Shy neoliberal tour in Venezuela: what measures have already been taken

Two decades after Hugo Chávez launched the Bolivarian Revolution to liberate Venezuela from capitalism and make it a socialist idyll, the country seems more capitalist than it has been in years, at least at first glance.

The government of Nicolás Maduro always pays homage to the principles of the revolution. Portraits of Chávez adorn the walls of public buildings, and the United Socialist Party of Venezuela remains firmly in control as it has just returned to Congress from a fragmented opposition.

However, under pressure from US sanctions and faced with an economy that has contracted by over 80% since taking office in 2013, Maduro is increasingly turning to the free market toolbox to boost the country’s prosperity.

“It is a country that is rapidly deregulating,” said Dimitris Pantoulas, a political analyst in Caracas, who compared Venezuela to post-Soviet Russia in the 1990s. “It is undergoing a violent transformation from statism to a wild and deregulated market. “

The dollar, the highest symbol of Western capitalism, is now commonly used on the streets of Caracas. In any store, traders gladly accept greenbacks. The bolivar has practically disappeared, devastated by years of hyperinflation. When the government devalued the national currency and revived it in 2018, there were 60 bolivars to the dollar. Now there are over a million.

A few years ago, a bag of bolivars was needed to pay for even small items. Now a few tickets are enough. The problem most Venezuelans face is finding denominations small enough – and wages high enough – to get by.

Ecoanalítica, a consulting firm from Caracas, estimated that Two-thirds of all financial transactions in Venezuela are now carried out in foreign currencies, mostly dollars. Far from regretting this state of affairs, Maduro examines it with satisfaction and describes dollarization as “an escape valve”.

He greeted the new year by declaring that the dollar will also finally disappear from the streets of Venezuela and that the country will have “a 100% digital economy”.

The strict currency controls that Chávez introduced in 2003 have largely been dismantled. The expropriation of private companies, another hallmark of the Chávez era, has ended.

Naphtha is still subsidized -Maduro risks facing the wrath of the Venezuelan people if he lets fuel prices float freely- But there are signs that there will be gradual reform towards the free market.

Gone are the days when Venezuelans could fill their tanks as many times as they wanted for pennies on the dollar. Now they’re limited to 120 gallons of cheap fuel per month, enough to fill an average car twice. If they want more, they have to pay 50 cents a liter, closer to market and barely less than in the United States.

Venezuela’s financial markets, blocked by the socialist government 21 years ago, are also showing signs of revival. In November, the country’s main rum company, Santa Teresa, became the first company to issue dollar-denominated bonds in the local market. This was possible because the state changed its rules last year to allow exporters to go into debt, which would have been unthinkable under Chávez.

The Santa Teresa issue was modest – $ 300,000 in one-year 4% bonds – but it’s a first step. “We wanted to see how the market reacted. It could open the door for other companies to do the same,” said Alberto Vollmer, the CEO of the company.

He said he and other company executives had pressured state authorities “to see how we can get back into financial markets.” While some hardened socialists resist, Vollmer said he has found people to listen to him in some areas of government.

Inventories are also showing some recovery, although they are at extremely low levels from their peak in the early 1990s.. The volume of shares traded in 2019 was more than eight times higher than in 2016. The number of investors in the 27 companies actively listed on the Caracas Stock Exchange has increased fivefold in five years.

One of the reasons private companies are turning to the stock market is that it is becoming increasingly difficult for them to borrow from banks due to the government imposed credit crunch.. Banks are forced to keep a stifling 93% of their deposits with the central bank, which leaves them with very little credit. “Since 2018, bank credit has contracted by 90% in real terms,” said Asdrúbal Olivares, director of Ecoanalítica.

Gustavo Pulido, director of the Caracas Stock Exchange, wants to make the stock exchange a multi-currency market. “It is impossible to work in Bolivars,” he complains. The central bank is reportedly considering creating a US dollar clearing and settlement system.

While economists acknowledge that Venezuela has taken a “neoliberal turn” in recent years, they have emphasized that the economy remains deeply dysfunctional and that it will take years to reverse the damage inflicted over the past two decades..

“I am skeptical [sobre las reformas]Said Tamara Herrera, director of financial synthesis in Caracas. “This does not amount to an orderly and coherent recovery plan from a distance.”

Pantoulas said that “although the state has donated land [a las fuerzas del mercado] he still has a sword of Damocles in the market and the threat of intervention. “

After regaining control of Congress, the government promised to pass a new “anti-blockade law” to mitigate the impact of US sanctions. Maduro describes it as “a mother law” which will lead to 15 more specific laws for each sector of the economy.

“I just hope that these reforms are carried out wisely and that they take into account the needs of the private sector, and not just the public sector.”Vollmer said.

Translation: Mariana Oriolo