Parsing Fact and Fiction in the Maduro Regime’s Narrative of Economic Recovery

¿Venezuela se arregló?

Separating fact from fiction in Venezuela has always been an arduous task. The Maduro regime’s latest narrative touts the country’s purported “economic recovery.” In fact, one Reuters article reporting on the existence of a Credit Suisse document that claimed Venezuela’s GDP could grow by as much as 20 percent this year, punctuated its headline with “Not Typos!” for readers accustomed to suspending disbelief when reading data on Venezuela. After years of a vicious economic spiral—what the International Monetary Fund says could be the largest economic decline outside of war in history—Venezuela is “recovering,” according to the Maduro regime, despite myriad headwinds presented by endemic corruption, historic levels of economic mismanagement, and robust international sanctions.

According to President Nicolás Maduro, the economic renaissance owes to a series of reforms intended to selectively liberalize Venezuela’s economy, for which Maduro fancies himself worthy of the Nobel Prize in Economics. The regime is deftly marketing a parallel reality wherein Venezuela is climbing out of the abyss by trading old guard Chavistas for slick new technocrats .

Confounding matters, the Biden administration’s recent direct outreach to Maduro has raised hopes in Caracas and in international markets that an unwinding of sanctions is nigh. This has helped to accelerate the Maduro regime’s recovery motif. Indeed, some companies are acting as though U.S. sanctions relief is a fait accompli. For instance, Venezuela’s state-run energy firm, Petróleos de Venezuela, S.A. (PDVSA), is in talks to buy and lease additional oil tankers in anticipation of an increase in exports.

To be sure, life remains fantastic for some in the country—mostly the so-called enchufados, or well-connected, who inhabit a wealthy bubble rarely perforated by ordinary Venezuelans. Luxury goods, cars, doggy pool parties, the return of live concerts, and casinos are a part of the highly curated illusion of prosperity and image of economic recovery promoted by the Maduro regime. Given that this universe is accessible only to the upper crust of Maduro’s Venezuela, any discussion of the country’s economic recovery should be tempered by one question: Recovery for whom? All indicators show that any economic recovery has been deeply uneven, and ordinary Venezuelans have largely been left behind by the “new economy,” while well-connected Venezuelans, regime loyalists, and sycophants likely stand to gain the most. Even assuming Credit Suisse’s best-case scenario of 20 percent GDP growth, Venezuela, which has experienced years of hyperinflation and a macroeconomic decline of about 80 percent since 2012, would require nearly a decade of such fantastic growth rates simply to recover its footing at the start of the Maduro era. A Caracas-based economic analysis firm placed recovery time at 16 years, assuming an uninterrupted, continuous economic growth rate. Yet, since 1975, Venezuela has not seen more than five years of growth without a recession.

Selective Economic Reforms

The Maduro regime’s economic reforms have been guided by the imperative of courting more foreign investment, developing and nurturing domestic champions, and ensuring efficiency gains through the private sector, all without ceding state control over large portions of the economy and thereby imperiling Chavismo’s political monopoly. These reforms have been characterized by policy shifts along three main axes: dollarization, a modicum of short-term inflation control, and selective privatization, where expropriation had previously occurred.

The adoption of foreign currencies, and specifically the U.S. dollar, has dampened the impact of hyperinflation in Venezuela—at least for those with access to dollars (salaries in Venezuela’s state sector are still paid in bolívars). The search for a stable currency, coupled with remittances from abroad, drove an organic dollarization process in the face of years of hyperinflation. The regime has even worked with banks to make it easier to receive dollar-denominated remittances. In February 2022, approximately half of all payments in Caracas for food, medicine, and services occurred in U.S. dollars.

After staunchly opposing dollarization on nationalist and ideological grounds, Maduro bowed to reality and performed an about-face, calling dollarization an “escape valve” for Venezuela’s flailing economy. Since then, the regime has promoted dollarization, pairing it with a partial lifting of price controls and import tariffs. Selective openings in the import-export sector have meant greater access to goods (mostly imported from the U.S.), and shelves in bodegones flush with fresh products offering the façade of recovery.

Separate from dollarization, the Maduro regime has attempted to tame its out-of-control inflation. First, the regime rebranded its currency as the “digital bolívar”—never mind that it has nothing to do with digital currencies—slashing six zeros from previous denominations. Further, Venezuela’s Central Bank has burned through vast sums of reserves shoring up the value of the digital bolívar on currency exchange markets, at a potential cost of $40 million per week. Since October 2021, estimates place this policy in the range of $2.2 billion. Maduro’s attempt to protect the digital bolívar has achieved some short-term successes, with a modicum of price stability and inflation slowing to its lowest point in nearly a decade in March 2022.

The pressures wrought by nearly a decade of economic decline have also led Maduro to break partially with the model of Hugo Chávez and to seek support of state-owned enterprises through the deployment of private capital. Most dramatically, this occurred in the cherished oil sector with the passage of the so-called “anti-blockade law” at the end of 2020. As explained in a previous CSIS commentary, “this law signals a shift in the Maduro regime’s economic policies, enabling an unprecedented increase in private investment while providing the Maduro regime legal avenues to maintain a firm grip on the economy.” The anti-blockade law seeks to usher in private sector capital while simultaneously removing safeguards that, in theory, protected against patronage and corruption by bypassing the National Assembly’s ability to review and authorize contracts involving the country’s assets. The executive now has the right to conceal contracts and administrative records from public view.

As a result, private companies have displaced the state as a dominant force in critical parts of the economy. Whereas just 25 percent of all raw material and food imports were handled by private companies in 2019, that number had risen to 90 percent by the end of 2020. Maduro recently called on agrobusiness to double its output so that Venezuela can reduce its food insecurity. Selective privatization has also allowed the regime to scale back its provision of public goods and services, reducing its budget deficit according to official numbers (which should always be taken with a grain of salt). Of course, the dark underbelly of this retreat has been the Maduro regime’s tacit agreement with criminal groups holding and expanding territory and serving governance functions in lieu of the state.

Cui bono?

Identifying the principal beneficiaries of Venezuela’s new forms of economic activity reveals critical information about the Maduro regime’s survival strategy. Unsurprisingly, across the board, regime allies gained the most from Maduro’s selective economic reforms. The enchufados have found new opportunities for rent-seeking behavior, even capturing private enterprises on behalf of the regime. Dollarization has also been highly uneven, contributing to the rise of “two Venezuelas,” one where individuals with reliable access to dollars reap the benefits of a more stabilized market, and another where those without continue to struggle to make ends meet . Venezuela’s multidimensional poverty study revealed that in 2021, an astounding 94 percent of the country lives in poverty. Further, dollarization has been followed by a new tax that would levy charges of between 2 and 20 percent on transactions in foreign currencies, the primary purpose of which is to increase dollar revenues for the regime. At present, confusion over the law and a tax system unable to ensure compliance have led to great uncertainty around its implementation.

In the wake of the “anti-blockade law,” passed by the regime-controlled National Assembly, Venezuela witnessed the rise of previously unknown oil and gas service providers. The law, which intended to boost private investment in the oil industry—an implicit admission that PDVSA is in shambles, incapable of reaching the regime’s stated goal of 1 million barrels of oil per day production without the efficiency gains brought by the private sector—shielded companies from international sanctions by allowing them to sign joint venture deals with PDVSA in confidence. The law codified existing practices of averting regulations and eliding bidding processes for concessions, allowing the regime to hand pick the companies with which PDVSA would partner without publicly identifying them.

With hundreds of companies under state control falling into disrepair through mismanagement and corruption, the “anti-blockade law” presaged a model that has been utilized throughout Venezuela. This process of flexibilization and selective privatization repeated itself in agro business, the chemical sector, and even the hospitality industry. (Approximately 38 percent of Venezuela’s state-owned enterprises reside in the food and manufacturing sectors.)

In a twist of irony, Maduro has established dozens of “strategic alliances” with companies that had been previously expropriated by Chávez. For instance, in the food sector, Maduro has granted concessions to private companies to run at least 13 state-run companies, ranging from corn flour and dairy products to canned tuna and seeds. The regime has licensed the operations of these third parties for monthly payments. In effect, Maduro is transferring companies in critical sectors back to private hands in exchange for a cut of the profit. The result has been a private sector that has flourished in small pockets and brought dividends to the cash-strapped regime, while Chavismo has paid relatively little price—other than a doctrinal blow to its long-moribund socialist ideology.

Finally, Venezuela’s sundry criminal groups have found opportunities, filling the void left by Maduro’s crumbling state as providers of basic public services. Many have established “foundations” performing “charitable work,” laundering money back into local communities and buying goodwill in the process. Criminal organizations, such as the shadowy R Organization, control large swathes of territory in Venezuela, reaping the rewards of drug trafficking and illegal mining . In these remote areas, they are often the singular force shaping governance and providing basic services.

Economic Reform and Regime Survival

The principal beneficiaries of Maduro’s economic reforms—the plugged-in and criminal organizations—indicate a great deal about the regime’s survival strategy heading into the 2024 presidential elections. First, promoting a new class of entrepreneurs ensures a cadre of loyalists with the ability to carry out the regime’s priorities. To ensure the competence necessary to fulfill these tasks, and to select the best officials, the regime needs to expose potential industry champions to some competition, which involves reviewing the performance of their private-public partnerships (the most important metric being how much money they netted the regime).

Second, by engendering a new class of individuals who owe their newfangled wealth to the regime and its policies, Maduro is seeking to prevent the formation of alternative power centers that could challenge his leadership. Maduro has spent a tumultuous decade in power, enough time to be approaching a traditional danger zone for dictators who have accumulated enemies and worn out any broad public support. From this perspective, it is important for Maduro to keep opponents and allies alike guessing—a lesson that has certainly not been lost on Maduro.

Finally, Maduro, following Chávez’s legacy, has furthered the creation of a “criminalized state” that witnesses the use of organized crime groups as instruments of state power. It is no surprise, therefore, that economic reforms, dollarization, and new tacit agreements with non-state actors have meant a financial bonanza for organized crime groups.

Thus, both the opposition and the international community should see these reforms as further instances of Maduro’s sleight of hand to consolidate Chavismo’s hold on power. While economic reforms may have signaled a reversal of Chávez’s nationalization campaigns, the regime took care to maintain its control over critical industries. Any economic benefits have been shared exclusively with an inner circle, reducing the opportunities for schisms that would threaten regime stability and survival. It also behooves the Maduro regime to continually build lucrative clientele networks, enhancing its capacity to gather information and maintain social control.

Real Economic Reform

Real economic reform would feature a dismantling of the Maduro regime’s mafia state, tackling the insecurity, violence, and economic predation driven by criminal groups that plague so much of Venezuela. Real economic reform would also entail full asset repatriation programs to their original owners—not “joint ventures” based on the current model of regime control with private sector management. By 2016, the Venezuelan state had intervened or moved to take control of nearly two-thirds of the country’s private enterprises over the previous decade and a half, more than 1,000 companies in total. Venezuela’s productivity and economic prosperity is contingent upon the return of these critical assets to a productive, less corrupt private sector. In the meantime, the opposition should continue to ruminate over creative solutions to augment Venezuela’s starvation wages, such as the use of frozen assets abroad—as in the case of bonuses paid to healthcare workers during the pandemic—to expand the benefits beyond a narrow cadre of regime loyalists. Lastly, real economic reform would vigorously enforce anti-corruption efforts, ensuring benefits of any recovery are widely distributed and inclusive.

The tangible impacts of the Maduro regime’s selective economic reforms will be insufficient to arrest Venezuela’s overall economic malaise. For that to happen, Maduro would have to countenance real economic reforms that would put his regime—and Chavismo as a ruling ideology—at a significant risk of losing its grip on power. Instead, the regime has opted for half measures that increase state control and may entice more private sector investors with the prospect of greater return on investment than the abysmal baseline that existed previously.

At its core, the Maduro regime’s message that Venezuela se arregló (“Venezuela fixed itself”) attempts to cast aside discussions on the urgent need for political change. However, Venezuela’s economic recovery is deeply rooted in a peaceful path toward political transition. Prospects for an inclusive, robust economic recovery remain dim as long as the Maduro regime remains entrenched in power. Average Venezuelans, the opposition, and least of all the international community, should not buy the regime’s slick marketing that policy tinkering constitutes wholesale economic reform that somehow heralds an economic recovery in Venezuela. Much like the recent promotion of a new—and as it turns out, faux—Starbucks café in Caracas, much of the Maduro regime’s recovery narrative is all froth.

Ryan C. Berg is senior fellow in the Americas Program and head of the Future of Venezuela Initiative at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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