Looking Into the Black Box of Venezuela’s Economy

Figuring out what's actually happening in Venezuela's economy requires serious detective skills.

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Spotting evidence of the destruction that Venezuela’s politicians have inflicted on the economy isn’t terribly hard. In fact, you start to see it as soon as you get off the plane.

The terminal of Caracas International Airport, a cavernous building built in the 1980s, is mostly empty. International carriers have largely abandoned the country. The combination of foreign exchange controls and the government’s refusal to let airlines repatriate earnings means that long-haul flights into the country have all but disappeared.

The picture is the same on the streets of the city. The local currency, the bolívar, has lost 70 percent of its value in the black market this year, and “legal” dollars are hard to find. Price controls and regulations on imports have made many basic staples disappear from the shelves. What remains is often unaffordable to most, as purchasing power in dollar terms has plummeted. (The photo above shows a worker walking past banners depicting Venezuelan currency.)

The picture is bleak, but you wouldn’t know it from official sources. The government has long since stopped releasing figures on everything from inflation to growth to the budget deficit.

A few days ago, I spoke about this with Asdrúbal Oliveros, one of the country’s most widely cited local economists. Oliveros heads Ecoanalítica, a firm that provides consulting services to foreign banks as well as Venezuelan companies. His office, ironically enough, is located next to the headquarters of the national tax collection agency. When I point out the coincidence, Oliveros laughs.

An economist in Venezuela is like a detective. You have to be technically solid, of course, but the dearth of public information means you also have to be creative,” he says.

According to his estimates, inflation in the past 12 months is already up to 128 percent. The budget deficit is roughly 20 percent of GDP, and the balance of payments has a deficit of $17 billion. The Economist forecasts that GDP will contract by 4.2 percent this year. Oliveros thinks that is conservative.

In order to come up with his numbers, Oliveros relies on a web of contacts – colleagues, former classmates, and the businesspeople he advises all provide clues about what’s really happening.

Even bureaucrats sometimes turn to him to find out what is going on. Civil servants in government departments such as the Ministry of Finance and the Central Bank are simply being ignored by their government. “They ask me for help in figuring out what the government is thinking, or planning on doing,” says Oliveros. “They’re as much in the dark as the rest of us.”

Venezuelans are used to macroeconomic chaos, but the combination of a deep recession with the highest inflation rate in the world (not to mention Venezuelan history) is new.

Perhaps more importantly, prices have largely stopped signaling what things are worth. This is a country where a dollar may cost very little or very much, depending on whom you know. A kilogram of grapes (price not regulated) costs ten times more than a kilo of price-controlled beef. The grapes are practically unaffordable, and the beef has disappeared from store shelves.

I ask Oliveros if he thinks Venezuelans are aware of just how badly they are doing. “They feel it, but they don’t understand it much. The Romanian writer Emil Cioran once wrote, ‘Only those are happy who never think.’ I think Venezuelans are trying to not think too much about how poor they have become. They’re too busy queuing and trying to make ends meet.”

In such an environment, I ask him what he tells his clients. “In a hyperinflationary context, companies need to focus on cost containment and on protecting their assets. They also need to do whatever it takes to retain talent, because human capital becomes all the more valuable in an economy such as this.”

I wonder – does Venezuela’s private sector have what it takes to survive, and thrive when the tide turns? He sounds cautiously optimistic.

“The current governing clique has a Freudian problem with private business. Ever since 2003, when the private sector staged a national strike against the government, they have been intent on clamping down on business groups that might threaten them.”

“In the last few years, many businesses in Venezuela have managed to survive the onslaught from the government. They live in constant crisis mode. I’m afraid that if we ever reached calmer waters, they would not know what to do!”

Oliveros thinks that is why private businesses are viewed as “mercenaries,” looking for a quick return in the face of a highly uncertain – even dangerous – environment. “They want to survive while they can.”

In spite of everything, he doesn’t see them throwing in the towel. “I travel all over the country, and I have never met a defeatist businessman. They all want to work hard, and they want clues on how to go about doing so.”

Oliveros frequently travels to San Cristóbal, a city of 600,000 people in the western edge of the country, bordering Colombia. Last year, the city was the epicenter of student protests that were violently repressed. Since then, the city has suffered acutely from shortages of basic staples. Price controls mean everything from gasoline to milk is smuggled to neighboring Colombia, where they fetch market prices. This leaves the city starved.

“Even in places such as San Cristóbal or Maracaibo [also on the border] private business is still standing. In spite of everything going on, in spite of the fact that they cannot get raw inputs, or that basic services are hard to find, you see hundreds of people in a hotel room meeting to talk about possible solutions, and about what they can do to flourish in an environment such as this.”

“And that,” he says with a smile, “should give us all a bit of hope.”


Juan Cristóbal Nagel is a professor of economics at the Universidadde los Andes in Santiago, Chile, editor of Caracas Chronicles, and co-author of the book Blogging the Revolution. Twitter: @juannagel