Poverty Shoots Up in Venezuela


Venezuela's official statistics office (INE) mostly spends its time producing reports charged with political language -- but it still manages to report actual data once in a while. A few weeks ago, the statisticians published proof that one in three Venezuelans are poor, when twelve months ago the figure stood at one in four. Since an important part of the argument against the opposition is the government's claim that they, and only they, ensure decreasing poverty, this is a significant development.

In order to calculate the poverty rate, the INE estimates the cost of a representative basket of goods, which includes things such as food, dress, housing, transportation, health, communications, and education. The basket is intended as a representative sample of the type of things an average Venezuelan family consumes during a year. If per capita income falls below the cost of this basic basket of goods, the person is considered poor.

According to this measure, the number of Venezuelans classified as poor shot up in the last year by 1.8 million people. Roughly 6 percent of all Venezuela's 30 million people became poor in the last year alone. The situation is even direr when one looks at extreme poverty, i.e., the number of people whose income cannot even buy a representative basket of food and drink. In the last year alone, the number of extremely poor Venezuelans rose by 730,000. They now reach close to three million people, or roughly 10 percent of the population.

The chavista revolution indeed helped the poor between 2003 and 2007, but since 2007, the number of poor Venezuelans has actually increased. All of the government's successes in reducing poverty happened more than six years ago.

The reason for the increase has to do with the nature of chavista economic policy. When the price of oil shot up roughly 10 years ago, it sent an enormous inflow of revenue into the coffers of the Venezuelan state. The government used the windfall to create an extensive web of subsidies and price controls. At the same time, the government quickly spent its oil gains on subsidies and lavish social programs to bolster its support among the less privileged.

Poverty in Chávez's Venezuela in the mid-2000s was indeed falling, and the government kept prices artificially low thanks to an overvalued currency and massive amounts of subsidized imports. People benefitting from the government's generous social programs found plenty to buy, since the government made sure imports kept flowing and prices were low.

Needless to say, this couldn't last. The 2012 campaign to re-elect a mortally ill Hugo Chávez meant government spending went into overdrive. Suddenly the oil boom was not enough to sustain ever increasing social needs. That year, the budget deficit soared past 10 percent of GDP. The price of oil had stopped rising by then, and foreign funding began to dry up. While the government continued to enjoy good fortune at the ballot box, the bubble was close to bursting for Venezuela's poor.

Since taking office early last year, President Nicolás Maduro has seen the local currency go from BsF 4.3 per dollar to BsF 50, depending on which exchange rate you use. This means that the prices of most of what Venezuelans consume have shot up as well. Annual inflation is running north of 60 percent, and it is only increasing: The inflation figures for April have yet to be published, but unofficially, it was 5.7 percent for the month alone.

The sharp fall in the standard of living is what brought protesters to Venezuela's streets. Many of the people demonstrating are what we could call "the emerging poor": people who were middle class during the boom, but have found that their economic situation has deteriorated sharply since then.

Ultimately, chavismo's "victory" against poverty is just rhetoric. What little gains there were in terms of poverty were due to a government that turned an oil boom into a transient consumption boom. That phase is now over, and poverty is reverting to its long-run trend.

The day of reckoning for the populist chavista model is approaching fast. The speed at which it arrives will depend on the price of oil. If oil holds steady, the government will muddle through. But if the price of oil dips -- watch out. Poverty will continue shooting up, and the new poor will remain in the streets.


﻿﻿﻿George CASTELLANO/AFP/Getty Images


Democracy Lab Weekly Brief, June 2, 2014


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Jonathan Schienberg profiles Bashar al-Masri, a Palestinian businessman who believes that the path to democracy runs through an economic empowered middle class.

With an eye to President Obama's recent foreign policy speech, Mohamed Eljarh indicts the American failure to support Libya's transition.

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And now for this week's recommended reads:

In a new Atlantic Council report, Mohsin Khan and Karim Mezran ask how Algeria has managed to avoid the Arab Spring -- and whether it can continue to do so without undertaking major reforms.

Joshua Kurlantzick, writing for the Council on Foreign Relations, looks at the decline of democracy in the Southeast Asian countries and its repercussions.

Human Rights Watch reports on the institutional features that distort Bahrain's judicial system, sentencing peaceful protesters to life in prison while abusive cops roam free. (In the photo above, Bahraini activists participate in an anti-regime protest in Abu Saiba.)

Writing for the Irrawaddy, Aung Naing Oo considers what Burma can learn from the political upheaval in Thailand.

In her report for Politico Magazine on last week's Ukrainian presidential election, Sarah A. Topol examines the irony behind voters' choice of an oligarch for president after months of protests against the oligarchic system.

In the Washington Post, Liz Sly explains how a succession quandary is revealing dissent within Saudi Arabia's royal family.

Atlantic Council's Rafat al-Akhali maps out key considerations for Yemen's shift to federalism.

Finally, authors from the Legatum Institute in London, the Center for Development and Enterprise in Johannesburg, the Center for Policy Research in New Delhi, and the Instituto de Estudos do Trabalho e Sociedade in Rio de Janeiro present the results of Democracy Works, a project that explores three examples of democratic development from the global south: Brazil, India, and South Africa.