Venezuela's Economy and Future

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Women wait in line as they buy toilet paper at a supermarket in Caracas May 17, 2013 (Jorge Silva/Courtesy Reuters).

Women wait in line as they buy toilet paper at a supermarket in Caracas May 17, 2013 (Jorge Silva/Courtesy Reuters).

Many Venezuela watchers have been waiting for the other proverbial economic shoe to drop (see here, here, and here), and for the country to fall into serious crisis. Others, such as Mark Weisbrot co-director of the Center for Economic and Policy Research, question this premise, arguing in his Guardian column that Venezuela has and will continue to make progress using its own economic model. So where does the nation stand?

Those supportive of the Chávez and now Maduro government point to Venezuela’s 2012 GDP growth, which topped 5 percent (due largely to government spending). Over the last decade GDP per capita more than doubled and the poverty rate (using the World Bank’s national poverty line measurement) fell from over 60 percent of population in 2003 to some 30 percent in 2011. Inequality declined as well, and the United Nations publicly recognized the governments’ efforts in halving the number of citizens suffering from malnourishment. Moreover Venezuelans in general seem quite happy—reporting a life satisfaction rating of 7.5 (out of 10), higher than the global average of 5.5.

But the underlying fundamentals question how long this can last. Oil production and exports have bankrolled most of these social programs, pumping hundreds of billions of dollars into government coffers over the last twelve years. Having spent all this money (and even augmented it with billions of dollars of debt), one can question the efficiency of Venezuela’s social programs. One also should worry about their sustainability, as the institutions to deliver services—from health care to basic electricity—are weak and in some cases deteriorating. And the flows of oil money behind all of it are increasingly fragile. Though Venezuela has almost 300 billion barrels in proven reserves, PDVSA’s own production figures show stagnation. Independent estimates (such as BP’s) reveal falling production. Whichever is true, there is a real question as to whether the country can keep supporting the current array of programs.

The rest of the economy has been hollowed out over the last decade. While in the 1990s nearly a quarter of exports were non-oil products—foods, agricultural materials, and manufactured goods—today it is less than 5 percent. To put this into perspective, oil makes up 16 percent of Mexico’s total exports, 11 percent of Brazil’s, and some 89 percent of oil giant Saudi Arabia’s—still less than Venezuela’s 97 percent.

For day to day life, inflation—estimated at between 20 and 35 percent (compared to 3 percent inflation in Colombia, or 6 percent in Brazil)—erodes the purchasing power of average Venezuelans, and hits the poorest the hardest. Fueling this spiral is Venezuela’s penchant to print money to fund its social programs and to pay for its imports—according to Reuters, in 2011 new currency topped $17 billion, more than any other Latin American country.

To fight inflation, the government has imposed price caps, leading to shortages of basic goods—from toilet paper to milk, electricity to communion wine. In fact, the Venezuelan Central Bank’s scarcity index hit 21 percent, meaning that one out of five basic goods in Venezuela can be considered in short supply.

Added to these economic woes are broader societal ones, including rising crime rates. The United Nations reports that there were some 45 homicides per 100,000, making Venezuela one of the most dangerous countries in the world. In Latin America, Venezuela is only surpassed by the notoriously bloody Honduras and El Salvador.

The recent electoral investigations reaffirmed Maduro’s control over the presidency, despite the many questions that linger. What is less ambiguous is how average Venezuelans would vote today if given the chance—and it would not be for Maduro.

Published in conjunction with Latin America’s Moment at the Council on Foreign Relations.