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Venezuela has no worries about the future of its economy or where earnings will come from for at least the next 150 years. There is one reason: oil. Venezuela is not only one of the main producers of crude in the world but just the 20% of proven reserves in the Orinoco Basin gives them enough oil for the next century and a half. I say “proven”, that is, the fully explored reserves. There is a further 80% that needs further exploration, but , make no mistake about it, the oil is there.
Venezuela is indeed a rich country and oil has had a huge influence in its economic life. However, oil goes well beyond the treasury spreadsheets. It influences the way people see life itself.
From the early days of the 20th Century, Venezuelan presidents passed laws and regulations that allowed the country to benefit from the income it earned from oil exports. And, as a politician, you mishandle the oil issue at your peril. On 27 February 1989, riots brought Caracas to a standstill when the people protested against a neo-liberal package introduced by President Carlos Andrés Pérez (see http://lab.org.uk/blog-on-venezuela-(1)). What really annoyed them was the decision to include a hike in petrol prices in the package.
Oil has created a culture of consumption unlike any other country in Latin America. The streets of Caracas are always thronged with 4-by-4s and motorcycles. Well, what do you expect? To fill the petrol tank of an average family car costs the astronomic sum of 50 sterling pence, about 75 US cents.
The days of ‘Venezuela Saudita’, when the country received vast amounts of petrodollars as a result of the oil price increases in the 1970s and 1980s, may have gone, but Venezuela’s dependency on oil exports grew between 1998 and 2010 from 68% to 92%.
In the 1980s, people would travel to the US on shopping sprees that would shame a tycoon. The “tá barato, dame dos”, “it’s so cheap, I’ll take two” attitude helped to create an inflationary culture that Chávez has not been able to stop.
Francisco Navarro, head of Gas Management at PDVSA, the state-run oil company, told me that Venezuelans are far too used to the easy life. “They go to Miami, buy lots of clothes, return home and sell those clothes at three time the price they paid. That’s it, easy money, no need to have a job”.
In order to restrain such profligacy and to prevent capital flight (people sending their “easy” money abroad), Chávez introduced a measure that has made things worse: exchange control. You are not allowed to take more than $US10,000 abroad. There is tight control of the amount you can buy. Banks are not allow to fix their own exchange rates, these rates are decided by the government. As it happens, this has created a huge and prosperous black market where you can get more Bolivares (Venezuela’s currency) for your money than in a bank.
This dichotomy has created a strange commercial world. Caracas is one of the most expensive cities in the world. The country imports almost everything and everything is heavily taxed. I went to a shopping mall, out of sheer curiosity, a place where the term “window shopping” can be applied in the literal sense of the words because you’d have to be a millionaire to buy anything here. I asked the price of a well-known brand pair of walking shoes. At the official exchange rate – 6.30 bolivares to the dollar – it would have cost me £250! I’d pay £60 in London. However, if I pay cash with money changed in the black market – an obliging taxi driver, waiter, or cleaner – I’d pay much less because the exchange there is 25 bolivares per dollar. You do the maths.
Chávez is accused by the very people who go to Miami of having promoted consumerism among the poor. Many inhabitants of the shantytowns have been given mobile phones and washing machines. My host Dollybeth (see my previous post from Venezuela) says that poor people today walk around speaking into their mobile phones and watch those soppy and badly-acted Mexican soap operas on brand new TVs. She recites the old saying “Don’t give a poor man fish, teach him to fish”. Try telling people who never had anything to give up their mobile phones and washing machines so they can “earn” what they have, I tell her, and see what they say to that. She just looked at me.
One of the biggest problems is that, because Venezuela has all that oil, it has never developed its own industries. What is not imported doesn’t work. What would happen if, due to the fluctuations of the international markets, the price of oil goes down, I ask Manuel Sutherland, an economist and researcher in a left-wing think-tank. Nothing, he replies, Venezuela has more than sufficient monetary reserves and, in any case, it would still earn a lot of money because oil never goes out of fashion.
One of my hosts, Luis, reckons that any financial crisis in Venezuela will always be superficial, compared to the ones which afflict other countries in Latin America. Inflation created by those high prices can be subsidized by oil, any social conflict created by lack of housing or infrastructure can be bought off with oil money. No problem. However, these excesses have contributed to an increase in robberies and muggings and violence is rife in Caracas.
Venezuela is blessed and cursed by oil, it makes money for the state and promotes consumption. Hugo Chávez has taken advantage of this to promote – and indeed subsidise – his social programmes and he’s even used it as a geo-political weapon with which to support Cuba and other countries in his alliance. No matter who follows him as president, whether a Chavista candidate or a member of the present opposition, the first question the successful candidate will always ask is: how are we doing with the oil?