translated from Spanish: Venezuela: what lies behind the “dollar prosperity” and the country’s apparent economic uptick (and how long it can last)

It’s been a long time since a party like this was seen in Caracas.
At the Humboldt hotel, an iconic building at the top of the Avila hill, the mountain that presides over the venezuelan capital’s print, a group of the lucky ones had fun on December 14th at the rate of liquor and reggaeton.
As if it were the last premiere of the “Star Wars” series, from up there huge spotlights illuminated with green beams a city where blackouts are frequent.
The images elicited comments from surprised citizens on social media.
The Humboldt spree is the latest example of a recent phenomenon, the apparent return of activity and consumption to Venezuela’s capital.
There are again cars stuck in the city’s roads, diners in their restaurants and virtually every day a new still life appears, as imported stores are known that sell in dollars chocolates, spirits and various baubles for the minority who can afford them.
The generalization of the US currency coincides with an unexpected sense of bonanza that has led authorities to place ostentatious Christmas lights over the course of the Guaire, the sewage river that runs through the capital.
After years of economic collapse and more than 4 million of its inhabitants choosing to leave, some in Venezuela begin to ask the question: is the dollar helping to get out of the crisis?

Why we’re talking about a possible recovery in the economy
For the first time in a long time, in recent weeks some indicators have been favorable.
Oil production accumulates three months upwards after years of collapse. Francisco Monaldi, an energy policy expert at the Baker Institute, attributes it to “a relaxation in the application of U.S. sanctions against PDVSA,” the state oil company.
A moderation of hyperinflation has also been detected.
Asdrúbal Líveros, an expert from the consultancy Ecoanalítica, believes that “Venezuela is likely to abandon hyperinflation by 2020, although it will remain the fastest inflation economy in the world.”
The National Assembly estimated inflation of 13.475% last November, below the 130,000% admitted by the Central Bank of Venezuela for 2018 and far from the 1,000,000% estimated by the International Monetary Fund (IMF).
In a recent statement, Fedecámaras, the country’s largest business association, said it hopes that by 2020 there will be “a resurgence of the economy influenced by market forces.”

Symptoms of improvement come after the government has changed key elements of what for years was a statist economic policy that established tight controls on economic activity.
Among other actions, control of exchanges, which pursued foreign currency transactions in the country, was repealed and price control ceased, which in the past led to closures and fines for businesses that did not respect the tariff scale set by aut orities.
Tamara Herrera, director of the consultancy Financial Synthesis, notes, however, that “there has not been a change in the direction of public policies by conviction, but because of the need to which sanctions have been forced”.
In circles of opposition supporters, we talk sarcastically about the new “Liberal Maduro,” and a lawyer advising several companies in the country and opposition leaders told BBC World: “We failed to change the government, but we managed to get the government to change.”
How real “recovery” is
Despite seemingly positive conjunctural data inwhich many temporal factors influence, experts see no reason for optimism.
2019 will have been the seventh consecutive year of a fall in Venezuela’s Gross Domestic Product (GDP).
Since Nicolas Maduro succeeded the late Hugo Chavez in the presidency in 2013, national wealth has been destroyed at such an accelerated rate that Alejandro Werner, director for the IMF’s Western Hemisphere, went so far as to say that Venezuela’s economic contraction is the highest of the last 50 years in a country unaffected by war or natural disasters.
The Venezuelan government blames this tendency to U.S. sanctions.

Herrera believes that the feeling of bonanza that is lived these days in Caracas “does not have a macroeconomic significance yet” and is not convinced that he will have it in the medium term. “We are now under the effects that the Government advanced the payment of some bonuses, something that could be prolonged depending on the electoral calendar, but how long can that last?” he asks.
It warns that the government’s new policy is one of “permissiveness”, but not of genuine “liberation”, since it “has not been accompanied by the reform of the legal framework”.
And the expansion of import business, helped by a government-approved tariff suspension, responds to reasons that many economists find ultimately damaging to the economy’s consolidation.
“In Venezuela, all the capacity to produce at competitive prices has been lost because of the lack of labour mobility, inflation, and the tax and other costs that companies suffer, so it has reached a point where it is more profitable to import” , says Herrera.
This is the key to the boom in high-margin establishments purchased in Miami or elsewhere in Florida.
“The government’s aggressive monetary policy, which has reduced the outstanding bolivars, has also made the dollar artificially devalued in Venezuela and more advantageous to import,” she says.
The U.S. currency is increasingly leading the Venezuelan economy. After years of outlawing it, the government now tolerates it and Maduro was recently in favour of its use.
According to an Ecoanalytics report, it already accounts for more than 53% of total transactions in the country.
But that doesn’t mean it’s within reach of the majority. Herrera estimates that “only 35 or 40% of the population has access to foreign exchange”.
Thus, life becomes very hard for those who continue to manage in bolivars in a dolarized economy, usually low-paid public employees and informal sector workers with very low purchasing power.

For Luis Vicente León, of the consultancy Datanálisis, the ongoing process “consolidates an economic dualization, divided into a minority and dolarized segment, fed by remittances, external savings, exports, smuggling, gold and illegal operations; and another primitive, impoverished, subsidy-dependent majority segment.”
As happened in Cuba with the introduction of the Cuban Convertible Peso, of equal value to the dollar, whose use was widespread among tourists visiting the island and benefited Cubans working in the tourism sector, who tend to have a more comfortable position than that of their c ompatriots who receive their income in the traditional Cuban peso, in Venezuela there is a de facto segregation of citizens depending on the currency they have.
Another differential factor in the Venezuelan case is the place in the country where one lives.
While the still lifeof in Caracas illuminates the guaire fétido, in other parts of the country the constant power outages continue.
Herrera laments that “all this is only accentuating inequalities.”
Will the economy recover in 2020?
Asdrúbal Oliveros predicts that 2020 will be another year of “contraction”.
According to the IMF, Venezuela’s economy will be reduced by 10% by 2020, the largest drop among all the countries for which the agency makes projections.
However, the forecast is that the batacazo will not be as big as that of 2019 and previous years. “A smaller fall is expected,” Leon sums up.

As for still life fever, Herrera envisages a more difficult immediate future for them. “There’s competition starting to take hold, because there’s more and more, so they’ll have to lower prices and, with them, their profit margins.”
According to the economist, in order for a real recovery to be talked about, “consumption, investment and production must be recovered.”
No analyst sees any of that in the immediate future Venezuela.

Original source in Spanish

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