August 20, 2019: What the hell is going on in Venezuela?
This post is for my fellow gringos, and other interested parties, who might be reading about something happening in Venezuela and wondering what in the actual hell is going on there.
From my first visit in 2002 to my most recent in 2012, Venezuela changed drastically, say, from a 5/10 on the Made-up Poverty Index to an 8/10. Venezuela went from a country with a lot of poverty to a country defined by it - evident in rampant inflation, severe shortages of household staples such as food and toilet paper, and in nationwide rationing that forced the majority of the populace to spend several hours per week in lines, hoping for a chance to buy eggs, flour, oil, or cornmeal. National homicide rates skyrocketed, eclipsing 500 per month in Caracas, the nation’s capital 1. Medicine became scarce. There was growing unease. When our family visited, our primary fear was that we would be kidnapped - a fear that was not exactly allayed by the Barcelona airport’s wall-sized mural stating that it was everyone’s responsibility to report kidnappings2, along with a kidnapping hotline to report any in the moment.
From 2012 to today, the country has gotten exponentially worse, currently rating something like a 25/10 on the Made-up Poverty Index.
Another clear indication that things in Venezuela were not going so hot? The currency situation. Here's a rundown of the past 16 years, with commentary:
You could go to an official bank and exchange 1,500 bolívares for a dollar. This next part I’m only going to explain once, so read carefully: For foreigners like me, what a dollar could buy then is roughly what a dollar can buy now. The reason behind this is complicated, but essentially, it comes down to this: Even though dollars are scarce, everything about the Venezuelan economy is tied to the dollar. However, throughout all this time, most Venezuelans continued to earn the same salary, meaning their purchasing power declined dramatically.
You can now go to the same official bank and exchange 2,500 bolívares for a dollar. Two other major developments:
- The government is getting tired of everything costing thousands and millions of bolívares, so they’re restructuring the national currency, effectively taking three zeroes off and calling the new currency the “bolívar fuerte.” So 5,000 bolívares are now 5 bolívares fuertes.
- As the government has kept the official exchange rate static, the bolívar has actually lost quite a bit of value in international markets, so now, on the black market, you can exchange one dollar for 7,000 bolívares (or, soon, for 7 bolívares fuertes.)
To give you a sense of what this means, over the course of six years, the price of everything has increased roughly five times what it cost in 2002. Your Starbucks latte that used to cost $5.00 is now $23.33. This price increase also applies to more basic supplies - a $2 loaf of bread is now over $9. You’d probably stop with the nonessential purchases, which is what happened in Venezuela at this time.
The official exchange rate is up to 4.13 bolívares fuertes to the dollar. The black market exchange rate is up to 35. That loaf of bread now costs over $45.
It’s only a year later, and you’re not planning on visiting for a while.
Regular, days-long power outages and water shortages become the norm. The Venezuelan government says, look, we recognize that what we’ve said our currency is worth isn’t actually accurate, so they move the official rate closer to the black market rate. By a little bit.
The official exchange rate has risen to 6.3 bolívares fuertes to the dollar, while the black market rate has soared to 63. One loaf of bread: $84
Between September 2014 and September 2015, the black market exchange rate goes from 100 to 730 bolivares (fuertes) per dollar, and at this point, Venezuela is the country with the highest inflation rate in the world.
One loaf of bread: $973
It’s dishonest to give a single exchange rate for 2016, because at this point, things are spiraling really quickly:
February 2016: 1,000 bolivares fuertes to the dollar.
December 2016: 4,300 bolívares fuertes to the dollar.
This is when the US news starts to take notice of the enormous public health crisis that has been building for years. There is such a scarcity of food and medicines that visitors report that everybody looks to be in bad health - the most visible signs being that nearly everybody has lost weight, people’s skin is hanging from their bodies and badly burnt by the sun, eyes appear to be sunken, and there are numerous people eating from the trash. Almost everybody is doing far worse than before.
One loaf of bread: $5,733
July 2017: 10,000 bolívares fuertes to the dollar
September 2017: 20,000 bolívares fuertes to the dollar
December 2017: 100,000 bolívares fuertes to the dollar
One loaf of bread: $133,333
Here, you’re probably skeptical. “Wait a minute,” you’re saying, “if this is a country where people are living in extreme poverty, there’s no way people can afford this.
- You’re right. People can’t afford it.
- You’re also right that this isn’t exactly how it works. Yes, wages have increased some over this time (relative to to the 2002 dollar.) But they haven’t increased nearly enough to make anything really affordable. And besides, at this point, there is little medicine in the country, the nation’s hospitals are routinely without electricity (not to mention medical supplies), most of the nation’s professionals have fled the country, and colleges are closing their doors because professors refuse to work for wages that don’t allow them to buy even a loaf of bread per month.
January 2018: 200,000 bolívares fuertes to the dollar
Up to this point, the “official” exchange rate has still been 10 bolívares fuertes to the dollar. You might say, “that’s meaningless!” And, for the most part, you’d be right. With one giant exception: If you’re part of the Venezuelan government, you can purchase dollars - actual US dollars! - at this rate. So, a government official (or, importantly, someone with government connections, go to an official government bank, pay 200,000 bolívares fuertes, and receive 20,000 US dollars. You take one of those US dollars (leaving $19,999 untouched), exchange it on the black market for 200,000 bolívares fuertes, return to the government bank, and exchange this for another $20,000 US dollars. Remember back in 2016, when I said almost everybody looked worse? Well, it turns out, she also noticed that there were a bunch of new restaurants opening, and that there was no shortage of brand-new automobiles on the road. People in the government, and people with government connections, are doing better than ever.
One loaf of bread: $266,666
One loaf of bread (with government connections): $2
Due to massive popular uprisings, the government makes a big show of stopping this practice of publicly allowing its friends to print free money, and changes the official exchange rate to 25,000 bolívares fuertes per dollar, and ends the de facto government loophole that allowed them to print dollars essentially for free. True, this 25,000 is a big jump from 10. But it’s also still far from the currency’s purchasing power within the country, and laughably far from the currency’s actual value in international markets3.
Now it’s August 2018, and you’re running out of clever expressions to show just how bad things have gotten. The black-market exchange rate is now at 5,900,000 (5.9 million) bolívares fuertes to the dollar.
One loaf of bread: 7.86 million dollars
Minimum wage: 5.6 million bolívares fuertes per month (roughly $0.95/month)
You’re in charge of the country’s economy. What do you do?
Well, if you’re Nicolas Maduro, who is actually in charge of the economy, you look at a couple things:
- Due to hyperinflation and rapid monetary devaluation, the minimum wage of your country is now 95 cents per month. That seems like a problem, particularly since your socialist revolution promised to redistribute wealth to the people.
- People are really starting to notice this whole hyperinflation thing, like, every time they go to buy something and they have to pay some number of millions of bolívares fuertes, which reminds them of how bad things have gotten.
- There’s still only one meaningful industry in your country - oil extraction and exportation. You have been unable to provide adequate food or medicine to your people. The New York times has recently reported that the average Venezuelan has lost 25 pounds in the past year. People are fleeing your country, building refugee camps on the Colombian and Brazilian borders and emigrating to Chile, Peru, and Ecuador like never before.
You decide to prioritize, and address #1 and #2, leaving #3 for another day.
Tomorrow, Venezuela will once again restructure its currency, much like the conversion from the bolívar to the bolívar fuerte, which removed three zeroes. This time, though, to go from the bolívar fuerte to the new bolívar soberano (the “sovereign bolívar”), you will remove five zeroes. So one million bolívares fuertes becomes 10 bolívares soberanos.
In addition to this, you have decided to redistribute wealth by increasing the minimum wage by 3400 percent - from 5.6 million bolívares fuertes (56 bolívares soberanos) to 1,800 bolívares soberanos.
At least, that’s what you had planned to do, until you were notified by your aides that this was an entirely untenable plan and that the country would essentially stop functioning, immediately. Sick, elderly people who have been relying on paying for their own home care (particularly since hospitals are currently out of order) and who have been saving for this, who had planned on their meager savings paying for six years of home care, would have been able to afford only two months before their savings dried up.
So instead, caught in bad policy-making, you say that it was simply a mistake, that you, like everybody else, were thrown off by the odd choice of five zeroes4, and that what you meant to say was that the minimum wage will be increased to 180 bolívares soberanos, not 1,800. So the minimum wage will increase only to about 3.5 times what it was (from $0.96/month to about $3/month.)
2019 and Beyond
Nobody knows what will happen. But there is almost no confidence that the August 2019 change will improve conditions for Venezuelans, and a sense of certainty that the country will continue to get worse in every possible way.
Meanwhile, many of us will continue to send bi-monthly 60-pound care packages of food, medicine, medical supplies, and toilet paper to our most trusted hospital and neighbors. We will continue to gather with other Venezuelan émigrés to sing música llanera , dance, remember old times, and worry together about our loved ones who have remained. Most will keep calling daily, hoping there is enough electricity to get through, and remind ourselves that the people we fear for are still there, living very real lives, fighting to survive. Most will encourage their parents and grandparents elders to leave, even though they most certainly won’t. This political and economic curse has ended the optimism of a country whose unofficial anthem for years hinged on these lines: “No hay mal que dure cien años, ni cuerpo que lo resista; yo me quedo en Venezuela, porque yo soy optimista.”5
1 This happened the same year that Chicago made headlines for surpassing the 500-homicide mark annually. Chicago and Caracas have roughly the same population.
2 What a contrast to my hometown, Fresno, where the airport has an artificial redwood forest and an exhibit highlighting Sun-Maid raisins.
3 Just to be clear: The black market value is the best estimate of the bolívar’s value on international markets.
4 Note to future policymakers: Know the state of math education in your country before enacting policies that rely on people’s ability to mentally divide by 100,000 on a habitual basis.)
5 There is no evil that can last a hundred years, nor body that can take it; I’m staying in Venezuela, because I’m an optimist.”