So Much For Prosperity
We’ll get started with this week’s Venezuela : Down The Rabbit Hole segment in just a bit but first…Rio Times reports that in the first half of 2023 Venezuela’s economy has seen two strong contractions resulting in a 7% drop in economic activity, according to VOF (Venezuela Observatory of Finance).
Despite an increase in oil production, the decline is attributed to weakened domestic aggregate demand, not surprising with the monthly minimum wage under $5.
As we’ve been reporting, Venezuela’s “economic recovery” (late 2021 and throughout 2022) was felt only by a small percentage of the population (the wealthy and well connected ie; the Chavistas) while the general public continued to starve. The brief respite followed over four years of hyperinflation and over eight consecutive years of recession. The government’s policy of a 75% banking reserve (businesses can’t get financing), the highest in the world, isn’t helping.
It looks like things are returning to the way they have been during most of the time since Nicolas Maduro took power. So much for prosperity.
Then we have Orato telling us that not all Venezuelan migrants are fleeing Venezuela to escape the disastrous economy of Nicolas Maduro and 21st Century Bolivarian Socialism. Some are fleeing gang violence, which is pervasive, as the Maduro regime has ceded control of many areas of the country to the gangs (the gangs pledged to reduce violence if given free reign).
The article detailed the story of a woman who operated a small shop in Venezuela with her uncle. They were robbed several times, not unusual in Venezuela, then a group of armed men threatened them saying they would kill her children if she and her uncle didn’t pay. The men trashed the shop to prove they were serious then left.
She didn’t go to the police knowing they would do nothing (98% 0f crimes go unsolved in Venezuela). Weeks went by but she knew they weren’t safe and her fear was proven justified when they murdered her uncle.
More time passed but lacking the money to pay them she knew it wasn’t over. They killed her neighbor and good friend so she left to stay with another friend but eventually had to return home.
The threats continued until one night they set fire to her house. When she went outside with her children she found they had stolen her car.
Realizing she had no option but to leave she applied for asylum in Canada, was accepted, and now lives there, hoping one day to return but realizing that until justice returns to Venezuela (which won’t happen with the Maduro regime in power) she won’t be going back.
Now, let’s head Down The Rabbit Hole…
Chapter 3/ Killing The Goose That Laid The Golden Eggs…
Venezuela’s government-owned oil company, PDVSA, was once the envy of the entire oil-producing world. They were a founding member of OPEC (Oil Producing and Exporting Countries), the cartel that controls production and therefore pricing for much of the world’s oil. Through years of savvy business administration, not to mention sitting on top of the world’s largest proven oil reserves, PDVSA became an economic powerhouse. The government was smart enough to, more or less, allow them a free hand and just sat back and taxed the profits which, as you might expect, were substantial.
The government nationalized PDVSA in 1976, however, they were astute enough to allow the company to operate, more or less, autonomously and continue their partnerships and associations with a group of large, multinational oil companies.
I liken the situation to that of Hong Kong when it was still under British control. When the governor of Hong Kong, a Scotsman, was asked what his greatest fear was for the economy of one of the world’s most prolific financial hot spots he said ” I can only hope the powers that be, back in London, don’t try to fix it”.
In 1998 PDVSA was the largest company in Latin America and the 10th most profitable company in the world. It was the world’s 5th largest oil exporter with a workforce of approximately 40,000. It had a healthy contingent of experienced engineers, financial professionals, and outstanding operational support. All that would soon be put to the test.
In December of 1998 Hugo Chavez was elected President of Venezuela. The former paratrooper was a man without much formal education, training, or experience in politics, business, or pretty much anything else but he was extremely charismatic. He swept in on a populist wave promising to lift the everyday people of Venezuela out of poverty and allow them to benefit from the oil riches, as did the country’s elite. His “Bolivarian Socialism” was heralded as “The new socialism for the 21st Century”. It was going to right the wrongs of the past and correct all the inequities and, truth be told, there were many of them. I won’t say he promised free everything for everybody as you hear today to a degree, but he was definitely leaning that way. The Noam Chomskys and Sean Penns of the world led the parade of academics, celebrities, politicians, economists, and revolutionary wannabes fawning over how great this was going to be.
The situation for the ordinary Venezuelan in 1998 definitely needed improvement as is obvious when the poverty rate is in the 50% range. The news was not all bad though. We will get into a “then versus now” conversation later regarding society as a whole but it is important to note that Venezuela had a growing middle class and a minimum wage of about $200 a month. That’s not much by our standards in the US and admittedly is simply not that much but it did allow the average Venezuelan to provide for the essentials and afford a few luxury items. PDVSA employees fared much better. They had houses, cars, and took vacations. The higher up in the food chain you got in PDVSA the better the lifestyle, as is true in any company or developed economy. Keep that $200 a month in the back of your mind as it will come into play , not just in the overall societal conversation but in the PDVSA story.
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