Dollarization Drives Luxury Goods Consumption in Venezuela

RIO DE JANEIRO, BRAZIL – Two young women enjoy a sunny day by the pool, laughing carefree as they pour Prosecco over a mango sorbet.

Part of an Instagram advertising campaign, the picture is the epitome of hedonistic opulence – at least in Caracas, the deeply impoverished city where it was staged. The dissonance between the ad and the harsh reality does not seem disturbing. In the comments, the Lits network of alcoholic sorbets receives heart-shaped emojis.

While the pandemic widens inequalities between the world’s rich and poor, Venezuela is perhaps the most glaring case. President Nicolás Maduro reinforced his power by promoting a drastic dollarization during the quarantine.

The country’s huge oil sector collapsed. Water, electricity and gasoline are lacking. A large part of the population is starving. The latest research by a university showed that four out of five Venezuelans could not afford a food basket last year.

Meanwhile, there are neighborhoods in Caracas with a dozen new delivery services that take bowls of truffled salmon poke, electronic cigarettes and gluten-free cakes to people’s doors for birthday celebrations costing US$50.

“The government no longer disrupts the small private sector and has allowed dollarization to progress,” noted economist Omar Zambrano. “This creates a comfort bubble that reduces political pressure to maintain an economy capable of providing the minimum, particularly with U.S. sanctions.”

Over US$2 billion entered the country – part of the money linked to luxury businesses and part unrelated to Prosecco drinkers, but originating from remittances sent by five million Venezuelans who fled the collapse long before the advent of the coronavirus. The dollars have established a parallel reality. After the national economy shrank by 65 percent from 2015 to last year and dropped by 20 percent this year, dollar-based businesses are thriving.

What began last year in the form of small imported luxury goods stores has evolved into multi-storey emporiums. Where toilet paper and sugar were lacking, there are now endless options for those who can afford it.

In southeastern Caracas, there are bottles of Sam Adams Octoberfest beer for US$2.45, 150 grams of Spanish La Cueva del Abuelo Manchego cheese for US$12, keto bread for US$20, and Omaha Steaks meats, including half a kilo of pork loin sold for US$23.

“In the past, the main problem was scarcity,” said Risa Grais-Targow, an analyst with the Eurasia Group. “People who don’t have access to dollars are still suffering.” But for those with American currency, the picture “has been a great driver of stability”.

Due to the pandemic and the sanctions imposed by the U.S. on many figures associated with the government, sophisticated travel has virtually ended for the Venezuelan elite. In its place, a local luxury market has emerged where repressed creativity reigns. The U.S. presidential election should not change the situation, regardless of the winner.

“With a minimal opening in the economy, we saw innovative and imaginative ways of creating during a crisis,” said Graciela Beroes, general manager of Lits Sorbets.

Source: Bloomberg