Venezuela Undergoing ‘Chavista Liberalization’: Incentives for Dollars, Foreign Investment

RIO DE JANEIRO, BRAZIL – Venezuela’s daily life is dollar-dominated, however strongly the Caracas government clashes with Washington. Its penetration into all layers of society means that there is no turning back and its use, which is not new, has now been endorsed even by Nicolás Maduro.

It is not the only paradox of a regime that defines itself as socialist and revolutionary. The government is now seeking a new openness to investors, through the so-called Anti-blocking Law, a legal instrument designed to circumvent international sanctions, which facilitates investments by companies, and to this end extends the powers of the president and the executive. The law, criticized by entrepreneurs and opponents, contributes to a kind of wild west of the Venezuelan economy.

“We have the Anti-blocking Law, here is the new National Assembly that will push forward a set of laws to facilitate investment in Venezuelan economic activity, Venezuela is open to the world for investment,” said Maduro in a televised interview.

“Thanks to the Anti-blocking Law, there have now been major strides in new alliances in several fields of investment in the economy … I can not say much, is the feature of the Anti-block Law, to do without talking about it, and tell when it has already been done”.

In a country with an economy ravaged by hyperinflation of the bolívar, the local currency, and a permanent economic crisis, the relief produced by the dollar flow is both a mirage and a paradox.

It is an optical illusion because for years transactions have been occurring in the field of informality, within a legal limbo. And it is a contradiction because the dollar bills come in with no regulation or agreement of any sort with Washington, the main adversary of the Chavista regime.

On the last day of 2020, the traffice circle leading to the Petare neighborhood in Caracas did not display its customary bustle. Although the government relaxed the restrictions imposed by the pandemic, in one of the largest popular shopping areas in Latin America, Osmel León had to chase clients.

Many stopped at his stand to ask the price of vegetables. “Dollarization reduced sales to very little,” said the 43-year-old trader. His brief history is the country’s economic crisis. For 15 years he maintained a perfume store, but “when the money began to be scarce, I couldn’t go on. I didn’t have a selling point and people couldn’t afford these items anymore,” he says.

One year ago, he was forced to change his business to survive. But to pay for a bundle of coriander, not even all the banknotes a citizen can withdraw from banks each day are enough.

The last three years of hyperinflation have swallowed the bolívar and given way to dollars, which are the banknotes most seen on the streets in a country where for 15 years it was illegal to conduct currency transactions out of government control. León managed to sell a kilo of onions and three peppers, which were paid for with a five-dollar bill, and gave a dollar bill as change. “I keep the dollar bills I get, because if I don’t have change, I lose a customer,” he says.

The informal dollarization has created two social classes in an economy that nowadays is only a quarter of what it was less than a decade ago. Some are able to get paid in this currency and others are not, and this is the difference between survival and sinking into poverty.

In many cases, occupations as a bricklayer or housekeeper are paid in dollars and their wages are quoted in dollars. For a cleaning day between US$5 and US$20 (R$26 and R$110) are paid. A worker’s weekly shift is worth US$20. Those who make up the extensive public administration payroll, to which the retirees are added -about five million Venezuelans- are paid in bolívares and the minimum wage barely reaches US$1.

Ecoanalítica consultancy point out that in late December a kilo of imported grapes cost 10 million bolívares, with an annual increase of almost 4,000%.

The dollarization in fact, which the government has encouraged with the gradual lifting of economic controls in the search for income faced with the collapse of the oil industry and the siege of Washington sanctions, has also made the already impossible daily finances of Venezuelans more difficult.

Although the foreign currency is absorbing 60% of the economy, analysts estimate, access to it can only be achieved through this informal flow. There are not enough coins for change, nor are there enough low value banknotes.

In this context, in recent months a new figure has emerged in Venezuela’s underground economy. For a commission of 2%, for instance, a kind of broker transfers US$30,000 in cash from one of his clients to an account abroad.

Then the money he collects allows him to continue operating in the parallel exchange market and serving other traders who want to do the reverse operation, acting as a bank without being licensed to do so. Thus, the phenomenon widens the social gap in a divided nation that, on paper, has a “revolutionary” government.

Maduro: “Dollarization and revolution complement each other”

Venezuelan president Nicolás Maduro acknowledged this week that “the dollar has been working as an safety valve for revenue, trade and to meet the needs of important sectors of Venezuelan economic life.”

However, in an interview with journalist Ignacio Ramonet broadcast on January 1st by state TV, Hugo Chavez’s successor says that one can’t talk about dollarization of the whole economy. “We can’t say that Venezuela is like Panama or Ecuador,” he said.

He also denied the paradox of using the U.S. currency. “Is there a contradiction between dollarization and revolution? Not as far as we can see. There is complementarity,” said the chavista leader.

Meanwhile, in light of competition from the underground economy, formal banks in Venezuela have also begun to offer dollar custody services, and some institutions with branches in Panama have enabled foreign currency payment instruments to their clients.

Source: El Pais