Venezuela’s recent economic history (Update)

This is Planet Money from NPR.

Hi, it's Kenny Malone, and over the weekend, the United States military struck Caracas

and brought Venezuelan president Nicolas Maduro to the United States for trial.

American President Donald Trump is saying the U.S. will quote, run Venezuela.

And when he announced that on Saturday, he linked his reasons for the strike to economics,

increasing oil production, to conditions in Venezuela, to the impact of socialist policies

in that country. Now, we at Planet Money have been covering Venezuela going back 10 years now,

talking to people on the ground, hearing what it's like. And so today's episode is about the

recent economic history of Venezuela. The first part you're going to hear was reported in 2016

at a particularly low point for the country. The second part was reported in 2024 after a period

of economic stability in Venezuela after an unexpected cause of economic improvement, the U.S. dollar.

So we begin with Robert Smith and Noel King in 2016.

Hello and welcome to Planet Money on Robert Smith. And I'm Noel King.

Venezuela used to be a relatively rich country. It had money and prestige, and most importantly,

it had oil. Venezuela used to brag that they had the largest reserves of oil in the world.

Today on the show, we have an economic horror story about a country that made all of the wrong

decisions with that oil money. It's a window into the fundamental way that money works,

and how when you try to control it, you can lose everything.

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A decade ago, Venezuela was riding so high. It's leader felt that he could take on the United

States of America. This was Hugo Chavez, former revolutionary. But he had been elected president

of Venezuela. And Robert, do you remember this in 2006, he came here to New York to talk at the

United Nations. And president George Bush had just spoken at the UN the day before. Chavez

stands there and he says yesterday the devil stood right here. The devil. And then I love this

part. Chavez is a total straight man. He crosses himself. He makes prayer hands. And then he waves

away and he says I can still smell the sulfur. And everybody cracked up except probably George Bush.

But it was kind of funny, right? Back in those days, Hugo Chavez made a sport of straight up

trolling the United States whenever he could. He would point out how terribly the US was treating

its poor and how sad it made him. We, Venezuela people, loves you. We once, I want to be

your brothers. And then he makes the people of the United States an offer. He says Venezuela has so

much money and so much oil that we're going to give discounted heating oil to poor people in the US.

The Venezuelan state owns an oil company and they've heard of it sit-go and they put out a bunch

of ads in Boston and New York featuring Joe Kennedy. Mommy, I'm cold. These ads were all over TV

basically saying to the United States, look at us. We are Venezuela. We are the champions of the world.

I'm Joe Kennedy. Help is on the way. Heating oil at 40% off from our friends in Venezuela and

sit-go. Call me a citizen. This is Hugo Chavez' style, right? He uses oil money to buy love and to buy

power. The foundation for the collapse started as it always does during these boom years. Chavez

wasn't big into saving any of his oil money for, you know, the day when it will run out. He was

a socialist. He was a populist. He wanted to spend the money, especially on programs for the poor.

Food subsidies, you know, education programs. Pretty much it was a time of economic bananza.

At a handra of Velasco grew up in Caracas. He's a professor at NYU now and he says all that oil

money started to dominate the economy. Oil was by far the biggest export. It paid most of

the government's bills and in the meantime everything else in the economy wilted. No one wanted to

build a factory. No one wanted to grow food because the oil business was lucrative enough.

Yeah, when the country needed something it just bought it from someplace else. Why make it yourself?

When you could just buy the import with very cheap dollars. Yeah, why make auto parts?

When you can buy auto parts from abroad. Why? Make shoes. Make shoes. Make shoes. Milk.

Anything. Cheese. Anything. Just buy it. Just buy it. Absolutely. Ready made. Not have to worry

about having to go through all the procedures and, you know, investment domestically to have

to do. They just buy from abroad. Right? And so it makes you hugely dependent on imports.

So you have a country that is living and breathing oil money. They would sell the oil, which is

priced in US dollars, then convert it to the Venezuelan currency called Bolivars. And then every

centimo of it is spent to keep the country running, to feed and close themselves.

And then all of a sudden there's a problem. In 2003, the oil workers go on strike. There is no oil.

There is no money. Then it's what a desperately needed cash. Desperately needed dollars to do

everything. Anything that we've been talking about behind ports that it required, right?

Chavez freaks out. He has bills to pay. He's worried about his own currency, the Bolivar losing value.

And so to keep the whole economy stable, he decides to fix the exchange rate between the Bolivar

and the dollar. Chavez essentially said the value of our money is what I say it is. And if you want

dollars, you have to come to the government. You have to come to me. So it makes financial sense.

It actually makes economic sense as an emergency measure. What happened is that this measure was

kept and maintained throughout even two today. And this, this was the economic time bomb.

Right, even after the oil workers strike was settled, Chavez kept it so that every major transaction

in the country still involved the government. If you wanted dollars, you needed permission to have

them. The government set the exchange rate. The government could approve or reject any transaction.

Here's how it would work. Alex Rosenberg was a clothing importer in Caracas. He brought in

underwear, jeans, dress shirts, the casual shirts, sweaters, jackets, blazers.

And would these have your name on them? No, they wouldn't. They would have a couple of brands on them.

He was no Calvin Klein. Alex Rosenberg. Now in order to import clothing, he needed to pay his

suppliers in dollars. And in order to get the dollars, he now had to go to the government and prove

that he wanted to bring in something essential. So the government would give him the list. They printed

entire official Gazette documents where like books of books of code, basically, where you would check

whether or not a particular material or a particular article of clothing had been centrally

authorized by the government. What is this alphabetically? You'd go down and you'd find underwear.

You would find men's underwear made out of polyester, cotton, other fabrics. And then you would

check in the book if the government deemed this important enough to buy essentially. Basically.

And you know, the government didn't just believe you when you said, oh, there's a shipment of

underwear out there. No, no, no. You had to show them proof that the underwear existed. Here's

the picture of the underwear. Here's the picture of the brand. Here's what they're going to look like.

Here's what they're made of. And here's what they cost. And then you say, I need $10,000.

And you say, I need X amount of, you know, pieces of underwear at X dollars,

totaling X amount of dollars. And I should note, Noel, this is all for permission to spend his own

money. I mean, Alex was paying for the underwear. All this bureaucracy was just to see if he could

exchange his local boulevards for dollars. And this might seem insane. It's a little

insane. This might seem very insane. But as long as the price of oil was high, there weren't actually

a lot of serious problems. The government would eventually give you your dollars and your underwear

came into the country and all was well. Then two things happen. Number one, Hugo Chavez dies.

Mother's weeping children weeping adult men weeping. And the unluckiest man in the world

takes his place. His name is Nicolas Maduro. He had been the foreign minister for Chavez for eight

years. And after all the drama and the excitement and the love of Chavez, Maduro was like, it's like

comparing a log of wood to the, you know, to the circus that rolls into town. And then poor

president log of wood gets hit with an axe. In 2014, the oil price, the oil price, which they

depended on drops like the price drops in half over six months. And this causes panic within

the Venezuelan government. Everything they have, everything they do depends on oil money. And now

they have half as much oil money. So the new president Maduro goes to OPEC and he begs them,

we have to do something. We have to do something to keep oil prices up. Please help us.

Countries like Norway and Saudi Arabia had been saving their oil money. Not Venezuela though.

Not only are we not ready for this, but there's nothing that we can do to stem the decline of

wood. This is the end of any kind of boom years. But there's nothing that we can do now that

isn't going to hurt a tremendous amount. So what do they do? They did nothing. And every trap

set by Hugo Chavez gets sprung at the same time. The first thing that happens is that the

Venezuelan government, all of a sudden, has fewer US dollars. That spigot is turned off. So the

government starts being stingy with them. There's this huge shortage of dollars. And of course,

when there's a shortage of something, the price goes up. People were now willing to pay hundreds

of boulevards for a single US dollar. There are black markets everywhere dealing in US dollars.

Yeah, but the government insists on selling dollars at the old rate, which was around six

boulevards for a dollar. They don't want the price for basic things like food to go up. They're

desperate to keep things stable. But we know what happens when there are different prices in

different markets. The Venezuelan people aren't stupid. They looked at this and they said,

oh, well, listen, I can buy a dollar for cheap from the Venezuelan government and then sell it

on the black market and make a fortune. Of course, they started to do that. And Alejandro says,

there was this amazing scam. Rasparta heta. It was called le raspao. The scratch. The scratch.

Scratch. The scratch. People would buy an airplane ticket to New York, say. They would tell the

government, oh, we really need dollars for our essential trip to New York. But then they wouldn't

travel. And so you had the mystery of the airplanes that had all their seats sold, but no one was

riding on them. But there was so much profit to be made. You could just buy a plane ticket and

not get on. Absolutely. Because you could make so much more from the black market rate of dollars.

Now normally when this sort of thing starts happening, the country will eventually give up. They

will admit that their currency is screwed up. It's worthless. People are scamming them. And

eventually they'll let the exchange rates go back to normal. And I'm not saying it's easy. It is

super painful to do. If Venezuela had accepted the true exchange rate, everything would have

gotten more expensive. The poor people that Chavez had cared so much about would not be able to

afford milk and bread. The country would have to rebuild its industry, rebuild its agriculture,

but then things would have gotten better. But Venezuela decides to do exactly the opposite.

And it doubles down on its mistakes. They even did something which sounds so confusing. They

created different exchange rates for different people and different products. Yeah. And since it was

confusing, there were more ways to scam the government, more ways to make money off these fake

exchange rates. So the government thinks, okay, we'll print more money. Absolutely wrong move.

Inflation sort. Okay. So we'll stop reporting our inflation numbers or any numbers. In fact,

we will hide how badly the economy is doing. But of course people figure it out. They can see the

prices for items in the stores and the prices are going crazy. Okay. So prices are going crazy.

We will mandate price controls. We'll say you can only make so much profit. This is even worse.

Because businesses find that they're losing money every month. I mean, why keep selling products

if you can't make any money? And even if you do make a little bit of money out of your business,

that money is increasingly worthless because of the inflation. This is really bad for Venezuela.

It is incredibly bad. And it becomes impossible to import anything. I mean, that's what happened to

Alex, the clothing guy with the underwear, right? But his last big shipment was for something

essential. It was for medical supplies. We wanted to import a shipment of non-woven fabric,

which is basically that blue fabric that's used for surgical ropes. Oh, so the stuff you see in

the hospital. Yeah. Yeah. But do you want it to bring in bolts of this so you can make surgical

clothing? Yeah. Literally the stuff that the neurosurgeon would have needed for surgery to save

people's lives. And Alex goes to the government for approval to spend dollars on it. And every day

he waits for that approval. You go to your computer every morning, once you get to the office,

you open that system and you're like, okay, let's see if I hit the lottery today and they've

authorized my goods. And you're hitting refresh and just seeing like, no, no, no, no, no, no,

or no change in status, basically. How long can this go on for? We're still waiting to have

those goods cleared. And we still owe that money to our suppliers in Asia. So Alex does what

he never wanted to do. He freezes his business. He steps away from it and stops importing anything.

And this happens over and over and over again with all of the things that Venezuela is importing,

which is basically everything clothing and medicine and electronics and food. No one can get any

dollars to bring anything into the country. And this is how a crisis gets built out of simple

economic decisions. Without a real currency, there are massive shortages. There are these dangerous

hospitals. The government is cutting school days and office hours just to save electricity. And

all of this in a country that is still exporting oil. It is still bringing in billions of dollars

and it is not enough to save them. And no one seems to know what should happen next. This is a

country in the middle of a political stalemate because no politician wants to do the drastic

things and they would be drastic that are going to be necessary to fix this. The NYU professor,

Alejandro, says that everyone's still just praying that the oil prices will go back up. That more

dollars will just solve everything. It's not like we don't know this story. I'm an historian of

Venezuela. I wrote about this. I wrote a book about it, right? But we just really crave those good

times. And it seems like every time the bad times come, we just say, well, at least sometime in

the future, we'll have another good role. Instead of fixing the problem, which is that the whole

economy is based on something volatile. And if you try to maintain control no matter what, you're

going to lose it. That was where we left things back in 2016. And after the break, our update

from 2024 about an economic recovery and the power of the American dollar.

We checked in again eight years later in 2024. Amanda Aronchick picked up that story.

Since our episode first aired, the Venezuelan economy has stabilized a bit, but not before

inflation spiraled even further out of control, like truly wildly out of control.

At some points, you would see people walking around with bags full of cash.

This is NYU professor Alejandro Velasco in 2024. He reminds us that almost right after our

episode published back in 2016, Donald Trump was elected president. Trump piled on sanctions

and more sanctions further cutting off Venezuela from the global economy and making it even harder

to sell oil on global markets. When sanctions hit, that became the catalyst for

most significant hyperinflation, where we saw going from levels of several hundred percent to

several thousand and eventually dozens of thousands of percent. By 2018, it was estimated that

inflation peaked at 65,000 percent, making even those bags of Venezuela and Bolivarice essentially

worthless. Those who are able to begin to sell off their local currency and try to trade it as

much as they can into a more stable currency like the dollars. That year, when hyperinflation peaked,

Venezuela's population, according to the International Monetary Fund, dropped by 5 percent.

Much of that was because people were fleeing the humanitarian crisis. And many of those folks who

left the country, they now send money back home. They send remittances. And those remittances

have been key to what happened next. The US dollar started to take over. And this, Alejandro says,

is how the turnaround began. You started to see this targeted sectors of the economy turn over into

dollars. And you know, the reason why this is significant is because the government controls the

flow of currency and at the time tightly controlled the flow of dollars. And so this was really an

acknowledgement that it was no longer going to control that flow. The government eventually relaxed

currency controls in 2019. But even before then, people started turning to the stability of the

dollar to pay for things like groceries and household supplies. American dollars allowed people to

plan for the future again. It is the single greatest factor to the stabilization of Venezuela's

economy without a doubt. The economy for the average Venezuelan also shifted to rely more on those

remittances that cash that was being sent or brought from relatives outside of the country.

If you travel and go back to Venezuela to see relatives, which is something that we've been

seeing and increasing amounts over certainly the last year and a half to two years,

people come with cash. You know, they pack it in, hide it in various places, sometimes have to

use a little bit of it to pay off authorities. But that's how some of that cash is being brought

and then it's stored in, you know, under mattresses and other ways to try to keep safe.

After Trump left office, some of the sanctions were walked back by the Biden administration

and oil production stopped cratering and even picked up like a tiny bit. And throughout this

process, the American dollar has stuck around and this has made a type of inequality in Venezuela

worse. If you have, for instance, relatives abroad who can send remittances in dollars,

if you have access to state resources that are increasingly paid out in dollars,

if you have access to the private sector, especially the large scale banking and other sectors,

then yes, you have access to the dollarized economy. But if you're shut out of that, which is the

case for most of the population, you continue to struggle. More than seven million people have left

Venezuela since all of the started. Inflation is more stable, but it's still high. And oil

production is down and GDP is way down from what it used to be. So hopes for a big recovery

tend to hinge on hoping for some big government policy changes. And those, they are not likely to

happen anytime soon. There was a presidential election on July 28th, the official results put

Nicolas Maduro as the winner, but the US and most international observers questioned that outcome.

The consensus is that the opposition candidate Edmondo Gonzalez got more votes. This kicked off

a tighter crackdown on opposition to the government. And then after weeks of standoff,

Maduro all but secured his third term in office when his rival Gonzalez signed a letter accepting

defeat and he fled to Spain. He now says he was forced to sign it. And because of all this, our

NYU professor Alejandro Velasco, he is not expecting big changes in economic policy anytime

soon. But he says at least the economy has stabilized.

That was Amanda Aronchick in 2024 before that Robert Smith and Noel King in 2016.

We'll have more coverage of what's to come in Venezuela. Keep an eye on our feed for that. And

listen, we're watching this and making sense of this just as you are. And so we'd love to know

what questions you have about this. Or if you have family or friends in Venezuela, maybe you live

in Venezuela, please tell us what it's like there. You can send us emails at planet money at npr.org.

That's planet money at npr.org. This episode was produced by James Sneed. The original was produced by

Nick Fountain and Sally Helm and the 2024 update was produced by Sean Saldana and fact-checked by

Ciera Juarez. Alex Goldmark is our executive producer. I'm Kenny Malone. This is npr. Thanks for listening.