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AFP Consumption Collapses in Venezuela and Uncertainty Grows

Deniris Camacho awaits the first client of the day without much expectation. Sales at his clothing stall have been bad in recent months in a climate of economic slowdown in Venezuela that sows doubts after last year’s rebound.

Camacho came to feel the effects of the 15% growth that the battered Venezuelan economy had on his business. It experienced in 2022 after falling 80% in eight years of recession, but since December it has sold less. “Little by little, every day less,” this 60-year-old shopkeeper told AFP, who has been selling women’s clothing in a store for three decades in the center of Caracas. “This is how we are: alone,” laments Camacho while pointing to his store, full of merchandise, but without customers.

The contraction of sales in the capital Caracas and the central region reaches 21% and the situation is much worse in the province, warns the Consecomercio merchants association, which presented on Wednesday an estimate of the behavior of sales in the first five months of 2023 compared to 2022. The usual power cuts and fuel shortages in the interior make it “abysmal” the difference with Caracas, emphasizes Consecomercio. The decline reaches 44% in the east of the country, which concentrates tourist destinations, and 34% in the west, an agricultural pole.

“Rebound effect”

The reduction in inventories is a mirror of the fall of sales, since many merchants like Camacho have not replaced them since December. “How do I order if I still have?” he wonders. Last year, due to the “shy” economic recovery, “many merchants acquired inventories” and “now the merchandise is not moving,” explains the president of Consecomercio, Tiziana Polesel.

The rebound of 2022 was felt especially in Caracas with new establishments, although several have already closed in recent months or reconsidered strategies due to competition and low demand. Thus, the timid signs of recovery last year begin to be overshadowed by signs of resurgence of the crisis that led 7 million Venezuelans to emigrate, specialists warn.

“There are no economic policies that lead to sustained growth. The rebound effect that we saw last year had to do with oil prices,” says economist Pilar Navarro, from the firm EMFI Securities, recalling that a barrel reached over 100 dollars after the Russian invasion of Ukraine. The slowdown in the economy coincides with a corruption scandal that rocked the state oil company PDVSA with the diversion of at least 3,000 million dollars of payments for crude oil in crypto assets in 2022, according to press reports. The situation affected the liquidity and cash flow of the government, also destabilizing the exchange rate in a de facto dollarized country. There was also a Inflationary “rebound”.

“With 436% inflation (year-on-year to May), it is difficult for anyone with any salary to maintain their purchasing power,” says Hermes Pérez, a professor and former head of the exchange desk at the Central Bank. In fact, it was the month with the highest inflation in the last two years: 42.1%. The firm Datanálisis, in this difficult context, calculated the loss of consumer confidence at 23%.

“Here we continue”

The economy has not collapsed, experts agree, thanks to the extra resources derived from the operations of the US oil company Chevron, authorized by the United States in a limited way at the end of 2022. “The reason why you have not seen a macrodevaluation between March and May is because there are dollars in the market, because otherwise the dollar would have skyrocketed. And where do those dollars come from? There is no other source from Chevron,” says Luis Vicente León, economist and director of the consulting firm Datanálisis. Pérez estimates that the exchange market receives around 100 million dollars a month from Chevron, an amount that is not very representative for the history of oil revenues of Venezuela but “enough” in the midst of the complications to export oil due to the Washington embargo.

Camacho and other merchants, meanwhile, burn their last cartridges of optimism. “We have to adapt to the situation and keep moving forward with what we have,” he said.

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