Venezuela’s economic descent (Updated)

0:01NPR

0:11This is The Indicator from Planet Money. I'm Darian Woods. And I'm Waylon Wong. We were watching this weekend as the U.S. military struck Venezuela and extracted its leader, Nicolás Maduro. At the indicator, we've been following the conditions in Venezuela over the years. And so as we start to investigate some of the economic questions that are now swirling around around what comes next, we wanted to play you our most recent episode on Venezuela from early 2024. This is the economic background that the rest of the coverage out there often skips past. What it's been like to live there, why the economy went into freefall and then actually stabilized a little.

0:54And at the end, we have an update from our regular guest who was on the ground in Caracas last night during the strikes. Here's our episode from May 2024. Venezuela's economy has been in freefall for over a decade. It's an oil-rich country that struggles to drill oil. Its currency, the Bolivar, has suffered brain-bending levels of hyperinflation. We're talking 65 ,000 percent in 2018. Bolivar is just crumbling in your hands. The seeds of the trouble began under President Hugo Chavez around 25 years ago. He was a leftist populist who made decisions that had some benefits. like boosting education and reducing poverty.

1:37But some of his actions slowly chipped away at the country's prosperity. He seized control of farms and oil companies' assets. He weakened Congress and suppressed his opponents. Towards the end of his rule, the economy faltered, and it then nosedived under his successor, Nicolás Maduro, who doubled down as a kind of hapless authoritarian. U.S. sanctions haven't helped the economy either. The South American country has had one of the largest outflows of refugees in modern history. More than 7 million people left the country in the last decade. That's about one in five Venezuelans. Back in 2019, we at The Indicator started calling into one Venezuelan economist, Gabriela Sade.

2:21She told us stories about what it was like in the capital of Caracas, which were often grim. Here's her description in 2019. You go to the streets and people in Venezuela, they are very skinny. Yeah, it's very, very shocking to see that. Today on the show, our check-in with Gabriela in 2024. And again, this week, right after the US bombs dropped in Caracas.

2:50In our 2024 check-in with economist Gabriela Sade, we started where we left off. groceries in Caracas and comparing them to 2019. Probably 60 % of the shelves of the supermarket would be empty. I remember there was this deodorant, this brand called Moom. It was really bad and it was the only option available. There were also more serious problems than deodorant selection. Blackouts, poverty. Gabriela, as a young professional, was making$300 a month. Not enough, she felt, which is why Gabriela made the hard decision to leave and come to the United States. I have the opportunity to actually save money and I can also support my family who is living there.

3:34Gabriela is an advisor at the Behavioral Insights team now. That's a behavioral economics consultancy. Now, every month she sends back$650 back to Venezuela to her mother. But she hadn't been back to visit the country until December last year. It was a totally different country. It was pretty wild to see it, almost as an observer. It was very weird. Caracas had been a ghost town when she left. Now it was full with honking traffic. And because it was Christmas, people just blasting music and making ajacas, which is a traditional dish. That's a special type of tamal. Gabriela said she even saw some tourists from Europe.

4:17She asked them why they'd come. And they said they heard it was nice from TikTok. There was this ongoing joke in 2022. People would say, oh, Venezuela se arreglo, which means Venezuela got fixed. Like, it recovered, right? But that's far from the truth. One sign of perhaps a superficial fix was in the supermarket. The prices were in dollars. So the prices were not in Bolivar. It's like the price tax for those goods. They said REF, which is like a reference price, and it would be in dollars. This is called de facto dollarization. What happens is you'd go to the counter and you could either pay in US dollars or if you only had Bolivares.

5:08You would just take out your calculator, use the exchange rate and know how much it is in bolívares. Yeah, I see that inflation is 200%, which is actually low for recent history in Venezuela. But even then, I guess the shops don't want to be changing their prices too much. Yeah, yeah, yeah. So it's just easier just to have the dollar as a reference for prices. An estimated 45 % of transactions in the main cities are now made in foreign currencies, mostly the U.S. dollar. De facto dollarization is basically just a band-aid over the core problem of the declining currency. Jesus Palacios is an economist at the Venezuelan economic firm EcoAnalytica.

5:50He says other reforms have been associated with some growth. In last years, Venezuela has had an average annual growth of 4 % in 2021 to 2023. Alongside that 4 % growth, Jesus says that shortages have eased over the last few years. That's because Maduro's government has loosened the restrictions on imports and price controls he and Chavez had overseen. We know that price controls lead to shortages when more people want something, like a deodorant, but the supplier doesn't have the incentive to bring that deodorant into the country. U.S. sanctions relief during this time probably helped too. The economy is growing, but it's more and more unequal in the last years.

6:32The poorest people earn 30 or 35 times less than those with the highest income. This is facts. Jesus says more than 80 percent of Venezuelans are still in poverty. You can kind of view the economy of Venezuela as falling off a cliff 12 years ago, and now it's made some small crawls upward, but unevenly. Inequality is worsening. I saw that there was a Ferrari dealership that opened in Caracas. Yeah, yeah. This is amazing in this context, no? That dealership is for the wealthier Venezuelans who are often plugged into the government apparatus. It's not for ordinary people like Jennifer Ontiveros.

7:17Jennifer is a housekeeper in Caracas. And as a mother of two young kids, she needs to multitask. like she was doing on this call. I'm ironing right now. Jennifer says her income has improved over the last couple of years. She says she's lucky to be on$350 a month, whereas other working Venezuelans get paid as little as$4. But it's still not enough. The country doesn't get better. We don't get any benefits from being Venezuelan. You can't do anything with your money, like renovate your home, take your kids out to do something, nothing. We can't enjoy anything. Faith is the only thing that keeps us going.

7:57A lot of people have left Venezuela over the last decade. Do you want to leave Venezuela? Yes, yes, I would like to leave. This year we have a presidential election. I wouldn't leave if Maduro lost and was no longer president. But if he stays and gets elected again, which means five more years of this government, five more years like this, five more years of not having enough, not being able to build your own home, not being able to give a better life to your kids. The election is marked for July, but beneath the economic carnage, Jennifer still loves Venezuela. The music, the culture, the beaches, all of it, all of the country.

8:40And that's a sentiment shared by Gabriela. If things actually get better and there are more opportunities for people like myself, I know for a fact that I won't be alone in returning. Darian here from 2026. Maduro stayed in power until Saturday morning when the US military attacked Venezuelan targets. Gabriela was in Caracas as it was happening. She sent me this voice memo. So basically, at Toya, I heard the first strike. It was extremely loud and you could hear, kind of like imagine like a plane falling or something in free fall. and then the explosion. Then a few seconds later, the other one, the military helicopters or whatever, you could hear them like constantly and they were flying so, so close.

9:32And we didn't know who was perpetrating this attack. But yeah, it was really, really scary because this thing happened until like 5 a.m. and no one really knows what's happening now. course in charge. President Trump said in a press conference that the U.S. was going to run the country until such time as we can do a safe, proper and judicious transition. In the weeks to come, we will be following what this means for Venezuela's economy. And of course, our friends on the ground there, like Gabriela. Send us your questions you'd like the indicator to answer on future episodes, indicator at npr.org.

10:10This episode was produced by Julia Ritchie and engineered by Alex Goldmark. It was originally produced by Angel Carreras with engineering by Neil Rauch. It was fact-checked by Sarah Juarez. Kate Gincannon edits the show, and The Indicator is a production of NPR.