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Venezuela - stripped of dignity in life and after death

13 Dec 2018 16:42|Marcin Lipka

"A lack of water, food, medicine, problems with health care, enormous economic crisis... When it seemed that the Venezuelan population is no longer able to surprise, more and more tragic reports appear," writes Marcin Lipka, Conotoxia Senior Analyst.

Not even the slightest thing remains after the August currency reform in Venezuela. The link between the Venezuelan bolivar and the cryptocurrency petro collapsed even at the official exchange rate. According to Dolartoday's data, the black market exchange rate of the dollar has increased 10 times in less than four months and now amounts to almost 600 bolivars.

Inflation calculated on the basis of the exchange rate exceeds 100,000%. The National Assembly controlled by the opposition estimates it at up to 1 million per cent. On the other hand, the core of the Venezuelan economy, the oil industry, which has been falling apart for a long time, has plunged into total collapse.

Bloomberg data shows that only two of the five refineries in Venezuela work. However, even those that are active are only partially exploiting their potential. As a result, only 15% of the total oil processing capacity is accessible in a state-controlled oil company. This makes Venezuela import fuel from abroad.

Importing fuels, however, is also a challenge for the authorities, and we are not only talking about a lack of money. According to Reuters, which read the documents of the state-owned oil company, transactions are usually barter transactions. Venezuela receives fuel in exchange for oil. However, fuel does not always reach its final customers because of mass reductions in transport and distribution, as well as neglected and unsuitable infrastructure for importing refinery products.

Over a year of GDP fell by 30%

As unimaginable as it may seem, in 2012, the GDP per capita of Poland and Venezuela looked very similar and amounted to 13.1 and 11.3 thousand dollars respectively - according to the IMF data. Meanwhile, at the end of 2019, according to the Fund's estimation, the GDP for Poland is expected to amount to 15 thousand USD, while for Venezuela to 3.1 thousand USD. How is it possible?

According to the National Assembly controlled by the opposition only in Q3 of 2018, the GDP declined by 29.7% y/y due to the collapse in consumption and investment. There are no signs that the situation could improve either.

Nearly 3 million people left the country within a few years. Lack of water or electricity supply makes even the basic activities of companies impossible. This week the leading tyre manufacturer in the world withdrew from the country and decided to do so due to difficulties in obtaining the necessary raw materials. The redundancy payment was paid in tires... In Venezuela, all car parts are extremely scarce, so it could have even been a better solution than paying compensation in the bolivar which is losing value overnight.

Other companies have also drastically reduced their activities in the country. This applies both to manufacturers of breakfast cereals (the state took control of the factory abandoned by the Americans), as well as car manufacturers. A year ago, monthly sales of new cars in Venezuela dropped to about 200 cars from 10 thousand in 2013 and even 40 thousand in 2007. One global supplier of cleaning products had to suspend sales due to a lack of packaging cartons for its products.

Regime seeks money…

One would think that President Nicolas Maduro's regime should collapse quickly in such an economic crisis. However, the Venezuelan leaders have the support of some countries. Maduro meets the Turkish leader on a regular basis, and recently he was also in Kremlin. In addition, the authorities in Caracas also have contacts with China and North Korea. Sometimes, too, one of Europe's former leaders will appear in Maduro's surroundings. Recently this was a socialist and former Spanish Prime Minister Jose Luis Rodriguez Zapatero.

However, the patience and hypothetical benefits of assistance to Caracas are already running out. Both China and Russia are concerned that Venezuela is failing to transport oil in exchange for financial assistance.

Reuters calculated that since 2006 loans to Venezuela from Russia had a value of about 17 billion USD. Caracas pays off only 40% of the oil transports promised to Moscow (176,000 barrels per day). Higher deliveries of this raw material are made to China (about 460,000 barrels a day), but Reuters estimates Beijing's involvement in Venezuela at about 50 billion USD.

The tightening financial loop around Maduro's regime perfectly depicts the desire to transport gold to the country gathered in the Bank of England. The opposition is widely protesting against the spending of approximately 14 tonnes of precious metal worth close to 550 million USD. In a letter quoted by Bloomberg, the leader of the opposition in exile warns that this would be used for money laundering and corruption.

... and citizens have no rest even after death

When the authorities are looking for money to maintain terror and a corrupt regime, common people struggle with great problems. They often go beyond the lack of money, food, medicine, healthcare, transport and hygiene, electricity and water. Venezuelans are even unable to bury their loved ones with dignity.

A few days ago, Reuters described the story of a 27-year-old Venezuelan, whose father died of cancer. She couldn't afford to have a funeral for her loved one due to hyperinflation, and a lack of gas in the crematorium. Problems with the supply of this raw material and the lack of financial means for keeping the body while waiting for the supply of gas forced the young woman to bury her father in a part of the cemetery, which is traditionally reserved for the bodies of the unidentified dead.

13 Dec 2018 16:42|Marcin Lipka

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