Venezuela is closer than ever to a full-blown humanitarian crisis, with its population being unable to satisfy dietary requirements amidst a climate of hyperinflation and collapse of national productivity. The government, instead of formulating a clear exit strategy, is forcing supermarkets and consumer goods manufacturers to cut prices at severe losses, in a move that is sure to worsen the situation. GRI’s Juan Daniel Goncalves provides an insider’s view.
Venezuela boasts the highest cumulative inflation rate of the last decade, as well as increasingly unavailable and/or prohibitively expensive food and medicine. These problems have become so systemic that anywhere from 1.5 to 2.5 million people have left the country, and in 2016-2017 almost a third of Venezuelans reported a desire to emigrate.
Officially, the Venezuelan government wants to convince whoever bothers to listen that this in fact is not their fault, instead blaming US-orchestrated sabotage campaigns, and on the “economic war” – an alleged coordinated attack by the private sector against everyday Venezuelans. For those who have not yet raised an eyebrow, the government’s long practice of denying responsibility is easily debunkable with one telling statistic: ever since 2005, after the ruling PSUV (Partido Socialista Unido de Venezuela) managed to reorganize public institutions under their full control by appointing party hardliners as leading bureaucrats, there has reportedly never been a Supreme Court ruling against the government in over 45,000 decisions.
In any case, the most troublesome reality the PSUV does not want to recognize is that Venezuelans are starving, to the point were desperate lootings are now commonplaceacross the country.
A 2016 report by Venezuelan universities and NGOs revealed that approximately 74.3% of Venezuelans confessed to unplanned weight loss due to financial constraints. Since then, it is safe to assume that in a country plagued with a 2017 cumulative hyperinflation of above 2000% – citizens’ purchasing power have continued to worsen, and with it, their quality of life.
To further illustrate the ramifications of hyperinflation’s effect on Venezuelans’ pockets, Harvard professor Ricardo Haussmann published a statistic where he shows that in order to be able to afford the country’s cheapest calorie – yucca – at around 30 BsF, for a daily intake of 2000 kcal (what is recommended for an average adult female) throughout a span of a month, a person must earn at least 1,800,000 BsF. This feat is quite impossible as the current minimum monthly salary together with food stamps as of 18 January 2018 amounts to 800,000 BsF (it is worth noting that there would be no leftover money for utilities, transportation, entertainment, education, etc).
In light of the looming humanitarian crisis, and reminiscent of similar disastrous policiesimplemented in Zimbabwe merely a decade ago, on 5 January Nicolas Maduro called for major supermarkets as well as smaller, independent outlets to sell their products at “fair” prices, strong-arming businesses via the SUNDDE (National Superintendency of the Defense of Socioeconomic Rights) to sell at 15 December 2017 prices with the threat to “shut down” or “expropriate” non-compliants.
Retailers were essentially forced to sell much of their stock at an approximate 50% discount overnight due to inflation, in what business executives protested as something that left them “unaware if they were bankrupt or not”.
In an interesting twist, since most major supermarket chains in Venezuela are owned by the Portuguese immigrant community that came to Venezuela predominantly in the 1950’s and 1960’s, Luso-Venezuelan descendants were forced to call on Lisbon to intercede on their behalf. Senior level Portuguese officials – including Portugal’s minister of Foreign Affairs Augusto Campos Silva – flew into Venezuela to meet with the Portuguese community and affected business owners and hear their pleas, before a scheduled official sit-down with his Venezuelan counterpart Jorge Arreaza.
Most likely as a result of these meetings, it seems now that the SUNDDE and ANSA (National Association of Supermarkets) have reached an agreement in which “the Executive made a commitment to guarantee that supermarkets would be able to repose their stock and there would not be any new measures that would imply products to be sold in accordance with the December cost structure”. It can also be interpreted that Venezuela did not want to risk to losing a lukewarm friend in Europe, especially as Arreaza “stressed that there is a very close relationship with Portugal that they will maintain and reinforce”, according to state media. This is also in light of the PSUV becoming increasingly isolated on the world stage after the loss of major allies in the Ecuadorian, Argentine, and Brazilian governments, to name a few.
Having encountered a snag in their supermarket witch-hunt, the SUNDDE decided instead to go after major consumer goods manufacturers such as Procter & Gamble, Nestlé, and Bimbo in an effort to cut prices somewhere along the supply chain and give desperate Venezuelans access to what can be interpreted as a “food-for-today-none-for-tomorrow”.
However, there doesn’t seem to be a resolution in sight, as the Caracas Chamber of Commerce has strongly rejected what they call “arbitrary rejections of price fixing via authoritarian practices that do not resolve the crisis, but rather deepen it and cause anxiety amidst the population that fears that inventory will disappear, mainly food and medicines, (in a climate where) there is an absolute absence of reasons to keep producing”.
Perhaps what the SUNDDE will find in face-to-face meetings with manufacturers will be nothing short of a game of chicken, with manufacturers finding no alternative but to shut down completely in light of the regulator’s constant threats of further controls or expropriation.
In other words, the traditionally populist government of Venezuela is in a bind.
From a risk point of view, Venezuela seems to be heading inevitably down a road in which the government fails to address the productivity and monetary policy problems that are causing the endemic situation – Venezuela’s GDP in 2018 is estimated to contract by 11.9%. Most likely only a major change in the composition of the government would bring about the sensible policy required to rein in the spiral of chaos.
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This piece was origionally written for Global Risk Insights by Juan Daniel Goncalves.