For three years Harvard CID has been working on a plan to rescue Venezuela and get the country on a path of sustainable, inclusive growth, and development. We have teamed with Venezuelan experts at home and abroad, worked with international institutions, and have started the process of building consensus around the plan among the opposition parties that control the Venezuelan National Assembly. The Venezuelan Caucus at the Kennedy School will be hosting a series of talks on Venezuela: The morning after, by different members of our team and on different topics. You can follow on their Facebook webpage. More coming soon, stay tuned!
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Venezuela: The Anatomy of a collapse and a roadmap for reconstruction
1. Venezuela: The morning after – @miguelsantos12
Harvard Center for International Development
VENEZUELA: THE MORNING AFTER
VENEZUELAN CAUCUS SPEAKER SERIES
VENEZUELA: THE ANATOMY OF A COLLAPSE
AND A ROADMAP FOR RECONSTRUCTION
3. Oil boom was a price phenomena, as oil sector
production fell by 12.6% between 1998-2012
3
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
2017
Barrelspercapitaperyear
Production(oilbarrels-day)
Venezuela Oil Production: Total and per capita
(1965-2018)
Sources: PDVSA, MEMPET, OPEC, own calculations.
4. 40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Venezuela: Gross domestic product and consumption per capita
(1998-2018, 1998=100)
Private consumption Government consumption Gross domestic product Baseline
The government used the bonanza to spur a consumption boom,
that did not have a counterpart in domestic production…
4
Venezuela: Producto interno bruto, consumo público y privado
(per cápita, 1998-2017, 1998=100)
Sources: Venezuelan Central Bank (1950-2015), International Monetary Fund (2016-2018), own calculations.
5. Consumption boom fueled by imported goods
5
Sources: Venezuelan Central Bank (1950-2015), UNCOMTRADE (2016-2018), International Monetary Fund (2016-2018), own calculations.
71,967
2,403
586
382
0
500
1,000
1,500
2,000
2,500
3,000
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Constant2018dollarspercapita
Constant2018dollars
Venezuela: Real Imports
(Total and per capita, dollars 2018, 1983-2018)
6. New
regulation for
banking
Supreme
Court Packing
2013201220112010200920082007200620052004
In parallel, the government promoted a number of laws that would
dismantle the market mechanism and would give them total discretion
6
2003
Exchange
Control
FONDEN
Law
FCCV Gran
Volumen
Law of
Extraordinary
and Exorbitant
Oil Prices
Fondo Comun
China-Venezuela
First Wave of
Price Controls
SADA Traffic
Guides
First wave of land
expropiations
Central
Bank Law
CANTV – AES
Nationalization
Regulatory
expropiations
INDEPABIS
Law of food
sovereignty
Law of unlawful
FX operations
First Socialist
Plan
Second wave of
price controls: Fair
price law
New Labor Law
Constitutional
Reform Attempt
7. 7
The legal structure created in 2005 allowed the government to
administer massive amount of resources out of public sight
0
20,000
40,000
60,000
80,000
100,000
120,000
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Contributions to the Fondo de Desarrollo Nacional
(million dollars)
Central Bank PDVSA Others
Contributions to the Fondo de Desarrollo Nacional (FONDEN)
(million dollars)
110.831
8. 8
During the boom years, Venezuela multiplied its foreign
debt 6X, mostly through extra-budgetary vehicles…
Fuentes: Ecoanalítica.
0
20
40
60
80
100
120
140
160
180
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
Gobierno Central
PDVSA - Bonos-Otros
PDVSA Atrasos
Fondo Chino
Rusia-Rosneft
Nacionalizaciones-ICSID
Deuda comercial
Venezuela: Foreign Public Debt
(million dollars)
9. 9
Total debt with China skyrocketed between 2008-2016,
out of the oversight and accountability of Congress
Venezuela: Foreign Public Debt
(million dollars)
3,200
5,259
11,899
21,829
23,374 23,579
21,887
25,512
1,101
2,413 2,889
4,570
3,914
5,551
6,232
5,675
0
5,000
10,000
15,000
20,000
25,000
30,000
2008 2009 2010 2011 2012 2013 2014 2015
Foreign Public via Fondo Conjunto China-Venezuela (FCCV
(million dollars, 2008-2015)
Total debt balance Debt service
10. 10
The proceeds from the oil boom coupled with massive foreign
debt issuance ended up financing massive capital flight
Fuentes: Reinhart-Santos (2016)
-5000
0
5000
10000
15000
20000
25000
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Venezuela: Capital Flight
(million dollars)
11. Venezuela was ill-prepared to cope with the collapse in
oil prices that occurred between 2014-2016
11
Sources: Venezuelan Ministry of Energy
16.0
25.9
20.2
22.1
25.8
32.9
46.0
55.2
64.7
85.4
57.0
72.2
100.1
103.4
101.3
88.6
44.8
35.2
46.7
65.1
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
enero-99
julio-99
enero-00
julio-00
enero-01
julio-01
enero-02
julio-02
enero-03
julio-03
enero-04
julio-04
enero-05
julio-05
enero-06
julio-06
enero-07
julio-07
enero-08
julio-08
enero-09
julio-09
enero-10
julio-10
enero-11
julio-11
enero-12
julio-12
enero-13
julio-13
enero-14
julio-14
enero-15
julio-15
enero-16
julio-16
enero-17
julio-17
enero-18
julio-18
Oil Price: Venezuelan
(US dollars per barrel)
101.3
12. Financial markets shut down for Venezuela
12
01000200030004000500060007000
1999m
1
2001m
1
2003m
1
2005m
1
2007m
1
2009m
1
2011m
1
2013m
1
2015m
1
2017m
1
2019m
1
PER ARG BRA CHL COL
ECU MEX VEN LATAM EM
16. The simultaneous collapse in GDP and imports is unprecedented
16
Sources: World Development Indicators, World Bank.
Largest GDP per capita losses for all
five-year periods 1960-2018
Largest imports per capita losses for
all five-year periods 1960-2018
17. Food imports plummeted 70% in two years (2014-2016),
in sharp contrast to other economies in Latin America
17
Imports of food, selected countries, países seleccionados
(2005-2016, 2012=100)
Sources: UN COMTRADE, con ajuste Bustos-Yildirim.
18. There have been very significant falls in the imports of
subsectors for foods that were most imported in 2012
18
Imports of food, eight most important products in 2012
(thousands of dollars)
Product 2012 2016 Change (%)
Milk and cream, preserved, concentrated or sweetened 817 218 -73.3
Maize, unmilled 805 363 -54.9
Animals of the bovine species (including buffaloes), live 793 8 -98.9
Bovine meat, fresh, chilled or frozen 681 138 -79.8
Oilcake and other residues (except dregs) 485 295 -39.3
Soybean oil 482 180 -62.8
Wheat and meslin, unmilled 426 168 -60.5
Poultry, dead and edible offal, fresh, chilled or frozen 400 129 -67.7
Sources: UN COMTRADE, con ajuste Bustos-Yildirim,
19. Food imports collapse coincided with a 40%-60% contraction in
production and area harvested for the cereals sector (rice and corn)
19
22.533.54
Production
40060080010001200
AreaHarvested
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Area Harvested (thousand ha.)
Production (millon tonnes)
Evolution of the Cereals Sector
20. Drops in imports of medicine and medical equipment
have also been very pronounced (70%, 2012-2016),
20
Imports of medicine, selected countries(2012=100)
Fuentes: UN COMTRADE, con ajuste Bustos-Yildirim,
21. 21
Imports of medicine and medical equipment,
Eight most important products in 2012 (millions of dollars)
Medicinas – Equipos médicos 2012 2016 Variación (%)
Medicaments (including veterinary medicaments) 2,225 729 -67.2
Glycosides, glands, antisera, vaccines and similar products 412 202 -51.1
Medical instruments and appliances, nes 328 63 -80.7
Orthopaedic appliances, hearing aids, artificial body parts 269 25 -90.8
Provitamins and vitamins 224 11 -95.1
Other furniture and parts thereof, nes 203 40 -80.4
Electro-medical equipment 130 17 -87.2
X-ray apparatus and equipment; accessories; parts 104 50 -51.7
Fuentes: UN COMTRADE, con ajuste Bustos-Yildirim,
Significant falls in the imports of subsectors for medicine
and medical equipment that were most imported in 2012
22. Largest contractions in imports of medicine,
for all five year periods (1962-2016)
The five-year contraction in imports of medicine and medical
equipment is amongst the largest in the world since 1962
22
Sources: UN COMTRADE, con ajuste Bustos-Yildirim,
23. 40.0
60.0
80.0
100.0
120.0
140.0
160.0
180.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Venezuela: Gross domestic product and consumption per capita
(1998-2018, 1998=100)
Private consumption Government consumption Gross domestic product Baseline
In the absence of imports, private consumption was
forced to align with domestic production…
23
Venezuela: Producto interno bruto, consumo público y privado
(per cápita, 1998-2017, 1998=100)
Sources: Venezuelan Central Bank (1950-2015), International Monetary Fund (2016-2018), own calculations.
2013 - 2017
- 47.0%
24. 24
Foreign debt reached its plateau in 2016…
Fuentes: Ecoanalítica.
0
20
40
60
80
100
120
140
160
180
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
Gobierno Central
PDVSA - Bonos-Otros
PDVSA Atrasos
Fondo Chino
Rusia-Rosneft
Nacionalizaciones-ICSID
Deuda comercial
Venezuela: Foreign Public Debt
(million dollars)
25. 25
At 5.0 times exports, Venezuela displays the largest
levels of public debt in the world…
Sources: Ecoanalítica, Venezuelan Central Bank, own calculations.
1.49
0.87
1.16
1.15
1.17
0.79
0.62
0.46
0.62
0.49
1.39
1.35
1.22
1.26
1.68
2.02
4.14
6.42
5.81
5.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016E
2017E
2018E
Venezuela: Foreign Public Debt to Exports
País
Deuda/
Exports
Venezuela 5.0
Sudan 4.4
Ethiopia 2.9
Jamaica 2.8
Bhutan 2.3
Mozambique 2.1
Sao Tome Principe 2.0
Burundi 1.9
Cabo Verde 1.8
Pakistan 1.8
World Development Indicators
26. With the collapse in production came a collapse in the collection
of fiscal funds, which were substituted by monetary financing
0
1
2
3
4
5
6
7
8
9
10
1/1/14
3/1/14
5/1/14
7/1/14
9/1/14
11/1/14
1/1/15
3/1/15
5/1/15
7/1/15
9/1/15
11/1/15
1/1/16
3/1/16
5/1/16
7/1/16
9/1/16
11/1/16
1/1/17
3/1/17
5/1/17
7/1/17
9/1/17
11/1/17
1/1/18
3/1/18
Non-oil tax collections and monetary financing
(billions of dollars)
Tax Collections (USD) - rolling 12 month sum
Monetary Financing (USD) - rolling 12 month sum
Non-oil collection (last 12 months)
Monetary financing (last 12 months)
26
27. Monetary aggregates, prices, and the parallel exchange
rates have skyrocketed…
27
10
100
1,000
10,000
100,000
1,000,000
10,000,000
100,000,000
1,000,000,000
2013 2014 2015 2017 2018
Venezuela: Base Money, M2, CPI and FX rate (Jan2013=100)
Base Money M2 CPI Exchange Rate
28. Inflation reached 833,997% in October 2018, the highest inflation
ever recorded in twelve consecutive months since 1950
28
MAX Rolling 12 Month Date
DR Congo 91.290% Sep-94
Bolivia 23.447% Sep-85
Armenia 22.887% Jun-94
Peru 12.378% Aug-90
Angola 12.035% Jul-96
Ukraine 10.155% Dec-93
Brazil 6.818% Apr-90
Kazakhstan 3.121% Jul-94
Belarus 2.796% Aug-94
Bulgaria 2.019% Mar-97
Azerbaijan 1.897% Nov-94
Poland 1.173% Feb-90
Russia 1.067% Sep-93
29. The hyperinflation has also pulverized the financial system
29
Fuentes: BCV, cálculos propios,
-
1
2
3
4
5
6
7
8
0
10
20
30
40
50
60
70
80
feb-03
sep-03
abr-04
nov-04
jun-05
ene-06
ago-06
mar-07
oct-07
may-08
dic-08
jul-09
feb-10
sep-10
abr-11
nov-11
jun-12
ene-13
ago-13
mar-14
oct-14
may-15
dic-15
jul-16
feb-17
sep-17
abr-18
Total assets and equity of the Venezuelan banking system
(billion dollars at parallel market rates)
July 2018
1251,488
30. El salario mínimo integral pasó de cubrir 60.000 de las calorías más
baratas (octubre 2012) a 6.000 (diciembre, 2017) a 200 (agosto, 2018)
30
Sources: CENDAS FVM, ENCOVI, own calculations.
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
12/1/2009
3/1/2010
6/1/2010
9/1/2010
12/1/2010
3/1/2011
6/1/2011
9/1/2011
12/1/2011
3/1/2012
6/1/2012
9/1/2012
12/1/2012
3/1/2013
6/1/2013
9/1/2013
12/1/2013
3/1/2014
6/1/2014
9/1/2014
12/1/2014
3/1/2015
6/1/2015
9/1/2015
12/1/2015
3/1/2016
6/1/2016
9/1/2016
12/1/2016
3/1/2017
6/1/2017
9/1/2017
12/1/2017
3/1/2018
6/1/2018
Maximum number of calories a mínimum salary can purchase
31. Hours of work at minimum salary required to buy
14 hours
21 hours
47 hours
2 hours
1 hour
8 hours
August 2017
31
Purchasing power of salary has collapsed…
Sources: CENDAS FVM, own calculations.
32. Hours of work at minimum salary required to buy
14 hours
21 hours
47 hours
2 hours
1 hour
8 hours
August 2017
32
Purchasing power of salary has collapsed…
August 2018
309 hours
419 hours
930 hours
August 2018
309 hours
419 hours
930 hours
Sources: CENDAS FVM, own calculations.
33. 33
Poverty rates have skyrocketed…
Fuente: Encuesta Condiciones de Vida (ENCOVI) 2015. UCAB-USB-UCV. 2014 a 2017
51.6
27.0
18.2
8.6
24.8 23.1
30.3
25.523.6
49.9 51.5
65.8
48.4
73.0
81.8
91.3
2014 2015 2016 2017
Pobreza por Nivel de Ingreso
Línea de Pobreza
No Pobre Pobreza Pobreza Extrema Total Pobreza
34. 0.24
0.82
1.43
1.14
0.83
0.52
0.27
0.09
1.30
0.63
0.29
0.12 0.09
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
13 - 17 18 - 24 25 - 34 35 - 44 45 - 54 55 - 64 > 65
(million)
Age
Venezuela: Distribution of Facebook Users Venezuelan expats and
estimate of total expat population (2018)
Expats estimated Expat Facebook Users
34
The Venezuelan crisis has produced the largest rfeugee crisis in
Latin American history, approaching the Syrian refugee number
Sources: Facebook, own calculations.
Estimated: 5.2 millones
Observed: 3.3 millones
35. 35
Summary of the Venezuelan crisis
Oil price
boom
High imports
Dismantling
market
mechanisms
Massive
foreign debt
Massive
capital flight
Loss of
market access
Low oil prices
Import
collapse
Non-tradable
GDP collapse
Tradables
collapse
GDP collapse
Collapse of
tax collections
Monetary
financing -
hiperinflation
Collapse of the
banking system
36. 36
A roadmap for recovery
International
financing (IFI)
Restore
market
mechanisms
Higher GDP
High imports
Budget
support
Increase in fiscal
resources
Open oil to
private
capital
End of deficit
monetization
Stabilization
Remonetization
of the banking
system
Debt
restructuring
37. Policy priorities: Some political consensus reached
37
• Seek international assistance (IFIs, bilateral, grants)
• Debt restructuring
• Expand deficit to address emergency and restore public goods
provision
• Restore market mechanisms
• Restore the unity of the national treasury
• Substitute indirect for direct subsidies, gradually adjust tariffs
• Restore Central Bank independence
• Eliminate the exchange control and restore economic right of buy
and sell foreign exchange
• Pre-announced exchange rate as an anchor, under the supervision
of an autonomous Central Bank
Macroeconomic
Policy
38. Policy priorities: Some political consensus reached
38
• Delink the prospects of the oil industry from state-owned PDVSA
• Recover oil production through a new Hydrocarbons Law that
recognizes private investment and reorganizes the oil industry
• Create the Hydrocarbons Regulatory Agency
• Promote a gradual re-structuring of PDVSA
Oil Industry
• Direct subsidies will replace indirect subsidies, particularly oriented
to address the economic complex emergency in food and medicines.
• The price of the public services will be adjusted, assuring the social
programs that guarantee the access to the most vulnerable people.
Social Policy
39. What would we have achieved?
39
Fuentes: World Development Indicators. VEN * = Venezuela, VEN ** = Venezuela no-petrolera
80
100
120
140
160
180
200
220
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Venezuela: GDP per capita
(1950=100)
40. 40
Hey Miguel! Heard you talking on the
program this morning. Nine years is
nothing! The best is that the morning after
we change the slope and start ascending!!!
Can you imagine? Nine years ascending,
and then reaching the summit!