In an interview with the economist Rodrigo Cabezas Morales, current professor and researcher at the University of Zulia and former Minister of Finance in 2007, he discussed the development of the Venezuelan economy in 2022, and the possible scenarios for 2023.
By La Patilla
Jan 01, 2023
What is the balance on the economic and social performance of the Venezuelan economy in 2022 from your perspective?
By the end of 2022, the main macroeconomic and humanitarian imbalances continue. Inflation above 200%, unemployment above 42%, a fiscal deficit of 11% of GDP while being financed by the BCV(Central Bank of Venezuela), the unstoppable devaluation of the exchange rate by about 400%, a level of international reserves well below critical, scarcely 4 thousand eight hundred million dollars, a dwarfed banking system that doesn’t grant credits (loans), an unbridled growth of imports that presses the devaluation and reduces the internal market to the national industry and agro-industry and the oil industry still unable to recover and capture (foreign) investment stagnant at 600 thousand barrels of oil per day, with an annual income that may reach no more than 12 billion dollars. These figures dramatically confirm, and without any doubt, the immense failure of the ruling elite in my country.
And in the social (performance)?
I believe that the dizzying growth of inequality is the most inhuman legacy of the fiasco of this misnamed “revolution”.
Just observe that the remuneration system does not value the labor force at all, by turning the salary into a miserable figure, which devolves into an unworthy living condition for manual and intellectual workers who depend on a salary paid in bolivars: public and private employees, university students, retirees and pensioners. Let’s add that, according to UCAB research (Andrés Bello Catholic University), 67% of Venezuelans are unable to meet basic food expenses; likewise, the concentration of income has accelerated to unimaginable levels, the 10% of the poorest population barely participates in 0.8% of total per capita income. This is wild capitalism.
The people who govern do not realize that in the integral macroeconomics, socio-economic life is one of its main components in relation to the level of consumption, quality of life, spending pattern and human and social development.
However, the spokesmen for Nicolás Maduro’s government affirmed that in 2022 the economy grew. The BCV reports 17% growth.
What happened is that (this growth comes) after the 2014-2021 systemic crisis, insubstantial, unsustainable and without much added value.
Without any greater added value?
Let me explain. Under the current government, 84% of the size of the economy was lost, the growth they boast of is that we went from the basement (minus) -84 to the basement (minus) -82. The bottom line is that the destruction without historical precedent of the productive apparatus, caused by the 2014-2020 recession and the 2018-2020 hyperinflation, makes any GDP growth rate, however modest, take refuge (is reflected) in only meager imports and not in real production. What is this? In 2022 the services, commerce and government sector grew, this is the so-called tertiary sector of the economy, for this reason you observe an expansion of activity in supermarkets, “bodegones” (delicatessen), pharmacies, restaurants, liquor stores, casinos, nightclubs, transport and storage and commerce mostly. The sectors that have grown are all related to imports, they are sectors with low added value. In fact, the BCV reports today that the GDP of government, commerce, transport and storage grow at 12%, 25.2% and 54.3% respectively.
Agriculture, agro-industry, industry, construction and oil refining continue with high rates of inoperability and very low utilization of their installed capacity. The construction industry, which is the one that generates the most employment per unit of investment, has practically paralyzed all its cement plants, a similar picture is seen in the automotive and textile industries.
In short, it happens that the tertiary sector, service and commerce, represents 57% of the total Venezuelan GDP, by expanding it pushes the global rate that the government boasts, industry reduced its weight in the economy to 6% and agriculture to barely 4%.
Fedecámaras seems to have a more optimistic vision…
Entrepreneurs in the real sector of the economy know that they fight in critical scenarios to sustain their businesses. The drop in consumption due to the collapse in real wages, unfair competition caused by the wave of imports, the collapse of bank credit, the crisis of basic services such as electricity, water, telecommunications and security, the isolation of the international financial system after sanctions and the null state investment in production and support infrastructure does not allow them to take off as they would like.
The year 2023 is coming. Is it possible from economic science to envision an improvement in the economy in terms of its economic and social imbalances?
I can’t find an economic, political or social variable that allows that conclusion. Venezuela does not have a systemic economic program in the fiscal, monetary, exchange and productive areas, both for the oil and non-oil areas. There is a clear incompetence and contempt for economic science in the government of Mr. Maduro.
On the other hand, the government will continue with serious limitations on fiscal resources, the national budget approved by the AN reveals that 40% of spending in 2023 will be financed by the BCV (Central Bank). That is: monetary expansion (liquidity, printing money) out of thin air. It grew an unusual 472% this year and will continue to be the great determinant of the exchange rate. I optimistically estimate that it will average 54 bolivars per dollar by the end of 2023.
Finally, the investment category will not recover unless Venezuela returns to the international financial system, oil sanctions are suspended, the default of foreign debt payments is resolved, and bank credit is recovered.
Let’s take into account that in September the Venezuela’s country risk reached 43 thousand points, this is devastating for the expectations of foreign investment, note that Colombia has its risk value at 396 points, Uruguay 147, Chile 182. Few countries have an international environment as adverse as Venezuela.
Weren’t the anti-blockade law and special economic zones to attract foreign direct investment?
These two laws show that the government has no idea of how the economy works in its correlation with legal certainty, political and social stability, transparency in state management and the necessary investment in infrastructure.
Going back to the expectations for 2023, do I understand that the devaluation and inflation will not stop?
Correct. Everything indicates that they will maintain the scheme of high macroeconomic and social cost of very high legal reserve rates that liquidated credit, injection of dollars from the BCV to the market that wasted more than three billion dollars, without exchange rate stabilization gain, and the containment of spending that slows down growth and hits the wages of workers, pensioners and retirees from the public administration. These three instruments are unsustainable, they will not stop inflation and devaluation.
Chavismo announced in 2018 that it would anchor its exchange rate policy to the “Petro” to stabilize the value of the bolivar. What happened?
The Petro (government sponsored blockchain “coin” link to the price of oil but not supported by it) is one of the biggest antics I’ve ever heard as an economist. It’s embarrassing to refer to that. In the first semester of economics schools, students learn that there is no possibility of a real equilibrium exchange rate without the support of an adequate level of international reserves, without fiscal sustainability that guarantees the dynamic adaptation between public spending and imports, and transparency. in the management of the central bank. None of these three conditions is present in the Venezuelan economy.
The BCV intervention failed resoundingly, the price of the dollar in 2022 increased by 400%, ending at 18 bolivars. International reserves, as of December 28th, of 4,862 million dollars portend the worst in exchange matters for 2023. Under this context, even with GDP growing by 4%, inflation could exceed 300%.
On the BCV website, international reserves are posted as 9,946 million dollars, not the figure you provide
As of August 8th, 2021, the BCV board of directors decided to add to the international reserves the 5,084 million dollars for Special Drawing Rights that the IMF agreed for Venezuela that year. This is an act of irresponsibility, a deception to the nation, since the IMF has not delivered these funds to the BCV. This is unpresentable. It’s an accounting hack. It is impossible to hide the fact that the reserves of 4.8 billion dollars are incomparable even with smaller countries such as Bolivia (6.7 billion dollars), Paraguay (9.6 billion dollars), Uruguay (16 billion dollars) or Peru (73 billion dollars).
Has it been rumored that the regime, given its fiscal restriction problems, is going to proceed to remove the subsidy on motor fuel and raise its price again in the domestic market?
I have no information about that alleged decision. If they do it without any “progressivity” (incrementally), it is obvious that it will mostly affect the income of the middle sectors and the food transport sector. This decision would make a general increase in wages and salaries for wage earners even more urgent.
…
Read More: La Patilla – Macroeconomic and humanitarian imbalances in Venezuela will continue in 2023
…