Is Venezuela "Fixed"? Despite Recovery, Sanctions Leave Lasting Impact

A look at at Venezuela’s reviving economy and what that means for its people and politics after years of financial crisis.

July 6, 2022

Caracas, Venezuela (Wladimir Andarcia, Pixabay)

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In recent decades, Venezuela has been in the limelight. The country has been a laboratory, first for understanding the social unrest generated by neoliberalism in the 1980s and 1990s, and then as inspiration for the winds of change that have blown across the continent since the beginning of this century. Two decades later, the country is renowned for the depth of its economic crisis, for having a parallel government recognized by dozens of countries, including the United States, and for suffering the economic sanctions that stopped the beating heart of the country’s economy: the Venezuelan oil industry.

But now the idea of Venezuela does not invoke all of this quite as much. The situation is different due to prospects for economic improvement. With the elimination of import taxes, price and exchange controls, the wage slump, dollarization, and the concrete elimination of social policies, the economy—despite the lasting international chokehold—has resumed breathing.

In the past several months, images of economic prosperity, concerts, and tourism from the country have multiplied. As a result, the question of whether "Venezuela se arregló" (Venezuela is fixed) has made the rounds on social media, in the exile community, and among analysts and experts cited in international media. The Summit of the Americas in Los Angeles turned the page on the Trumpist view of Venezuela that sold Florida voters the idea that an invasion was just around the corner. Now, instead of being associated with calamity and humanitarian crises of hunger, poverty, and migration that require immediate “humanitarian aid,” a “new reality” is indeed emerging, creating a paradox for the progressive world once seduced by Chavismo.

Now in the face of a new upper class, social inequality, and a much diminished state, we must question the outcomes of the Bolivarian Revolution. But the government’s argument is near-unbeatable: with the petroleum industry sanctioned and financially blockaded, there is no quick way to rescue the role of the state as the guardian of minimum rights.

Forecasts for 2022: A Changed View of Venezuela

At the beginning of April, the Swiss bank Credit Suisse predicted that Venezuela’s economy will grow 20 percent this year. “If we are accurate,” it stated in the report, “these might end up being among the strongest growth prints globally for these years.” The forecast revised an earlier prediction that put the country’s projected growth at 4.5 percent. The less optimistic International Monetary Fund recognized that the country will see economic growth this year after nearly a decade of decline.

Similarly, at the end of April, the Economic Commission for Latin America and the Caribbean (ECLAC) confirmed that, contrary to prior projections, Venezuela’s growth would not be minor but rather significant. ECLAC’s report particularly took into account how the war in Ukraine has impacted the region. Venezuela, with a 5 percent increase—triple the South American average—is on track to have the highest growth rate in the region in 2022, according to the report.

This data confirms that the economy is rebounding from its eight-year decline in GDP, which reached double digits for several years. As patient economists hoped, the Venezuelan economy did not commit suicide or perish but rebounded.

The relaxation of sanctions has now been added to this economic revival. In the midst of many rumors, international media—always citing “anonymous” sources—have discussed the imminent relaxation of the sanctions. Meanwhile Washington’s official spokespeople talk in slow circles, withdraw various decisions, and avoid confirming or denying the rumors.

What is verifiable is that Aframax Minerva Zoe, a Greek ship chartered by the Italian oil company Eni, docked in Venezuela the other week to transport light crude oil to Europe. This will be the first shipment that verifies the licenses granted by the U.S. Treasury Department to certain determined European oil companies. The arrival of this ship could be a starting shot for companies and countries that want to do business with Venezuela but have been afraid of Washington’s legal threats. Meanwhile, according to the media, Chevron is pushing to resume commercial activity with Venezuela.

Still, sanctions have remained mostly unchanged since Donald Trump was in office, applying not just to Venezuela but also countries interested in Venezuelan oil. Despite the March meeting between Juan González, senior director for the Western Hemisphere at the U.S. National Security Council, and President Nicolás Maduro in Caracas—as well as the rumor of another impending meeting between the two governments—Washington has made no concrete change to its sanction policies.

Therein lie the central questions for progressive economic thinkers: why is the country’s economy improving if the financial blockade is still in place? Has Maduro’s approach to avoiding the sanctions been successful?

Unconventional Outcomes for a Complex Situation

It is not just the impressive predictions from multilateral organizations; Venezuela’s economic rebound is palpable. Cities are abuzz with economic reactivation, and new “startups” are flooding the scene. Hyperinflation has decreased along with scarcity. A seguidilla (fast-paced dance) of large concerts featuring international artists has begun. Some international airlines have reopened flights that have been suspended since the “Guiadó experience” in 2019. Influencers visit the country and describe a reality very different from the “humanitarian crisis.” Venezuelan revenue, although still among the lowest in the region, has improved. The country adjusted its economy with non-oil revenues like remittances, gold, cryptocurrency, and revived commerce that repatriates funds. And now the increase in oil prices has been added to the mix.

Although the country’s gas industry still has no hope of reaching its former production levels, what it has managed to export at the elevated price per barrel since Russia invaded Ukraine has visible repercussions for a starved economy and a state broken by minimal social spending.

Some have called this period the “bodegón economy” (in reference to new stores selling foreign products), but surely it deserves a more complex categorization. Among the current dynamics are the various sectors that have managed to gain access to funds, remittances for example. People from all classes have taken advantage of the elimination of import taxes to buy goods for resale in country.

This new importing class is one of the hallmarks of the current situation. Another characteristic is the definitive exclusion of large social sectors that have struggled to participate in dollarization and for whom the informal privatization of education and health—the great banners of the Chavista revolution—is the only means of a nearly terminal subsistence.

The real problem no longer appears to be financial asphyxiation, but instead the inequality that this model of radical economic liberalization is producing. Venezuela, which until the beginning of the last decade depended on a strong state and the implementation of emblematic social policies, has become, at the end of the revolutionary push, a country worn out by a “de facto neoliberal adjustment.”

However—and here is where it gets complicated—this opening allows all sectors, including those with fewer resources, new ways to access funds with which they can overcome the bolívar’s weakness and the international chokehold.

Paradoxically, while the state has declined; education, health, and Chavista social policies have weakened; public services have faded; and the bolívar has given way to dollarization, the social fabric—from the most excluded to emerging social classes—has recovered economic strength, managing to stay afloat with new revenue streams, many of which are not monopolized by the state.

The economic improvement still does not imply favorable results for state finances. In the Venezuelan crisis, the noose broke on the thickest side: the social state based on the rule of law that Chavismo had constructed.

And this is also having an impact on politics. With the sanctions, Maduro has had the perfect argument to justify the economic debacle, although the economy had already crashed prior to the sanctions being applied. On the other hand, the opposition seems defeated after the failure of the parallel government.

When González from the U.S. National Security Council said the status is not going to change based on more sanctions placed on Venezuela, he is condemning the failed harsh policy that current president Joe Biden inherited from Donald Trump—not because the sanctions have not negatively impacted the economy, but because they did not achieve their political objective.

In mid-April, a group of well known economists and entrepreneurs sympathetic to the opposition sent a letter to Biden requesting a unilateral end to the sanctions. “Although the economic sanctions are not the root of the humanitarian emergency in Venezuela, they have gravely worsened conditions for the average Venezuelan,” the letter read. Among the signatories were two ex-presidents of the Venezuelan chamber of commerce, Ricardo Cussano and Jorge Botti, as well as economists like former representative José Guerra and Rafael Quiroz, who are pro-opposition activists and openly against Maduro’s government.

The letter reveals the internal shifts in the opposition. Its most institutionalized sectors have now taken a turn to speaking out about the financial blockade after years of silence, a silence that was at least in part a result of the media attacks that beset those who criticized the Trumpian model of intervention in Venezuela.

After the Summit of the Americas, Carlos Malpica Flores, former vice president of Petróleos de Venezuela and Maduro's wife's nephew, was removed from the list of individuals sanctioned by the Treasury department. Alongside the commercial reboot with the European oil companies, these are seen as the first steps towards legally dismantling the sanctions, although the bulk remain intact.

2024 Presidential Elections

Obviously, Chavismo is aware that it cannot go into the 2024 elections in this state of weakness. Since the beginning of this year, and especially after the electoral defeat in Barinas, Chavismo has been reformulating the state to newly position itself as a significant economic actor.

Until now, the most important initiative has been the Large Financial Transaction Tax (IGTF) approved by the National Assembly at the beginning of February. The state is once more taking up its collector role, trying to scrounge the dollars circulating in the economy and gain the financial muscle needed to rejoin the social fight that was abandoned with the crisis.

The increase in salaries is another sign that the government plans to continue to forge ahead. Of course, that increase is still laughable. The minimum monthly wage has gone from $7 to $30. It is important to highlight that most Venezuelans have incomes, from various sources, higher than the minimum wage.

It is logical to think that, as long as public finances recover with new taxes and the hypothetical increase in oil exports, the government will continue raising wages up until the 2024 presidential elections to reach a minimum wage that is fairly comparable with the rest of the region and that the state will continue to regain strength—as long as it uses its recovered finances for social investments.

Obviously, the end of sanctions in the current geopolitical situation would have a positive impact that would evoke the oil-rich Venezuela of the first decade.

Just as Venezuela has been a model for the good and the bad, it should be studied as an economic model for leftist and progressive movements facing similar economic problems with little success. The unorthodox exit that Maduro has taken from this Venezuelan crossroads shattered all leftist social principles, but it certainly achieved an economic bailout.

What has happened in Venezuela has yet to be understood. Beyond dogma, Venezuela has shown a way of redesigning the politics of the continent’s Left that, although seemingly very powerful when in the opposition, tends to overheat upon taking power.

Understanding how the economy was stabilized using the very liberalism and free market principles that the continent’s right has so demanded requires thinkers and progressive politicians around the region to reflect deeply on the economic models and the state that they are and could be promoting.

For now, Venezuela continues to be a laboratory.

Ociel Alí López is a political analyst, professor at the Universidad Central de Venezuela, and contributor to various Venezuelan, Latin American, and European outlets. His book Dale más Gasolina won the municipal literature award in social research.

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