De facto dollarization: more than 40% of households in Venezuela depend on funds sent by relatives abroad

Yosmar Sanguino says that He struggles to put food on the tables of his two daughters and three granddaughters in a poor neighborhood in Caracas. She usually makes arepas with butter and cheese. However, even these few ingredients can be expensive.

“There is food, but the money is lacking. Because if you buy one thing, you can’t buy the other, ”the woman said. “If you buy butter, you can’t buy cheese. Or if you buy the cheese, you can’t buy the butter. “

Sanguino is relatively lucky because has access to a few dollars sent by a son who emigrated to the United States by worsening the political, social and economic crisis in Venezuela.

Over 40% of Venezuelan households receive remittances from abroad. An estimated $ 4,000 million in remittances arrived in 2020, according to Caracas consulting firm Econoanalítica. The money usually comes from a network of people who have accounts in a third country and charge a commission for carrying out the procedure. Also through digital transfers with services such as Zelle or friends and relatives who return to Venezuela and bring money.

Two years ago, the Chavista dictatorship in Venezuela put aside its complex efforts to restrict dollar transfers to the bolivar, whose value has plummeted due to the world’s worst inflation. This It largely ended product shortages after years of empty supermarket shelves. But Venezuelans who charge bolivars, the value of which is diluted daily, cannot pay for the goods.

The regime announced last week that remove six zeros from your currency on invoices which will begin to circulate on October 1st. Currently, the biggest bill in the country is one million bolivars, which equates to about 25 cents.

But without further action, this will not stop the devaluation of the bolivar. Chavism it had already deleted three zeros in 2008 and five more in 2018. Despite the repeated multiplication of minimum wage that millions of Venezuelans earn, is about $ 2, which they are not enough to buy even a kilogram of chicken.

Millions of Venezuelans anxiously await the fortnightly arrival of a subsidized box of food that costs between 43 and 62 cents on the dollar and typically includes flour, rice, oil, sugar, pasta and beans . Many try to get by by supplementing their income by cooking things to sell at home., haircuts, repair cars, deliver food and barter. But sometimes the money isn’t even enough to make ends meet.

Per capita protein consumption fell by 60% between 2013, when Nicolás Maduro took over the presidency, and 2019, according to the investment company Torino Capital. Chicken consumption declined by 82% during this period and that of eggs by 66%.

An FAO (Food and Agriculture Organization of the United Nations) report noted that approximately one in three Venezuelans said they had no food on reserve and 11% said they sometimes did not eat anything for a day. The United Nations World Food Program reported in 2019 that 6.3% of children under five were malnourished, 13.4% were stunted and 30% were anemic. About 24% of women aged 15 to 49 were also anemic.

The value of the bolivar has been plummeting for years despite, or perhaps as a result, the regime’s efforts to control exchange rates. The availability of money grew rapidly, even though there was less to spend every day. The economy produced less and oil exports fell.

The big power cuts in 2019 have started to change this dynamic, according to Dagnelly Duarte, economist at Torino Capital, who is particularly interested in Venezuela.

Consumers without huge amounts of bolivars could not go to grocery stores because the card payment terminals were not working. People were charged a dollar to charge their cell phones. An ice pack costs $ 10. By the end of the year, the regime had given up all efforts to contain the dollar.

This favored the private sector, which started importing all kinds of goods Venezuelans hadn’t seen in years. Duarte said companies have started pricing in dollars, although most Venezuelans do not have this currency and many fear retaliation from the dictatorship.

After a while, however, “it became clear that, ‘Look, I’m using dollars and the product sales are going better,” said Duarte. Today, he said, 60% of transactions are made in dollars, which makes life difficult for those who do not have one.

“It’s quite complicated for a person like me, who has retired from university,” said Germán Socas, a 61-year-old former academic, as he bought fruit and vegetables at a market in the capital. . He said he had worked 27 years and was in charge of public relations, and his pension was less than five dollars a month.

Even dollar prices have risen sharply because currency is no longer so scarce. A basket of basic foods for a family of five, including flour for arepas, chicken, sardines and butter, cost four times as much in dollars in May as it did two years ago, according to Torino Capital.

“In 2019, when (the use of the) dollar was still restricted, with $ 100 you could do a full deal and you still had a lot; currently the base basket is around 390 dollars (per month), ”said Duarte.

The same family basket and public transport cost a family of five at least 174 minimum wage, or about 1,200 million bolivars.

Shelves full of olive oil and imported cheeses give “an image of prosperity,” according to travel agent Viviana Stifano, 31.

“But it’s an environment of scarcity at the same time because now there is an excess of products, but you don’t have the purchasing power to buy the ones you want”Stifano said as he stepped out of a Caracas supermarket. “You get what you need to barely live.”

Everyone attributes Venezuela’s problems in part to falling oil prices. Opponents of the regime say mismanagement and corruption are causing the collapse of production of the country’s main export commodity and that it has failed to diversify the economy so it wouldn’t depend so much on oil. Venezuela produced 3.2 million barrels per day in 1997. But today, the country with the largest oil reserves in the world produces only 500,000 barrels.

The dictatorship, for its part, attributes all its problems to US sanctions. Last month, Maduro accused wealthy Venezuelans, whom he did not identify, of manipulating prices and threatened to take action. “It doesn’t matter what their last name is because some people think they have untouchable last names,” Maduro warned. “There are no untouchables in the Venezuelan oligarchy.”

Price controls, expropriations and other measures have destroyed much of the productive apparatus over time and, without the revenues from oil exports, the regime does not have the money to import and meet the needs of the population. .

“In the past, they would print all the money they wanted and distribute it like confetti all over the economy, and that, to a certain extent, got things done, if you will, but there was always inequality, ”said Raúl Gallegos, risk analyst and author of a book on Venezuela’s economic collapse. Now, “to survive you need dollars.”

(With AP information)

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