Squeezed by US sanctions and an economy that has shrunk more than 80% since 2013, Venezuela is increasingly moving towards free-market renewal © MIGUEL GUTIERREZ/EPA-EFE/Shutterstock

Two decades after Hugo Chávez launched the Bolivarian Revolution meant to free Venezuela from capitalism and turn it into a socialist idyll, the country looks more capitalist than it has for years — at least on the surface.

The government of Nicolás Maduro still pays homage to the tenets of the revolution. Portraits of Chávez adorn the walls of government buildings, and the United Socialist Party of Venezuela remains firmly in control, having recently retaken congress from the fragmented opposition.

But squeezed by US sanctions and faced with an economy that has shrunk more than 80 per cent since he came to power in 2013, Mr Maduro is increasingly reaching into the free-market toolbox to revive the country’s fortunes.

“It’s a country that’s deregulating rapidly,” said Dimitris Pantoulas, a political analyst in Caracas, who compared Venezuela to post-Soviet Russia in the 1990s. “It’s going through a violent transformation from state-ism to a deregulated, savage market.”

The dollar, the ultimate symbol of western capitalism, is now ubiquitous on the streets of Caracas. Walk into any store and shopkeepers will gladly accept greenbacks. The bolívar has virtually disappeared, obliterated by years of hyperinflation. When the government devalued the national currency and relaunched it in 2018 there were 60 bolívares to the dollar. Now there are well over 1m.

A couple of years ago, a sack of bolívares was needed to pay even for small items. Now, a few dollar notes will do. The problem most Venezuelans face is finding denominations small enough — and salaries high enough — to get by.

Ecoanalítica, a consultancy in Caracas, estimated that two-thirds of all financial transactions in Venezuela now take place in foreign currencies, principally the dollar. Far from lamenting this state of affairs, Mr Maduro welcomes it, describing dollarisation as “an escape valve”.

He welcomed in the new year by claiming that the dollar too would eventually disappear from Venezuela’s streets and the country would move to “an economy that is 100 per cent digital”.

The strict currency controls that Chávez introduced in 2003 have largely been dismantled. The expropriation of private companies, another hallmark of the Chávez era, has ended. 

Gasoline is still subsidised — Mr Maduro risks the wrath of the Venezuelan people if he lets petrol prices float freely — but there are signs of creeping free market reform.

Gone are the days when Venezuelans could fill up their tanks as often as they liked for a few US cents. They are now limited to 120 litres of cheap fuel a month, enough to fill an average car twice. If they want more, they have to pay 50 cents per litre, closer to market rates and only slightly cheaper than in the US. 

Venezuela’s capital markets, stymied by 21 years of socialist rule, are also showing signs of renewal. In November, the country’s leading rum-maker, Santa Teresa, became the first company to issue fixed income dollar-denominated bonds on the local market. That was possible because the state changed its rules last year to allow exporters to do so, which would have been unthinkable under Chávez.

Santa Teresa’s issue was modest — $300,000 of one-year bonds paying a return of 4 per cent — but it is a first step. “We wanted to see how the market responded. This might open the door for other companies to do the same thing,” said Alberto Vollmer, the company’s chief executive.

He said he and other business leaders have lobbied state authorities “to see how we can re-engage through capital markets”. While some diehard socialists are resistant, Mr Vollmer said he had found a sympathetic ear in some quarters of government.

Equities, too, are enjoying something of a recovery, albeit at drastically reduced levels from their heyday in the early 1990s. The number of shares traded in 2019 was over eight times higher than in 2016. The number of investors in the 27 actively traded companies on the Caracas bourse has risen fivefold in five years.

One reason that private companies are turning to the stock market is that they are finding it increasingly difficult to borrow from banks due to the government’s credit squeeze. Banks are now obliged to keep a stifling 93 per cent of their deposits parked with the central bank, leaving them with precious little to lend. “Since 2018, bank credit has contracted by 90 per cent in real terms,” said Asdrúbal Olivares, head of Ecoanalítica.

Gustavo Pulido, head of the Caracas stock exchange, wants to turn the bourse into a multicurrency exchange. “It’s impossible to do business in bolívares,” he complains. The central bank is rumoured to be considering a plan to create a clearing and settlement system in US dollars.

While economists acknowledge Venezuela has taken “a neoliberal turn” in recent years, they stressed the economy is still deeply dysfunctional and will need years to heal from the damage inflicted over the past two decades.

“I’m sceptical [about the reforms],” said Tamara Herrera, director of Síntesis Financiera in Caracas. “This does not remotely amount to an orderly, coherent plan for recovery.”

Mr Pantoulas said that “although the state has ceded some ground [to market forces] it still holds a sword of Damocles over the market and the threat of intervention”.

Having regained control of congress, the government has vowed to push through a new “anti-blockade law” to mitigate the impact of US sanctions. Mr Maduro describes it as “a mother law” that will spawn up to 15 more specific laws for each sector of the economy.

“I just hope these reforms are done intelligently and take into account the needs of the private sector, not just the public sector,” Mr Vollmer said.

Get alerts on Venezuela when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window)

Follow the topics in this article