacios Chacín. 

This lack of reforms—besides international isolation and the collapse of the oil industry—creates “ceilings” for economic growth, he says. Even accounting for Chevron’s new agreement, in the current conditions, Venezuela’s growth rate is expected to slow down next year by around half. Besides, oil production is lower than in 2021 and PDVSA’s cash flow has decreased due to Russia’s incursion in Asia’s black market of sanctioned oil. And “there’s no access to financing,” Palacios Chacín says, explaining that in Venezuela credit represents only 1% of the GDP, compared to a regional average between 30% and 40%, the levels Venezuela had seven years ago. While Venezuela needs a loan portfolio of $15 billion, it’s nowadays between $500 and $600 million. In Venezuela, economic growth is getting crushed by multiple ceilings.

With rising inflation and the bolivar rapidly plunging again, the Maduro government is flirting with radical measures: it’s trying to revive price controls on more than 40 basic goods after a four-year hiatus and it’s constantly threatening the opposition with early presidential elections—before the economy becomes too unfavorable for chavismo—despite the official schedule.

Elois and Morlocks in Venezuela

And yet, according to the newest ENCOVI, both multidimensional and income poverty are decreasing (to 2018 and 2016 levels, respectively). Nevertheless, the study says that poverty caused by social reasons—for example, the ongoing collapse of Venezuela’s education system and massive school dropouts—is on the rise: from 31% of households in 2019 to 42% of households in 2022. As the poll asserts, Venezuela’s recovery is extraordinarily unequal—with a Gini coefficient similar to Namibia, Mozambique and Angola.

According to a May 2022 study by Anova Policy Research, in absolute terms the three poorer deciles of the population are actually getting poorer and, in relative terms, only the richest decile is getting richer. The end of shortages and the rise of wages isn’t necessarily translating into more consumption or social mobility for everyone: while some in Caracas buy $100,000 televisions in new Saks-like department stores or dine in restaurants hanging from cranes, others, like professionals who work at cash-strapped private corporations, struggle to make ends meet and can only dream of ever buying a home or a new car. 

No wonder why half—and in certain months, more than half—of the country perceives their household’s situation as worse than the previous year, generating debates like the one on Twitter and unleashing frustrations over a soft perestroika that promised much but didn’t deliver. “Venezuela is in the intensive care unit, and it got quite better,” Straka says, “but there’s not a chance it’s in conditions to leave the hospital.”

Tony Frangie Mawad

Tony (1997) is one of Caracas Chronicles' editors, where he writes since 2016. He graduated in Journalism and Political Science from Boston University in 2021. Since then, he has written at Bloomberg, The Economist, Politico and others.