Hidden numbers reveal scale of Venezuela’s economic crisis
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Nicolás Maduro, Venezuela’s president, sounded optimistic about his country’s economic prospects when he spoke at the launch of an agricultural plan last month. “This year will be the new post-oil economy,” he said. “From 2017 onwards we will have to talk about the new era. We are building the new economy with a solid base in the countryside.”
But his upbeat remarks stand in stark contrast to the massive anti-government protests sweeping the country as its economic crisis continues to unfold, with Venezuelans facing queues for food and basic consumer goods and hospitals reported to lack even basic medicines.
The outlook seems unlikely to brighten soon. Focus Economics said in a recent note that it expected Venezuela “to remain deep in recession since the structural problems afflicting the country are unlikely to be addressed”.
Most statistics tracking Venezuela’s economy are either unreliable or have been discontinued, after national account data were suspended in 2015. Even the IMF has only partial information, as its latest interaction with Venezuela’s authorities dates back to 2004.
But figures relating to Venezuela’s relations with the rest of the world offer clear insights into the scale of its problems.
Venezuelans are leaving the country, heading mostly for Spain and the US
The number of asylum applications — made by people fleeing persecution for factors such as race, religion or political beliefs — from Venezuelans received by Spain hit a record in January. The figure exceeded the all-time high from Syria reached in the middle of Europe’s refugee crisis.
With nearly 4,000 applications, Venezuelans were the main source of first time asylum claims in Spain last year, accounting for about a quarter of the total.
The figure represents only a fraction of those emigrating from Venezuela to Spain. In the first three months of 2016 more than 6,500 Venezuelans moved to Spain, compared with about 4,700 in the whole of 2013.
Data from the US present a similar picture. Venezuela is now the main source of asylum applications in the US, accounting for about 23 per cent of the total. The number more than doubled in the year to December 2016.
Foreign investment has dried up
Foreign companies have largely stopped investing in Venezuela — and some have halted existing operations, as in the case of General Motors after one of its plants was seized by local authorities.
US data show that in 2016 US net foreign direct investment in Venezuela turned negative for the first time since the series began in the early 1990s. Last year, Venezuela was the only country with which the US had negative net income flow among the 58 countries for which data are available.
The trend is not confined to the US. Overall foreign investment and acquisitions have stalled, and there have been no deals so far this year. This compares with the three foreign acquisitions and 20 greenfield projects that brought $6.8bn into the country in 2010.
But Mr Maduro’s remarks about a post-oil era hold some truth, given that Venezuela’s oil exports — which account for about 90 per cent of its total exports in value terms — have collapsed, not just because of the drop in prices but also in volume terms as production has folded.
Four years ago global economies were importing nearly three times as much in terms of value from Venezuela.
“The country is facing an unprecedented economic collapse, caused by political mismanagement exacerbated by low oil prices,” Jean-Philippe Pourcelot, Venezuela economist at Focus Economics, told the FT.
The country is running out of cash
To fund bond repayments Venezuela has been raiding its foreign reserves, which have dropped to about $10bn, from $30bn before Mr Maduro was elected in 2013.
“Without structural reforms such as price control removal, exchange rate unification and an improvement in the investment climate, the economy will remain in an abysmal state,” Mr Pourcelot said.
Economic contraction is coupled with hyperinflation
Venezuelans are seeing the value of their money shrink at the fastest pace in the world. The IMF estimates an inflation rate of 720 per cent for this year, skyrocketing even further in the coming years.
Economists disagree on Venezuela’s actual inflation rate, with their estimates ranging from 350 per cent to 2,200 per cent.
“Price controls, limitations on access to foreign currency and the collapse of the private sector in the provision of basic goods, have cumulatively led to one of the world’s highest inflation rates,” the World Bank wrote in a recent report. This means that Venezuelans see the value of their money and the ability to buy goods and services massively shrink day by day.
Economists’ growth estimates for this year also vary, from an expansion of 1.1 per cent to a contraction of more than 7 per cent.
According to IMF data, Venezuela’s GDP will contract by 7.4 per cent in 2017, meaning the economy will have shrunk about 30 per cent since 2013 — one of the largest peacetime economic contractions since the second world war. In comparison, Brazil’s economic crisis looks like a mere blip.
A country that in 1980 had the highest GDP per capita in Latin America is no longer in the top 10 and its economy is smaller than those of Colombia, Chile and Peru, the IMF data show.