Clearing Doubts About the Venezuelan Economy

Misión Verdad, Orinoco Tribune, February 9, 2023 — The recent boom in economic activity in Venezuela, which has manifested in the opening of various types of commercial establishments and the increased circulation of money in metropolitan areas, shows that the national economy has emerged from the recession and inflationary quagmire that characterized the last five years.

Recovery, between consensus and confusion
The partial, progressive recovery of the Venezuelan economy, with its own dynamics of advances and setbacks in the short wave of its evolution, is an indisputable fact. The social and political debate on the economic issue is taking place with the consensus that, at the very least, what remains to be done for the recovery to cement itself over time and cover the most complicated issue of the current situation: wages and salaries, especially those of the public sector employees.

In summary, the general perception is that the economic conditions in the country have improved in recent years, a perception that is supported by more abundant family consumption and a growing variety of goods and services offered by businesses.

The economic recovery is not only material but also psychological. This phenomenon is related to the real figures of the national economy and is being expressed through phrases like “Venezuela is getting fixed” or “the Premium Venezuela,” projected as semantic structures to evaluate the current situation and take sides, either by optimism or by disbelief.

The new economic reality of the country, precisely because of its novelty, comes with confusions, some of them politically motivated by those celebrating a lack of public confidence in the macroeconomic policies implemented by the government of President Nicolás Maduro, while others originate from an explanatory weakness when trying to harmonize theory and reality, estimates and daily life, conquered benefits and their scope.

Much of the confusion in this regard is caused by the clash between what the figures show (which, without proper interpretation, remain as numbers without substance) and what people, depending on their place in the hierarchy of income, wealth, and spending, deduce from their own experiences as meanings and ways of representing reality.

The lack of a solid explanatory bridge between the growth and recovery figures presented by private firms, multilateral organizations, and the Venezuelan government itself, and what society materially experiences has, in turn, immediate political implications.

One of them is the assessment that economic growth is unequally distributed, or even the perception that, despite having the resources to carry out an egalitarian distribution of wealth, the government is resisting a generalized increase in salaries and wages that would dignify the lives of public sector workers.

When other essential issues such as the quality of public services, healthcare, the education system, and the maintenance of infrastructure are addressed, the more or less generalized deduction is directed toward the same point.

The political and narrative implications go even further. The expansion of luxury commercial enterprises and the social mobility and consumption capabilities of an economically empowered upper-middle class cause the illegal sanctions—that is, the ongoing state of a blockaded economy—to lose their ability to explain the origin of the economic slump of the last few years and to account for how these pressures continue to be the catalyzing factor of restricted capability to restructure salaries and public services.

The historical peculiarity
A good starting point for a realistic interpretation of the current economic situation would be President Maduro’s Annual Economic Outlook Report presented before the National Assembly in January.

From there, it is possible to separate the essential from the accessory, giving each variable its rightful place and its rightful context, in order to understand why, for example, public sector salaries continue to stagnate while the other factors of the economy show an upward trajectory of recovery and dynamism, even though the illegal US blockade exerts an objective weight on the performance of the economy and the country’s prospects of integral development in the medium and long term.

Due to the mining-exporting matrix of the Venezuelan economy and the materialistic dependence on petrodollars associated with it, liberal economic frameworks have not been able to properly explain the behavior of an economic structure such as the Venezuelan one, tied to rentierism and to the cyclical changes—always abrupt—of the international oil market.

An example of the theoretical fragility of liberalism has been the accusatory neurosis on Venezuelan “statism” and the use of other words of the same repertoire that lose relevance in a country where the State and the market have not had a harmonic and linear trajectory, unlike the myth that is usually promoted in the countries of the Global North.

The clarification is useful to accurately analyze the indicators of the Venezuelan economy, which must be inspected under the prism of political economy, that is, with an eye to the determinants on which production, distribution, and income are organized in the midst of a discordant and permanently contradictory dynamic where access to income is settled, and not controlled by the “invisible hand of the market.”

What the figures explain
According to the figures presented by President Maduro, the Venezuelan economy recorded a growth of about 15% last year. This basically refers to the growth of the GDP, i.e., all goods and services produced in the country. This is a variable that aggregates different sectors of economic activity (oil, industrial, commercial, etc.), which reflects the growth in the production of goods and services, materialized in the commercial and productive boom of last year.

The economic growth figure has a generalized nature that reflects the positive movement of the economy, centered on private activity (commercial or industrial), so it should not be considered as an indicator of availability of money per se that the government can use directly for public spending. It is simply a general estimate that indicates the current state of the economy.

The growth of the economy, on the other hand, influences the variables of employment, household income, and consumption, insofar as greater economic and commercial activity raises the labor supply, allocates new resources to wages (which in the private sector have been slowly recovering), and creates a feedback dynamic between the supply of goods and services and consumption.

Here it is important to highlight the role of remittances in reactivating the people’s consumption through channels that exist outside the national labor market.

In short, the economic growth indicator shows that the government’s strategy aimed at promoting the circulation of capital and flow of investments as an alternative means of economic reactivation in the face of the decline in oil income caused by the blockade has been effective in mobilizing the economic apparatus and alleviating the country’s social unrest by offering a path of sustained recovery over time.

Although the GDP variable and public sector income are correlated, the impact is not directly proportional. This means that while the economy is growing, the economic pressure of the illegal sanctions that are still in place negatively impacts the horizon of an equitable recovery. In other words, the fact that the economy is growing does not imply that, directly, the State has definitively overcome the strong external restriction that weighs on it in terms of income.

This is what explains the coexistence of a wide array of commercial establishments with stagnant public sector salaries and inflation that continues to generate uncertainty.

The two main channels of income of the Venezuelan State are the revenues from oil exports and the internal taxes with which it sustains the payroll of public employees, subsidies to public services, and other expenses corresponding to the public sector. Before the blockade, as is well known, the rising oil income had made it possible to finance public spending and expend dollars at subsidized rates to finance imports, positively impacting consumption and investment in infrastructure and services.

The economic blockade imposed by the US against the country since 2014 blocked this income channel, plunging it to a dystopian level of only $700 million in 2020. The drastic reduction in oil income had a destructive and generalized impact on all functions of the economy: without enough dollars, the flow of imports, the stabilization of the exchange rate, and productivity became unsustainable, causing shortages, inflation, lower wages, and depression of economic activity.

To mitigate this situation, the government implemented a strategy aimed at breathing life into the economy through the private sector, creating profitable conditions for private corporations to inject their foreign currency reserves into the country in the form of imports, commercial investment, and services, repositioning the evolution of this situation to tackle the larger objective of preserving political stability and the political recognition of Maduro’s presidency.

In 2022, imports grew by 106%, largely financed by the private sector, which de facto implies the success of the government’s strategy, on the one hand, in suppressing the dependence on State petrodollars of the economic functioning of the country and, on the other hand, in opening spaces for a self-financing internal economic accumulation.

Although the gradual recovery of oil production and exports, revalued by the geopolitical conflict in Ukraine, has led to a growth of revenues from the oil sector (in 2022, PDVSA delivered $4.578 billion to the country), it is still insufficient to finance the State’s commitments to the workers, public services, and investment in infrastructure.

The State’s internal tax collection base has also been impacted by the economic growth, reaching a base of $4.744 billion in 2022. A conservative estimate on the size of the state payroll and current revenues, provided by opposition economist José Guerra, shows that, in order to raise public sector salaries to $100, a financing of about $7 billion a year would be necessary.

The mathematics of the above data is crude, since that way all the revenue earned by the State would go into financing public sector salaries, leaving out subsidies, investment in public services, and other expenses of the State, as well as the reserves that the Central Bank of Venezuela must have available to inject foreign currency to the exchange houses as an emergency resource for the containment of inflation, which also come directly from oil export revenues.

The government’s bet on strengthening economic growth is based on the calculation that, in the medium term, higher tax collection will facilitate obtaining the necessary resources with which to finance a salary increase sustainable over time (combined with exchange rate stability) and to undertake urgent investments in public services, without relying too much on the boom in commercial activity to sustain its expansion.

In addition, the progress made at the Mexico Talks last year with a view to making fresh resources available (the $3 billion in seized funds has not yet been released), providing funds to strengthen the economic recovery, is essential, especially for the social development and infrastructure sectors. Likewise, a greater easing of the “sanctions,” President Maduro’s other large gamble, would also allow oil revenues to be strengthened with an aim of financing a restructuring of workers’ salaries and welfare.

Without these elements, the understanding of the economic moment—what has been achieved so far, which must be preserved, but also the obstacles that persist and limit a total turnaround of the wage situation—is distorted, giving rise to an inaccurate reading of the economic reality and of the long term strategy implemented by the Venezuelan government to again bring about a satisfactory normal for most people of the country.

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