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Venezuela is quietly quitting socialism

Venezuela is quietly quitting socialism


Earlier this month, Ingrid Sanchez tried to rustle up votes here for the ruling Socialist Party in Petare, Venezuela’s largest barrio. As parliamentary elections got underway on December 6, she hired motorcycles and jeeps to ferry poor but faithful voters up steep hills to the polling station.

Sanchez has no money to spare — a former teacher, she lives on a state pension worth just one and a half dollars per month. It was the Socialist Party — the late Hugo Chavez’s party — that gave Ingrid cash to pay for the vehicles. But they weren’t Venezuelan bolivars — they were US dollars. And as she counted it, Sanchez realized that the four $20 bills she held were worth more than 50 months of her pension.

“Everything is in dollars now,” she says ruefully — a sign of monumental change in the country that she says would have Chavez turning in his grave.

Sanchez, 57 years old, is a faithful member of the Socialist Party and believes fiercely in the vision of late president Hugo Chavez, who prophesied a Marxist utopia where the state would look after the needs of the people, raise the quality of life, erase inequality and limit private enterprise to a minor role in the economy. “One never loses hope, and that is a project that I still believe in,” she said.

But Venezuela today hardly resembles the one pictured by Chavez. Hunger is rampant, inequality dizzying, and public hospitals stand derelict as the country deals with the coronavirus pandemic. The US dollar is increasingly taking precedence over the bolivar, and while the Venezuelan minimum wage is the lowest in the region, the country’s stock market is booming. Chavez’s successor, current President Nicolas Maduro, recently inaugurated an ultra-luxury hotel where rooms are the equivalent of $300 per night.

All of which raises a question that Sanchez has clearly been wrestling with: Is socialism still alive in Venezuela? “I don’t know, we are doing things upside down,” she says.

Giving in to the dollar

A mural depicting Venezuelan late President Hugo Chavez (C) saluting and Venezuelan President Nicolas Maduro (R) holding a child in Caracas on December 9, 2020.

When Chavez rose to power in 1998, Venezuela’s wealth was abundant, with some analysts estimating that the country earned almost a trillion dollars from oil revenues between 1999 and 2014 — more than eight times today’s equivalent of the Marshall Plan.

With that kind of money, it was easy to imagine the state as the ultimate father figure. Chavez invested most revenues in programs aimed at increasing living standards and reducing inequality. State television would broadcast hours of footage of citizens receiving state-funded housing, food, and subsidies for agricultural cooperatives. He sent Cuban medical personnel to the barrios to set up clinics for the poor, and launched literacy and education campaigns. In December 2007, he even sent truckloads of heating fuel to low-income Americans in New York and Boston, only 15 months after calling then-President George W. Bush “the devil” at the United Nations.

Throughout his 14-year presidency, Chavez swung between different economic tendencies — though always working to strengthen the state’s command of the economy through price controls, currency exchange regulations, and public spending. He threatened to take over most private companies in Venezuela, but never abolished private property. He attacked capitalism, but never quit commercial relations with the United States

Chavez dreamed of ending the dominance of the US dollar — an emblem of the world’s biggest proponent of capitalism — and creating an alternative currency with which to buy and sell crude oil. “The world is victim of the dollar’s empire. The United States have bought half the world with useless banknotes, […] but the empire of the dollar has reached an end!” he said in 2009.

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Ten years later, it’s the Venezuelan bolivar and the Bolivarian revolution that appear to be reaching an end, instead. Even his former protégé Maduro acknowledges that things have changed: Asked by CNN earlier this month whether he thought Venezuela was still a socialist country, Maduro said he thought the “values” of socialism might be fading, referring to new displays of wealth in the upmarket streets of Caracas.

“At times we moved forwards, other times we pulled back. Perhaps today we retreated for what concerns our socialist values. I recognize that,” he said at a press conference.

When oil prices began to fall in 2013, Maduro — who abruptly became president that year after Chavez suddenly died of cancer with no transition plan in place — found himself waging a losing battle against market forces, decreeing price controls on the rising prices of basic consumer goods only to find the products in question disappearing overnight, available only on the black market at a price ten times its official value. As foreign reserves dwindled, he printed stacks of new money, devaluing the bolivar to the point of scrap-paper — and therefore the salaries of most Venezuelan workers.

A soldier helps a man on a wheelchair as he votes at a polling station in a school in Caracas, on December 6.

In more recent years, even the state’s hold on the country’s financial system has been badly shaken, with the US dollar growing commonplace in day-to-day transactions. In March 2019, Venezuela’s entire electric grid collapsed, leaving some regions without power for up to a week. Without electricity, electronic transactions including credit and debit card payments were impossible, and paying cash was futile with even the highest-denomination bolivar notes worth only pennies. So Venezuelans started using the option left: illegal foreign banknotes.

US dollars had always been seen by ordinary Venezuelans as a last resort, something most families kept hidden under the mattress for black market necessities. But during the blackouts, dollars were used to pay for ice bags to keep food in powerless refrigerators. Shops started accepting the illegal bills, at first carefully watching out for Venezuela’s feared security forces, then gradually in the open. The government did not intervene.

Once the barrier was broken, it was impossible to turn back. In Caracas, transactions of just a few dollars have now replaced local bank transfers of millions of bolivars. Products are increasingly available in Caracas for those who can pay for them in dollars or other foreign currencies, like euros, Colombian pesos or Brazilian reals.

Capitalism with Venezuelan characteristics?

The coronavirus pandemic also made it possible for Maduro himself to take a wrecking ball to one of the pillars of Venezuelan socialism — cheap oil for citizens, considered a birthright in a country so rich with crude.

Socialist governments here have always been careful with the sensitive issue of cutting gasoline subsidies. In 2014, Maduro himself declared he would not touch the price of gasoline because it would be like “adding fuel to the fire.” But with demand for gasoline greatly reduced during lockdown, he was able to do this year what no other ruler in Venezuela dared in the last three decades: Raise prices.

In May, Maduro declared the subsidized gasoline would be rationed to 30 gallons per month per vehicle, but customers could buy it at a premium of 0.5$ a liter (1.9$ per gallon) at a selected number of gas stations in the country. The result was that subsidized gasoline all but disappeared from sale, while paying for it in greenbacks became the norm for those who could afford it.

“With that, they managed to break the myth of the caracazo,” says Altero Alvarado, an oil analyst in Caracas, referring to an infamous cycle of riots against an oil price hike in 1989.

That doesn’t mean people didn’t protest. With an almost-total collapse of services, gasoline and water shortages, and frequent blackouts, there were at least 1484 protests in Venezuela in the month of October, 93% of which were related to basic necessities like access to regular utilities, according to the Venezuelan Observatory of Social Conflict. However, these protests were quickly suppressed by security forces, allowing the government to effectively push the policy through, Alvarado says.

A protest for gas shortages in Punto Fijo, Venezuela on November 27.

Another blow to the Chavez-era economic vision of state control occurred in November this year, when the government for the first time allowed a private company to issue bonds in dollars, and by doing so, raise capital outside of government control. The measure, unheard of since the early 2000s, took the form of a little-publicized authorization to a single maker of rum — Venezuela’s national drink, equally consumed in the shanty towns of Caracas and the most exclusive beach resorts on the Caribbean coast.

It is incredibly difficult to run a private company in Venezuela. The country is ranked 188 out of 190 in the World Bank’s Ease of Doing Business ranking. Until now, the government decided which companies had access to foreign currencies and at what rate they would be converted to bolivars by the Central Bank. But this year, the government allowed Venezuelan rum brand Santa Teresa to raise money by issuing bonds worth a total of US $300,000.

Bonds allow investors to give a certain amount of money to the company in exchange for the promise that the money will be paid back with interest. In Santa Teresa’s case, the company turned to bonds when it realized no Venezuelan bank would have enough capital to loan what it needed to expand the distillery, due to the bolivar’s devaluation. Being able to borrow funds from private investors and pay it back in dollars would protect the company from the country’s rampant inflation.

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“We are somehow beginning to come back to reality, to understand that markets have to function,” says Alberto Vollmer, Santa Teresa’s owner in an interview with CNN in Caracas. “They tried the absurd, which was to annihilate all business. It didn’t work, so now they are reversing policies,” he adds. (There’s some history here: In 2006, Chavez himself expropriated part of Santa Teresa’s lands during one of his famous TV shows “Hello President!”)

Ricardo Cusanno, president of the Venezuelan Federation of Chambers of Commerce, points out that Venezuela is not the first planned economy to chart this path. The country could well be on its way to becoming a “tropical China” — a comparison that shows private enterprise and free markets can still be paired with intensive political control and absence of civil rights, he points out.

Since Santa Teresa’s breakthrough, he says, more foreign investors have expressed interest in doing business in Venezuela. “In the last few weeks, it has been crazy. We have been contacted by French investment funds, Latin American funds, even North American funds,” he says, with the visible excitement of someone who had not seen the same level of interest in a long time.

‘What you are seeing now is the loss of control’

A vendor attends a stall at the municipal market of Chacao in Caracas on September 3, 2020.

To hear Maduro tell it, neither Venezuela’s crushing poverty nor its recent concessions to capitalism mean Chavez’s great socialist project has failed. Instead, he says, its progress has merely been stalled by the 2013-2015 oil price collapse — which he frequently refers to as a “war” — that left its coffers empty and its social programs running on fumes.

“Chavez never said that socialism triumphed here,” he said. “We are going to work the hardest to install a socialist way to production, and we have just begun. As we were starting to move those first steps towards a socialist economy, this brutal war came and we lost our income from oil.”

Critics see Venezuela’s financial struggles differently, blaming in addition to oil prices the state’s own failure to invest in its oil sector or maintain oil infrastructure, catastrophic government corruption, and national economic mismanagement. They also point that other commodity exporters, like neighboring Colombia, successfully made it through the crises. According to the IMF, Venezuela’s GDP lost 86% of its value under Maduro’s watch, mostly due to the crash of income from oil.
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And the slow encroachment of the dollar, they say, may be more a sign of deepening chaos than of positive economic liberalization.

While Venezuelans can now use foreign currencies to buy their groceries, they cannot open a bank account in dollars, so their savings are still subject to some of the highest inflation in the world. And the more foreign cash is used in the country, the more the bolivar loses value — ultimately hurting low-income earners who are still paid in bolivars, like Ingrid Sanchez.

Luis Vicente León, one of the most respected analysts in Caracas and the manager of a polling firm, is wary of comparing this moment in Venezuela to China’s transition to open markets in the 1980s, when foreign investment was slowly allowed into specific sectors of the economy and limited special economic zones. China also maintained its own national currency while gradually reforming the economy.

“There might be a plan to do the same things Deng Xiaoping did back in China, but maybe in the future. Maybe the first steps of the Chinese reforms were similar, but I don’t think we are seeing that yet. What you are seeing now is the loss of control, from the government, of the economy and the prices,” he says.

Rafael Ramirez, a former oil minister who worked with Chavez and Maduro from 2003 to 2014, warns that unregulated change now could open the door to economic anarchy where the most powerful set the rules. “When Maduro says that he thanks God for the dollar, he is surrendering. There is no control of the economy, it’s in the hands of speculators and profiteers,” he told CNN.

Ramirez is part of the growing number of former Chavez aides who accuse Maduro of squandering the Bolivarian Revolution. From exile, he accuses Maduro of embracing crony capitalism, while the majority of Venezuelans people see no benefit from relaxed market rules.

According to a recent survey by three independent universities in Caracas, 96% of Venezuelan live below the poverty line. More than 5 million have fled the country’s painful economic conditions, making Venezuela the largest migration crisis in the modern history of Latin America.

Sanchez, the retired teacher and Socialist Party member, has lost one of her daughters to the exodus, who now lives in Chile. Her older daughter remains in Venezuela, doing odd jobs to make ends meet and helping her mother run a community radio. With salaries so undervalued, there’s little reason for her to pursue a full-time job, Sanchez says.

Their house in Caracas is humble, two rooms either side of a kitchen where the cooking pots have been emptied for a long time. In the living room, a large portrait of Chavez in military uniform proudly stands on the wall by the door welcoming every visitor with the warning, “You don’t speak badly of Chavez here.”

When she talks of the type of country she would like Venezuela to be, she says: “I believe in an active community, organized. You want to know why I haven’t left? Because I know that there are people here that are happy with what I do, and this small seed I am laying down today is what will germinate into change tomorrow.”

“Only the people save the people,” she says, quoting a famous revolutionary guerrilla slogan from the 1960s. But in today’s Venezuela, she says, “the people are f***ing the people over.”


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