Venezuela Recovers Despite Sanctions

In an article from last November entitled “Cuba, Venezuela and the US sanctions” we said that although these sanctions explain part of the performance of the Venezuelan economy, they could not be the whole explanation.

We remembered then that the fall in the Venezuelan GDP had begun in 2013 and that Venezuela entered the Hanke-Krus table (which compiles cases of hyperinflation in the world) at the end of 2016. That is, both things happened before Donald Trump will come to government and apply the most severe sanctions adopted so far against the Venezuelan economy.

Since 2019, on the other hand, a partial liberalization of the Venezuelan economy began, and this resulted in a recovery of growth and a reduction in inflation despite the continuation of the sanctions. According to the Venezuelan Finance Observatory (a private entity independent of the government), the Venezuelan economy grew by 6.8% in 2021. And the Credit Suisse investment bank estimated last April that this year it could grow by 20%. Of course, these figures must be contrasted with the catastrophe that the Venezuelan economy suffered between 2013 and 2020, and growth projections will be reduced if, as seems imminent, the ongoing food crisis on an international scale worsens.

The point, however, is that the economy has not only stopped contracting, but has also started to grow. Although it still has one of the highest inflation rates in the world, Venezuela it would also be coming out of hyperinflation. The inflation rate, which reached 686% in 2021, had accumulated 22% this year until May 5.

Thanks to the more widespread use of the dollar, consumption has also been increasing in the Caribbean country. AFP (YURI CORTEZ/)

I repeat, the proof that the sanctions were not the only explanation for the poor performance of the Venezuelan economy is that the described improvement occurred without any change in sanctions (the Biden administration lifted some sanctions only May 17 last, that is, long after the recovery of the Venezuelan economy began). The recovery also preceded in time the increase in the price of oil (practically the only good that Venezuela exports), as a result of the war in Ukraine.

In other words, the only variable that can explain most of this recovery is the change in economic policy as of 2019. For example, the dollarization of the economy, the reduction of price controls and the reduction of the fiscal deficit explain the lowest inflation. On the other hand, attempts to attract private investment, for example, through the partial privatization of companies such as CANTV (which had been expropriated by the Hugo Chávez government), help explain the growth of the economy. Although, to a lesser extent, they also help to explain why in 2021 oil production will have doubled (up to 800,000 barrels per day).

Faced with the ideological questioning of her co-religionists for liberalizing the economy as a means of dealing with the crisis, the Vice President and Minister of Economy, Delcy Rodríguez, admits the following regarding Chavista economic policy: “You cannot say that at that time that was socialism. […]. That went directly against the people, against the purchasing power of the people.” In other words, now the Venezuelan government admits what not a few warned from the beginning: high inflation has the same effect as a regressive tax. Or, in other words, it induces a redistribution of income in favor of those who have more and to the detriment of the poorest. That is to say, exactly the opposite of what, in theory, a socialist government would seek to do.

Source: Elcomercio