Russian-Style Privatizations in Venezuela?
On Tuesday, Maduro proposed new legislation that encompasses the privatization of the oil industry, the possibility of returning expropriated companies to their original owners, and the free trade of strategy goods, such as fuel. This proposal comes at a time when Venezuela is implicitly liberalizing prices and is allowing the dollar to circulate freely.
In the last two decades, the Venezuelan regime has implemented a series of regulations aimed at replacing private initiative with central planning. These policies have been particularly detrimental for the Venezuelan economy, particularly the widespread expropriations and arbitrary price controls that the Venezuelan regime has enacted since the mid-2000s. As a result of these policies, Venezuela is currently experiencing the worst economic collapse in the history of South America, with over 95 percent of Venezuelans currently living in poverty.
However, since 2019, the Venezuelan regime has implicitly liberalized some aspects of the Venezuelan economy. First, the regime stopped enforcing its characteristic arbitrary price controls, which were responsible for Venezuela’s chronic shortage of food, medicine, as well as most goods and services. As a result, numerous businesses that were bankrupted are now finding ways to stay alive, as they no longer have to sell their products at a loss. Similarly, Venezuelans no longer have to do kilometric lines to buy food and other goods, as they used to in 2018. And while the goods are still expensive in relation to the income of most Venezuelans, the liberalization of prices represents a step in the right direction.
The second reform is that, since 2019, the regime has also allowed Venezuelans to use dollars in their everyday transactions. This is a process known as Transactional Dollarization. Currently, over 50 percent of the country’s transactions are carried in dollars. In some cities, like Maracaibo, Venezuelans are using dollars in 80 percent of transactions. In this sense, is safe to say that the dollar is replacing the bolivar as Venezuela’s domestic currency. The country’s transactional dollarization has stimulated the Venezuelan economy. Now, businessmen can set their prices in dollars, employees can set their salaries in dollars, and Venezuelans, in general, can save their money in dollars. Hence, none of these groups have to worry about the country’s hyperinflation, which is estimated to reach seven thousand percent in 2020.
Now, the Maduro regime is proposing a new piece of legislation that would accelerate the country’s economic transformation. On Tuesday, Maduro introduced a draft of new legislation entitled the “anti-blockade law.” Beyond its name, the legislation proposes a series of privatizations and flexibilizations that would enhance the country’s market openness.
The legislation opens the door for the privatization of the Venezuelan oil industry, PDVSA, by modifying the country’s laws regarding joint ventures on Venezuelan oil fields. Currently, foreign investment in the country’s oil sector is capped at 49 percent. Yet, under Maduro’s proposal, foreign companies could now manage and even own the sector. This comes after the Maduro regime gave “El Palito” refinery to Iran, which can process over 200 thousand barrels of fuel per day. Ultimately, the Venezuelan oil sector is producing less than 350 thousand barrels of oil per day, which is 90 percent less its production in 2005. Out of the 350 thousand barrels, joint ventures are currently producing about 160 thousand barrels of oil per day.
The legislation is also opening up to the possibility of returning expropriated companies to their original owners, in sectors like manufacture and agriculture. This would increase the country’s manufacturing and agricultural output, which has dramatically declined since the 2000s. Specifically, the legislation says that the owners would be required to agree to quickly restore production.
Moreover, the legislation will allow the free trade of strategic goods, particularly fuel. For the Venezuelan economy, allowing this would be extremely beneficial, as the country has been experiencing chronic fuel shortages. Currently, between Venezuela’s imports from Iran, PDVSA’s fuel production, and fuel smuggling coming from Colombia, the country’s fuel supply is approximately 40 thousand barrels of fuel per day. This created a fuel crisis in the country, as Venezuela’s normal fuel consumption is about 120 thousand barrels of fuel per day.
Jorge Jraissati is the president of the Venezuelan Alliance. Graduated at the Wilkes Honors College, Jorge is an economist, political leader, and a fellow at the Abigail Adams Institute. Jorge has been invited as a guest lecturer to over 20 universities, such as Harvard, NYU, and Cambridge.