- By Juan Cristóbal NagelJuan Cristóbal Nagel is a professor of economics at the Universidad de los Andes in Santiago, Chile, editor of Caracas Chronicles, and co-author of the book Blogging the Revolution.
When the Venezuelan government defends itself from its critics, it usually points to declining poverty rates as proof of its success. For a while, this worked; poverty figures indeed improved during a portion of the chavista years. But the days when poverty was a winning issue for chavismo are over. Official statistics now show that poverty is rising rapidly.
Venezuela’s official statistics office (INE) mostly spends its time producing reports charged with political language — but it still manages to report actual data once in a while. A few weeks ago, the statisticians published proof that one in three Venezuelans are poor, when twelve months ago the figure stood at one in four. Since an important part of the argument against the opposition is the government’s claim that they, and only they, ensure decreasing poverty, this is a significant development.
In order to calculate the poverty rate, the INE estimates the cost of a representative basket of goods, which includes things such as food, dress, housing, transportation, health, communications, and education. The basket is intended as a representative sample of the type of things an average Venezuelan family consumes during a year. If per capita income falls below the cost of this basic basket of goods, the person is considered poor.
According to this measure, the number of Venezuelans classified as poor shot up in the last year by 1.8 million people. Roughly 6 percent of all Venezuela’s 30 million people became poor in the last year alone. The situation is even direr when one looks at extreme poverty, i.e., the number of people whose income cannot even buy a representative basket of food and drink. In the last year alone, the number of extremely poor Venezuelans rose by 730,000. They now reach close to three million people, or roughly 10 percent of the population.
The chavista revolution indeed helped the poor between 2003 and 2007, but since 2007, the number of poor Venezuelans has actually increased. All of the government’s successes in reducing poverty happened more than six years ago.
The reason for the increase has to do with the nature of chavista economic policy. When the price of oil shot up roughly 10 years ago, it sent an enormous inflow of revenue into the coffers of the Venezuelan state. The government used the windfall to create an extensive web of subsidies and price controls. At the same time, the government quickly spent its oil gains on subsidies and lavish social programs to bolster its support among the less privileged.
Poverty in Chávez’s Venezuela in the mid-2000s was indeed falling, and the government kept prices artificially low thanks to an overvalued currency and massive amounts of subsidized imports. People benefitting from the government’s generous social programs found plenty to buy, since the government made sure imports kept flowing and prices were low.
Needless to say, this couldn’t last. The 2012 campaign to re-elect a mortally ill Hugo Chávez meant government spending went into overdrive. Suddenly the oil boom was not enough to sustain ever increasing social needs. That year, the budget deficit soared past 10 percent of GDP. The price of oil had stopped rising by then, and foreign funding began to dry up. While the government continued to enjoy good fortune at the ballot box, the bubble was close to bursting for Venezuela’s poor.
Since taking office early last year, President Nicolás Maduro has seen the local currency go from BsF 4.3 per dollar to BsF 50, depending on which exchange rate you use. This means that the prices of most of what Venezuelans consume have shot up as well. Annual inflation is running north of 60 percent, and it is only increasing: The inflation figures for April have yet to be published, but unofficially, it was 5.7 percent for the month alone.
The sharp fall in the standard of living is what brought protesters to Venezuela’s streets. Many of the people demonstrating are what we could call "the emerging poor": people who were middle class during the boom, but have found that their economic situation has deteriorated sharply since then.
Ultimately, chavismo’s "victory" against poverty is just rhetoric. What little gains there were in terms of poverty were due to a government that turned an oil boom into a transient consumption boom. That phase is now over, and poverty is reverting to its long-run trend.
The day of reckoning for the populist chavista model is approaching fast. The speed at which it arrives will depend on the price of oil. If oil holds steady, the government will muddle through. But if the price of oil dips — watch out. Poverty will continue shooting up, and the new poor will remain in the streets.