‘Savage capitalism’ takes hold in crisis-hit Venezuela
After years of expropriations, hyperinflation, bankruptcies and financial collapse, what remains of Venezuela’s private sector might be forgiven for giving up hope.
But business people in Venezuela say the economic crisis in the South American nation has hastened moves by President Nicolás Maduro’s government away from the full-blooded socialism of his predecessor Hugo Chávez towards a freer market.
“As business people we have wanted free prices and a free flow of dollars for many years,” one senior executive at a consumer goods said. “Now prices have effectively been freed and you can pay with dollars.”
Venezuela had “adopted savage capitalism,” he added.
Ministers have not officially announced policy changes and were not available for interviews. But over the past few months, business people say rules barring transactions in hard currency have not been enforced, many price controls have been dropped, imports have been freed and Venezuela’s battered economy has rapidly dollarised.
As a result, some goods which were previously scarce or unobtainable have reappeared in shops, though their prices are out of the reach of the vast majority of shoppers. Inflation has fallen from stratospheric levels of more than 100,000 per cent last year to an expected level of several thousand per cent this year.
“The economy has stabilised to a degree,” said Dimitris Pantoulas, a Caracas-based analyst and consultant. “It was chaos, with queues everywhere and no food. But now, although it is far more expensive, you can get what you want.”
“There is a certain orthodoxy,” agreed Asdrúbal Oliveros, director of Ecoanalítica, a consultancy. “But it has come very late and it is disorderly. The controls have not been lifted, they are just not applied. It is very arbitrary.”
Nobody is suggesting Venezuela’s economy, crippled by years of mismanagement and reeling from US sanctions, is in anything like a sustainable position. Gross domestic product has more than halved in a few years, in what Ricardo Hausmann, a former Venezuelan central banker, has called the greatest economic collapse of modern times outside of war or natural disaster.
But some business leaders have welcomed the greater economic freedom of recent months, even if the Maduro government’s motives were less than pure.
“It was not out of conviction but out of necessity that the pressure of exchange controls has been lowered,” said Carlos Larrazábal, outgoing head of Fedecámaras, the country’s main business association. “There is a deep recession in the productive sectors, consumption is falling dramatically, there is no finance . . . credit is impossible.”
To combat inflation, banks have been obliged to hold 100 per cent of deposits as mandatory reserves with the central bank, which has cut off lending. The failure of credit card limits to keep up with rampant inflation has put a brake on consumer borrowing. And some of the few remaining industries still functioning complain that they cannot compete on production costs with cheap unregulated imports.
“Purchasing power has collapsed, so sales are now 20 per cent of their former level,” said the owner of one manufacturing facility. “But I still have a factory set up to produce for a far bigger market. So in the short term, this situation is not better. But in the long term, it is good because there is less state intervention.”
Mr Pantoulas compared Venezuela to a war economy. “Ten per cent of the population have access to all they want,” he said. “The other 90 per cent live in penury.”
Indeed the Fedecámaras annual assembly, held this month at a Caracas university, had a certain wartime feel to it. When the loudspeaker system failed to play the national anthem during the opening session, delegates rose to their feet and delivered a rousing impromptu rendition, ending with shouts of “Viva Venezuela!”.
“The private sector refuses to disappear,” Mr Larrazábal said in a defiant address to delegates. “This is not an option for us . . . we are part of the solution, not part of the problem”.
Asked beforehand by the Financial Times how long the private sector could hold out, he painted a bleaker picture: “It is difficult to predict . . . there used to be more than 12,000, nearly 13,000 industrial establishments [in 1998], now there are no more than 3,000 left.” Of those, he added, a third had predicted at the end of 2018 that they would not survive another year if policies remained unchanged.
As Mr Larrazábal put it: “The speed of destruction of the economy is much faster than the speed of expectation of a political change which allows us to have a model of free enterprise and private property.”