With fewer sanctions, falling inflation and GDP growth. This is how Venezuela said goodbye to 2023 and started the new year full of positive expectations for the economy. The government’s optimism was evident when President Nicolás Maduro offered Parliament the Executive’s annual accounting last week.
“Venezuela had a growth of more than 5% in GDP in 2023”, stated the president, claiming that “it was the highest growth in Latin America and the Caribbean, another achievement achieved during the blockade”. In fact, the index announced by the government exceeds that predicted by ECLAC (Economic Commission for Latin America and the Caribbean) and is considered high for the region, although it lags behind forecasts such as that of Guyana, which is expected to grow more than 39% in 2023 according to the Commission.
The president also promised more growth for 2024, saying that the non-oil sector is becoming an exporter and that, combined with the recovery of the production capabilities of the state-owned energy company PDVSA, it should bring even more currency to the country. The sanctions relief announced by the United States in October last year should also stimulate the Venezuelan oil industry, which can once again access international markets and resume foreign investment.
Strengthening foreign trade and raising dollars is essential for the country, which has suffered from a long-lasting process of hyperinflation that hit the national currency, the bolivar, hard and devastated the purchasing power of millions of workers. In this sense, the exchange rate flexibility adopted since 2020 allowed the free circulation of the dollar in the country, a process seen by the government as positive, but provisional.
In Parliament, Maduro said that the country had the lowest variation in the price of the dollar in the second half of the year, something that would have been reflected in the drop in inflation. In December, Venezuela recorded the lowest monthly price increase since 2013. In annual terms, the country ended 2023 with a rate of 193%, according to data from the Venezuelan Finance Observatory (OVF), a private entity linked to the opposition. The figure is one of the lowest in recent years and lower than that of Argentina, which took the lead on the continent and closed the year with inflation of 211%.
Oil, growth and price stability
Together, these elements seem to make up the Maduro government’s strategy to try to get out of the crisis once and for all in 2024, striving to balance the oil recovery, economic growth and containment of inflation.
However, economists and experts in the field point to the difficulties present in this process. Osly Hernández, a Venezuelan journalist specializing in economic coverage of the country, explains to Brazil in fact that, although seen by the government as temporary, the dollarization process was responsible for containing the increase in prices and should be difficult to reverse.
“The first important measure was to recognize that we had to make the dollar accessible, expand the exchange of dollars in the country, because the blow that the bolivar received was so strong that it was not possible to sustain or stabilize the economy by maintaining the currency,” he said.
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In this context, she states that the government had to make decisions considered drastic and often unplanned during times of crisis, such as releasing the use of the dollar and investing more in partnerships with the national and foreign private sector.
“If oil income had continued at the same pace as in 2012, it would not have been necessary to transition to the mixed model. This was not on the revolution’s agenda, it is a consequence of an attack and, between this route and leaving citizens unassisted, the right thing to do was to take these measures”, he says.
Osly also highlights that, shortly after the general blockade licenses announced by the USA, the country has already announced new projects with foreign companies, such as Chevron, Repsol and agreements for gas exploration with Trinidad and Tobago and the Dutch Shell. The journalist believes that the results of these agreements should have an impact on the 2024 indicators and highlight the failure of the sanctions policy.
“The strategy of strangling Venezuela economically and putting the country at a disadvantage compared to other countries did not work, on the contrary, it brought out political and economic creativity with a number of elements that the US did not foresee,” he stated.
While balancing the macroeconomic elements should be a structural challenge for the government in 2024, from a social point of view, the issue considered essential is the recovery of the minimum wage to end the crisis once and for all and resume the growth path. This is because the constant fluctuations in the price of the dollar have drastically reduced the purchasing power of thousands of workers who continue to earn in bolivars.
To protect the most vulnerable, the government has been expanding social aid through increases in so-called bonuses, which are indexed to the dollar. Last week, President Nicolás Maduro announced that the “economic war bonus” would increase, from US$30 to US$60 and, together with the food voucher, would reach US$100. However, the salary minimum has continued without adjustments since April 2022.
To the Brazil in factProfessor of Economics at the Central University of Venezuela (UCV) Carlos Peña warns of the risks of going so long without a real increase in salaries, since the payment of aid, although necessary, does not affect labor rights such as the guarantee fund and 13th wage.
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“There is the possibility of indexing the salary to the value of the dollar, but if the government is going to index it, it must first increase the salary. Currently, the government fears that an increase indexed to the dollar will generate inflation and yes, in theory this is possible, but the The point is what we do to avoid this,” he said.
The professor also points to the influence of political elements on the economy, as the country is expected to hold presidential elections in October. For Peña, if the government manages to inspire confidence, it will be able to attract investors and partners, public and private.
“Suddenly, the government changes its policy and begins to work in a different way with the private sector, to generate confidence, because confidence is a fundamental element for the economy to grow. The role of the Central Bank is to minimize uncertainty and minimize expectations. So, if Venezuelan economic agents trust the Central Bank and the Central Bank does its job of maintaining the stability of the currency, things could go in a more or less good direction”, he states.
Editing: Nicolau Soares