C&B Notes

Is Maduro’s Economic Game Up?

We have followed Venezuela’s self-inflicted crisis carefully given our history of and ongoing interest in investing in Latin American businesses. The Maduro-led government continues to print money to support spending in the face of the decline in oil prices (Venezuela’s money supply has more than doubled in the last 17 months).  The game may be up, however, as the country could be well on its way to being dollarized.

Venezuelan law prohibits the owner from charging in foreign currency, and in 2009, then-President Hugo Chávez scorned the dollar as “paper without backing.”  But as Venezuela’s economy crumbles and its currency plummets amid triple-digit inflation, the country is in effect dollarizing.  Coded messages increasingly let buyers know that greenbacks are welcomed…

From real estate to cars to even some cheaper goods like health-care products, an increasing number of vendors demand dollars — or its black market equivalent in bolivars, now about 350, several times the official rate.  That prices out most Venezuelans, who can’t get greenbacks because of complex currency controls the government uses to prevent capital flight.  Those controls have helped exacerbate class divisions between those who hold only bolivars and those with access to dollars, undermining Mr. Chávez’s so-called Bolivarian Revolution, the social movement embraced by his successor, President  Nicolás Maduro, which aims to equitably distribute wealth.

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Earlier this month, union officials in the auto sector said the Venezuelan government would soon allow manufacturers like Ford Motor Co., which has been hobbled by its limited access to dollars, to price vehicles in the American currency.  Authorities have said little publicly about the auto talks, leaving many wondering how far the government will go in officially recognizing the dollar.

Mr. Maduro this week left little doubt that his administration wouldn’t formally adopt the currency of its ideological rival, blaming the country’s economic problems and currency volatility on unnamed foreign enemies.  “In Venezuela, there has never been, nor will there ever be any dollarization,” he said on state television.  “Our currency is and will always proudly be the bolivar.”   Underlining the contradiction, he and other officials sometimes reference the dollar in public discourse.   “While I’m giving you an apartment, I’m also giving you a check for $50,000, the dollars that belong to your children,” the president said recently as he handed the keys of a new state-constructed home to a poor family.

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Yet, for many people here much of the economy is already effectively dollarized.   American Airlines, among other foreign carriers, has stopped selling tickets in bolivars, leaving their flights out of reach for most Venezuelans.  A sushi chef at a posh Caracas restaurant said seafood supplies have been unreliable because fishermen increasingly sell their catch outside Venezuela, charging in dollars.  He said that when available, tuna, whose price the state regulates at 80 bolivars per kilogram, sells for 1,300 bolivars on the black market.  Venezuelan pharmacies are short on prescription medications and such common products as contact lenses.  But for dollar holders, one chain, Locatel, offers an online service that ships products directly from its U.S. division.

“Of course this is complete dollarization,” said  Francisco Valencia, a kidney transplant recipient who said he had to go abroad and pay dollars to buy a steroid medication he needed for his donated organ.  “We have to go to the international market or the black market just to take care of our health.”