CARACAS, Venezuela — A few years ago, Venezuela was experiencing such devastating food shortages that people stood for hours in lines just for a chance to buy basic staples. Venezuelans reported losing an average of 24 pounds in 2017. Today, such hard times feel like a distant nightmare.
People can now buy groceries, medications and other goods that for nearly a decade were impossible to find, thanks to the informal dollarization of the economy and the partial lifting of price controls and import tariffs by President Nicolás Maduro’s government. After years of deprivation, near economic collapse and political chaos, this shift has improved the quality of life for many people across Venezuela. Using the dollar instead of the local currency, the bolívar, has its drawbacks, but it has brought fragile stability, for now.
Venezuelans spontaneously began to adopt the dollar in 2019 as a way of fending off hyperinflation. American dollars, and other foreign currencies like the euro and the Colombian peso, have breathed some lifeinto the production of rum and the collapsing oil industry.
Steve Hanke, an economist at Johns Hopkins University and an expert on hyperinflation, told me that dollarization, even if it is improvised, rather than an official policy, can help people “protect themselves from the ravages of the bolívar’s hyperinflation.” In the case of Zimbabwe, making the U.S. dollar the official currency in 2009 brought the economy back from the brink.
In Venezuela, nearly 70 percent of all transactions were conducted in that currency as of June, according to Luis Vicente León, a pollster in Caracas. About 60 percent of those purchases were in cash and the rest using wire transfers or online payment systems like Zelle and Venmo.
More than five million people, or over 15 percent of the population, have fled Venezuela in recent years. That translates into greater access to dollars in the country, since many Venezuelans abroad send money to their families back home. In fact, before the pandemic, remittances had been rising. In 2019, the diaspora sent an estimated $3.7 billion to relatives, up from the $3.5 billion sent the year before.
The flow of dollars is also breathing new life into the country’s commercial activity. More producers are producing; more importers are importing; and more people are eating. This was evident in my recent visit to Petare, one of the largest slums in Caracas. A young clerk named Andrés Suárez credited the dollar with saving the grocery store where he works in the Jose Félix Ribas neighborhood of Petare. “Things have started to move again,” Mr. Suárez told me while standing in front of shelves stacked high with Pantene shampoo, Nutella and Pringles chips. “I don’t know where people are getting the money,” he added, “but they’re buying.”
But I also saw some of the drawbacks of dollarization. Although the flow of dollars is a significant way of getting around the Chávez-era exchange controls, the process of actually getting cash is convoluted. Caty Aguilar, another resident of Petare, told me that she gets about $30 to $50 a month from her daughter in Peru. Receiving those remittances means going through an informal network of money-changers, who often take a large cut.
“We post a message in our WhatsApp accounts saying that we need to buy or sell ‘lechugas,’” the Spanish word for lettuce, which is a code for dollars, she told me. “A friend, or a friend of a friend who might work for wealthy people and gets paid in cash, eventually calls,” and she makes the transaction.
An improvised dollar economy is also not completely immune to hyperinflation. Prices are still going up, and they’re even higher now that they’re set in dollars. This makes it hard for many Venezuelans to afford everyday items. Dilmary Rivas, a neighbor of Ms. Aguilar, earns the equivalent of $120 per month working as a house cleaner. Three years ago, this income was enough to buy three months’ worth of groceries — if she was lucky enough to find them after standing hours in line. Today, her weekly wages allow for just the basics: sugar, coffee, milk, corn flour, cheese, cooking oil. Staples are no longer scarce, but they’re so expensive that other necessities like clothes and toiletries have become a luxury.
“If I buy a pair of socks, I can’t buy eggs,” Ms. Rivas said. “It’s like I traded one problem for another.”
The Venezuela of Hugo Chávez’s professed socialism — with food subsidies that initially helped the poor but soon resulted in chronic shortages — is slowly giving way to Mr. Maduro’s tropical brand of haphazard capitalism, where two currencies exist at odds with each other. There’s economic liberalization, but also repression, price distortions and inequality. And paradoxically, by providing the economy a lifeline to endure crippling U.S. sanctionsand persistent inflation, the dollar economy helps Mr. Maduro remain in power.
For all Venezuelans to benefit from a dollar economy, the country would have to adopt the dollar as its sole currency by reaching an agreement between its central bank and the U.S. Federal Reserve. But for this and other deep economic reforms to happen, U.S. sanctions must be lifted.
That’s next to impossible under the political stalemate between Mr. Maduro, a president who is not recognized by the United States, and Juan Guaidó, the opposition leaderrecognized by Washington as interim president but who is struggling to stay relevant. With another round of negotiationsunderway in Mexico, Venezuelans may see some progress if the two leaders can agree on a timeline for free and fair elections.
NYT, 7 September 2021