Image: Young Venezuelans making their feelings known on the streets of Caracas 
 
To the naked eye Caracas may seem like any other affluent metropolitan city. The metro runs efficiently, roads are well maintained, and supermarkets are full to the brim. But spend time walking the streets and it soon becomes clear that the economy is far from booming. Restaurants and coffee shops are open, but are often quiet. Shutters close at 10pm and Caracas then turns into a ghost town. There has been a hollowing out of Venezuelan society over the past decade, with a distinct lack of people in their 20s and 30s. Those with financial means have moved to countries such as Spain, while others have completed arduous journeys to the US via Panama and the notorious Darien Gap. Remarkably, nearly a quarter of the population has fled since 2014, the largest migration move for a non-war torn country in the past century.

It’s the economy, stupid

Venezuela has spent the past decade on the economic precipice. Sanctions have followed economic mismanagement, with many column inches dedicated to the demise of a country with reputedly more oil reserves than Saudi Arabia.

The bolivar is now pegged to the US dollar, and following years of hyperinflation and sharp currency devaluation, the economy has somewhat normalised. However, the size of the economy remains 70% below the peak and the latest estimates (official figures are not published) suggest real GDP growth at around 5% in 2023. The current government is now being advised by an Ecuadorian economic team that also advised the former Ecuadorian President Rafael Correa. Positively, a more orthodox approach to fiscal policy has brought to an end spending on frivolous infrastructure projects, including a highway which cost $200m but of which only two miles were ever completed.

FX reserves in Venezuela are estimated at $10bn. However, $5bn are part of special IMF quotas that are unlikely to be drawn down on anytime soon, with a further $2bn in illiquid assets. That leaves $3bn, less than one month worth of import cover. With tax revenue generation also at historic lows, there is a distinct lack of cash available for day-to-day spending on areas like education, health and infrastructure, let alone the $20bn required to revitalise the electricity sector, or the $25bn to bring oil production up to capacity. 

The largest oil refinery in Maracaibo, in the west of the county, is operating at a sixth of maximum capacity. Chevron, one of the few global oil companies with a general licence to operate in Venezuela, uses its own generators owing to the lack of reliable domestic power supply. 

Given weak tax revenue generation, what external funding sources does the government still have? The void previously would have been filled by the Chinese, Russians and to a lesser extent the Iranians, but all have had their fingers burnt. Most notably the Chinese who still have an estimated $15bn of principal loans outstanding, that are now partially being serviced from oil deliveries. Owing to sanctions, the 900,000 bpd of oil that Venezuela currently does produce, needs to be sold at a 10% discount to prevailing global prices. Overall, it is not a pretty picture and desperation is most apparent outside the capital, where power outages are more frequent.
 

Venezuela in the flesh

 
On the flight from Madrid to Caracas, I thought I misunderstood Enrique, a father of three with an IT business, when he showed me photographs of his house that he bought on the outskirts of Caracas for a little over $150k. But my ears did not deceive me, as real estate is cheap in Venezuela. One can buy a reasonably size apartment for around $60,000 in downtown Caracas – although only in cash of course, as banks are not in a position to extend credit lines. 

If its relations with the US ever normalise, and this is combined with the lifting of crippling sanctions, then Venezuela could become a magnificent recovery story. The real estate market ‘would be among the first to bounce’ commented one high profile economist that I spoke to. His optimism was admirable. However, at this juncture a slide towards a pariah state seems more likely than a country that can return to its glory days by increasing oil production back to 3 million bpd.

I was fortunate to be in the country when the shifts in mood were extreme. ‘It has been last chance saloon for change at every one of the past three elections’, remarked a credit analyst I met on election day in the affluent suburb of Altamira. But spirits seemed quashed the following morning as I walked to a meeting at the Caracas Stock Exchange. The night before,  Nicholas Maduro was declared the election winner, contrary to credible independent polling showing opposition candidate Edmundo Gonzalez as the pre-election favourite. In defiance, the banging of pots and pans (known as ‘cacerolazo’ in Spanish) could be heard from the apartments on the surrounding streets. A woman could be seen being consoled by a stranger on the street as she wept at the state of her country and the blatant fixing of the election by Maduro.

Image: A boy prepares to throw a rock at the military amid a sea of tear gas

In Petare, the city’s largest barrio, a spontaneous and organic protest began that soon morphed into tens of thousands making their way to the Presidential Palace. Petare would traditionally have been a Maduro stronghold owing to the generous welfare support from his socialist PSUV party. But no more. Dissatisfaction with the government is no longer isolated to the middle classes and more educated, but rather appears to have broadened across Venezuelan society.

A confrontation between protestors and the BNP (a militarised police force) seemed inevitable - protestors on one side, with stones and home-made Molotov cocktails, the BNP on the other, head-to-toe in protective gear, firing rubber bullets and tear gas to disperse crowds. Live bullets were reportedly used in some places, with nine people killed on that day in Caracas. Keen not to make the same mistake the following day, a joyful opposition rally, led by the charismatic Maria Corina Machado, was dispersed by the military without any major issues. Within the space of a few days the city had seemingly come full circle and once again felt subdued. 

 

Image: Venezuelans listen to opposition leader Maria Corina Machado in Caracas

The slide towards authoritarianism feels very real in Venezuela. While some argue that the opposition led by Maria Corina Machado is too hardline, others suggested she is not tough enough. More than once, I heard some locals intimate that the only way to bring to an end to the extreme socialist ideology of 'chavismo' might be to ‘take out Maduro’.

Life outside Caracas

Outside of the Caracas bubble, in the small fishing town of Chorini, around three hours’ drive from the capital, fishermen work day and night catching barracuda and bone fish. On a good day, the men in the town can earn $30-50. I met a woman who stood out among the fishermen as she waited for a fishing vessel to take her to Puerto Cabello, where she was due to celebrate her 31st birthday with friends. While the majority of the town had Afro-Caribbean antecedents, her mother was of European origin.

The tourism industry in Venezuela, while slowly coming back to life, has been decimated over the past decade as sanctions have begun to bite. On the boat, the woman who runs a small hostel, told me she often gets tax payment demands, despite her business generating little revenue. She told me of the general demise of her hometown – children only go to school two days a week and many of her friends have moved abroad. What was keeping her here was her mother and the sense of community. With a look of exasperation, she told me that she too may eventually be forced to leave Venezuela if there was no political change in coming years.

Image: Passengers awaiting the departure of a fishing vessel from Chorini

What next?

It would be foolish to try to predict with any great confidence how Venezuela might look in five years’ time. Aside from the US presidential election in November, a key watch point will be the position of the military. ‘Any wavering of support from Chief of Defence Padrino Lopez (who is also the serving as head of the army), could spell big trouble for Maduro’ – this was the opinion offered by a Venezuelan author, who having penned a biography on Lopez, probably knows him better than most.

There is also the small matter of a debt restructuring worth $150bn which over time will likely become a more pressing issue. Back channel conversations are taking place among bondholders. Much debate centres around whether any restructuring could take place without IMF support, since this typically acts as a policy anchor, as well as supporting the credibility of any proposed pathway towards debt sustainability. The treatment of state-owned oil company PDVSA in any restructuring event could be especially meaningful, including whether it is treated in the line with the sovereign.

Debt restructuring issues aside, given the electoral authority’s reluctance to divulge greater information on the recent polls, Maduro will likely come under increasing international pressure to hold fresh elections.

For now, Venezuela limps on, and in some ways, I left the country with more questions than answers. A souvenir from my trip was a small second-hand ruck sack that PSUV officials were handing out to locals in a bid to shore up support for the election. The woman I’d encountered on the boat, was clearly not impressed – ‘government people come to our town in their big fancy cars, having done nothing for five years and expect us to vote for them after giving us a bag. This is a joke. What do they take us for?’ 

 

(pictures: Leo Morawiecki, August 2024)