Is Poverty Still Falling in Venezuela?

One of the biggest social achievements claimed by Venezuela’s Bolivarian government is the significant reduction in poverty levels witnessed over the previous fifteen years. Opponents have traditionally addressed this by criticising the way poverty is measured, putting poverty reduction down to high oil prices and unsustainable “largesse” in public spending, or by ignoring the matter altogether and focusing on other issues where the government’s performance is seen as less successful.

However there has been renewed focus on poverty recently in the oil rich nation of 30 million people. This is due to a report by the government’s National Statistics Institute (INE) indicating that household income poverty rose 6 percentage points from the second half of 2012 to the second half of 2013: the first significant rise in poverty in a decade. [i] The news comes in the context of the economic problems the country has been facing over the previous eighteen months. As such, the question has been raised over whether the gains made in poverty reduction during the presidency of Hugo Chavez (1999 – 2013) are now being reversed under the administration of President Nicolas Maduro (2013 – ). This article examines the claim in light of the latest statistics on poverty, as well as looking at current poverty reduction policies being implemented in Venezuela.

 

Are Chavez-Era Gains In Poverty Reduction “Over”?

 

The above graph shows the changes to household income poverty 2010 – 2013. It demonstrates how the net effect of the fluctuations in the poverty rate during 2012-2013 was to return the poverty rate to same level as early 2012, and not to lead to an overall increase in poverty levels. Source: INE

The INE’s statistics record the change to the income poverty rate every six months. They show that in the first half of 2012 household income poverty was 27.2%, a similar level as recorded each year since 2007. However poverty fell six percentage points in the second semester (half) of 2012, to 21.2%. It then immediately increased again by eight points in early 2013, to 29.4%. In the second semester of 2013, the latest available figure, poverty then fell two points, to 27.3%.

The possible causes of these changes will be explored below. However it appears that the overall result of these fluctuations was to maintain the historically low poverty rate reached in recent years and not to result in a net increase in poverty: income poverty was the same in late 2013 as in early 2012.  This is not quite the case for extreme income poverty, which did show a small net increase over this period, of 1.1 percentage points.

Anti-government media reports on the statistics only mentioned the net increase in the poverty rate from the second half of 2012 to the second half of 2013, and thus argued that the trend of poverty reduction during the last decade had been reversed. Leading papers such as Spain’s El País headlined with “Over 700,000 Venezuelans slipped into extreme poverty in one year” and tied the development to Nicolas Maduro’s election and emerging economic problems. The statistics were reported in a similar manner by outlets such as Bloomberg, Reuters and Venezuela’s El Universal conservative daily.

Juan Nagel, an anti-government blogger with Caracas Chronicles, argued in Foreign Policy Magazine that the increase had undone Chavez-era gains in poverty reduction and had created a new class of “emerging poor”, who he claimed had been the protagonists of the opposition’s unrest movement earlier this year. This latter assertion contrasts with the middle and upper class opposition protesters seen on the streets by reporters from the New York Times, the BBC, the UK Guardian, the Centre for Economic and Policy Research, and Venezuelanalysis.com. Nagel also reiterated the perspective that poverty was only brought down in the mid 2000s through unsustainable “populist” public spending and price controls, saying that the “bubble has now burst” on this economic model, due to which “poverty will continue shooting up”. “The days when poverty was a winning issue for chavismo are over…The day of reckoning for the populist chavista model is approaching fast”, he predicted.

Any rise in poverty is of concern from the perspective of the struggle for dignified living standards and social inclusion. However a closer examination of the statistics suggests that the claim that changes in poverty during 2012 - 2013 represent a significant increase in previous poverty levels or have created a large number of “new poor” are misleading for two reasons.

Firstly, such reports take the increase in income poverty out of context by not mentioning the poverty rate’s unusual drop in semester II 2012, or that the poverty rate reached at the end of 2013 maintained the gains made in poverty reduction during the 2000s. 

Secondly, the exclusive focus on income poverty ignores the other main indicator of poverty in Venezuela – structural poverty – whose performance arguably reveals more about long term poverty trends in the country. This measurement shows that structural poverty has continued decreasing despite current economic problems, reaching a record low over the past year.

As such, the exclusive focus on the increase in income poverty which occurred in the first half of 2013 may serve critics to attack Chavismo. However it isn’t very helpful for understanding wider poverty trends in Venezuela and the extent to which current policies may or may not be contributing to poverty reduction. These issues will now be examined.

 

How Poverty is Measured in Venezuela

There are two methods used to measure poverty in Venezuela, which are recognised and utilised by international organisations such as the UN’s Economic Commission for Latin America and the Caribbean (ECLAC).

The first is income poverty. This measurement is based on a calculation of income versus living costs, and as such reacts to fluctuations in wages and inflation. In Venezuela the poverty line is calculated as the cost of the basic food basket (enough to ensure an average caloric intake of 2200 kcal per day) plus the cost of a basket of essential products and services. If per capita income for a person or household is under this line then they are considered “poor”. If income is insufficient to cover even the basic food basket alone then a person or household is considered to be “extremely poor”.

The second method is structural poverty. This assesses whether a household is able to satisfy the basic needs required for its inhabitants’ well-being. It utilises the Basic Unmet Needs measurement, which measures non-monetary indicators of well-being related to services and infrastructure. The measurement is based on five variables (each with various indicators): access to primary age schooling, presence of critical overcrowding, quality of housing, access to basic public services, and level of economic dependency (based on education and employment). This makes the measurement less susceptible to fluctuations in income and inflation. If one of the five basic needs is unmet in a household, then it is considered “poor”. If a household has two or more unmet needs, it is considered “extremely poor”.

Therefore, while both measures have recognised utility in evaluating living standards and social wellbeing, the income poverty method assesses poverty based on what standard of living a given income should guarantee, while the structural method assesses what basic needs are being guaranteed in a given society.

 

Poverty in the Bolivarian Era

In the past fifteen years both the income and structural poverty measures have shown a significant net reduction. Household income poverty reduced from 42% in 1999 to 27.3% in 2013. Meanwhile structural poverty fell from 29.3% in 1999 to 19.6% in 2013.

If anything, these figures conceal the extent of poverty reduction in the 2000s. The opposition’s forced shut down of the oil industry in 2002 – 2003, undertaken as part of a series of attempts to oust Hugo Chavez from office through extra-constitutional means, resulted in great economic havoc, causing the country to enter a recession and annual inflation to rocket to 38.7%. In this context household income poverty shot up to a peak of 55% in 2003, and so was actually halved in the mid-2000s to reach its present level. Structural poverty also increased slightly from 2002 – 2003, before resuming its trend of reduction.

How has the large decrease in poverty been achieved and maintained during this period, which has included two recessions (2002 – 2003, 2008 – 2009) and the emergence of more recent economic problems?

Income poverty

 

This graph shows the evolution of household income poverty in Venezuela over the 1990 – 2011 period. The blue line shows the poverty rate and the red line shows the extreme poverty rate. The pink background represents the period since the Bolivarian government came to power. Source: INE

After overcoming the opposition’s oil industry shutdown in early 2003, income poverty appears to have been reduced by a combination of GDP growth, increased formal job creation and concomitant shrinking of the informal labour market, comparatively low inflation, above-inflation minimum wage increases, and the expansion of the state pension and other welfare benefits as part of Chavez-era social programs known as “missions”.  The increase in socially-orientated public spending was underpinned by higher oil prices and the fact that in 2003 the government gained full control over state oil company PDVSA and the management of oil revenues.

All these factors helped lower household income poverty from 55% in 2003 to 27.5% in 2007, a historic low in the country. This poverty level, including recent fluctuations, has been maintained to the present.

 

Income based household poverty 1997 - 2013. This first red circle highlights the plateau in poverty reduction reached in 2007 – 2012. The second indicates the ups and downs of 2012 – 2013. Source: INE

The changes in the poverty rate from the first half of 2012 to the second half of 2013, the down – up – down that led poverty back to its starting point, were described at the start of this article. Why did this occur?

The six percentage point drop in the first half of 2012 was likely caused by the large expansion of welfare benefits to pensioners and single parent families from the end of 2011, which occurred in tandem with comparatively low annual inflation in 2012 (of 20.1%) and a minimum wage increase of 32.5%. At the time critics argued that this increase in public spending would lead to “economic adjustments” in 2013 including a currency devaluation and increased inflation.

In this context, and following his re-election in October 2012, Hugo Chavez’s death from cancer in March 2013 led to political uncertainty. This coincided with the currency devaluation in February 2013 and the emergence of several economic problems, which included: (1) pressure on the system of currency exchange controls and the plunging value of the bolivar on the black market; (2) the appearance of shortages in several basic food and household products; and (3) a marked increase in inflation to a Bolivarian era high of 56% by the end of 2013. Meanwhile the government was perhaps slow to act on the developing situation in light of Chavez’s death and the snap presidential election held following his passing.

These problems, particularly the sharp increase in food prices, were likely responsible for the net increase in income poverty during the previous year. That poverty actually decreased by two percentage points in the second half of 2013 may have been the effect of the Maduro administration’s three-tiered minimum wage increase that year and other measures taken in response to the inflationary situation.

Other factors could also have contributed to the maintenance of poverty at the post 2007 level despite the emergence of economic problems. These include low unemployment, which at 7.1% in April was the lowest rate recorded for that month in the past 15 years, and under half the 14.6% rate when Chavez took office in 1999.

Inequality in income distribution has also remained at its reduced level, falling marginally last year. According to the Gini coefficient indicator of income equality - the INE stated recently - Venezuela continues to be the least unequal country in Latin America. Venezuela’s Gini index score was 0.486 in 1999 (1 = absolute inequality, 0 = perfect equality) and 0.398 in 2013. According to the INE, in 1998 the richest 20% of the population enjoyed 13 times the income of the poorest 20%, while in 2013 the richest fifth received 9.5 times the income of the poorest fifth.

Structural poverty

 

The graph shows the reduction in structural poverty from 1998 - 2013. The blue line shows overall structural poverty, and the red line shown extreme structural poverty. Source: INE

As structural poverty is measured by non-monetary factors, this has not been as subject to recent fluctuations in wages and inflation. Rather, a gradual but inexorable reduction in structural poverty has occurred over the previous decade. In 2013 structural poverty reached 19.6% and extreme structural poverty 5.5%, the lowest figures yet recorded.

This has occurred over the past 15 years despite population growth, two recessions, and current economic problems, and it seems that increased public investment in social and infrastructural programs has played an important role in this process. These programs, or “missions”, have included establishing subsidised food stores and free food kitchens, constructing a network of free health clinics in communities, increasing access to free education, increasing access to basic services like electricity and potable water, and constructing or renovating over half a million homes since 2011. These programs have contributed to improvements in many indicators of social well-being, several of which have a direct bearing on structural poverty. For example between 2003 and 2013 critical overcrowding was reduced from 16% to 9.5%, inadequate housing was reduced from 9% to 4.5%, and lack of access to basic services was reduced from 16% to 9% - all indicators used to measure structural poverty.

It is difficult to see this as a short term populist spending strategy that has not had a significant long term impact on poverty reduction, as some critics have claimed. Indeed only last month Venezuela was praised by the UN for its early achievement of many of the Millennium Development Goals (MGDs), which include poverty reduction and a sharp decrease in child malnutrition.

 

Challenges Going Forward

Nevertheless, Venezuela still faces significant challenges to be able to maintain and improve on the advances made in poverty reduction and other indicators of social well-being. Continued or worsening economic problems could cause income poverty to rise if the right approach is not found to resolve these and to protect employment, wages and benefits. While income poverty was reduced in the second half of 2013, economic problems continue, with annual inflation currently running at 60.9%. Meanwhile the government has not published data on shortage levels since January, when scarcity was recorded in 28% of products across the economy, not just food products. This means that 28% of products measured were scarce to some degree, and not that they no longer exist in the economy, as is sometimes erroneously stated. 

While shelves are not “bare” as media hype suggests, the effect of shortages of basic items like powdered milk, cooking oil and toilet paper is to create a sense of irritation and insecurity for consumers. While visibly supermarket shelves are full, several basic products are often absent or hard to find. Shoppers therefore either have to visit several stores to complete their weekly shop or queue outside a particular store when an item in shortage arrives. Consumers may also resort to buying scarce items at a non-regulated (speculative) price, which coupled with inflation, reduces purchasing power and makes it more difficult for families living near or below the poverty line to make ends meet. Whether current economic problems are the result of “government mismanagement”, deliberate “economic sabotage” by business groups (as claimed by opponents and authorities respectively), or other factors, the continuance of such a situation for a prolonged period will likely lead to an erosion of support for the government. As such, effectively addressing the economic situation remains one of the Maduro administration’s principal challenges.

As a recent Council on Hemispheric Affairs research paper noted, current policies appear designed to achieve macroeconomic stability by introducing a more flexible exchange rate system, issuing new debt to increase domestic dollar availability, and investing to increase oil production to ensure adequate financial liquidity in the medium to long term. This, along with reaching new agreements with some business sectors, investing to boost production, monitoring adherence to price caps, and acting against hoarding and contraband, is meant to stabilise the currency exchange system and tackle inflation and shortages. Of course it remains to be seen how successful this “economic offensive” will prove.

It is also notable that the government continues to make poverty reduction a priority. Nicolas Maduro has made the elimination of extreme structural poverty by 2018 one of his key pledges.  As part of this goal, the social programs established by the Chavez and Maduro administrations – 37 in total –  are currently being restructured to improve their reach and performance. With the integration of the social missions into a national system and plans to ingrain this into the nation’s legal framework, it appears that an effort is under way to create a welfare state that is able to protect social rights and reduce structural poverty even in times of economic turbulence. These reforms are being coupled with a new policy to establish special groups of social programs, called Social Mission Bases, in communities where extreme poverty still exists in order to try and meet the basic needs of these households.

According to Elias Eljuri, president of the INE, achieving the elimination of extreme structural poverty will be a difficult task. “From a statistical point of view it’s a great challenge, but not impossible. It’s necessary to work very hard with the social missions,” he said in a recent interview.

 

Conclusion

Venezuela’s recent poverty statistics show that:

(1) Income poverty experienced a net increase of six percentage points in 2013.

(2) Despite this, poverty was reduced in the latter half of 2013 back to the 2007 – 2012 level, which is lower than the poverty rate recorded at any other point in the past two decades in Venezuela.  

(3) Structural poverty continued its descent and reached a record low by the end of 2013.

Of these three points, only the first was mentioned by the mainstream media outlets that reported on Venezuela’s latest poverty statistics. The omission of the wider trend in income poverty and the failure to even mention structural poverty suggests the abandonment of accurate reporting in favour of reinforcing the narrative which anti-government sources have promoted since Chavez passed away: that Venezuela has been falling apart since Maduro was elected as president, and that as a result a political transition is urgently desired and needed.

The Venezuelan government faces significant challenges to continue to reduce poverty, resolve the economic situation, and retain majority support. However one factor which increases the likelihood of gains in poverty reduction being maintained and built upon, even in a period of economic turbulence, is that there exists the political will to do so: something which cannot always be taken for granted.

For example in the United Kingdom, considered the eighth richest country in the world by GDP, dependence on food banks has sky-rocketed in recent years as rising prices, unemployment, low pay and cuts to social security have left many unable to feed themselves. Britain’s largest food bank charity, the Trussel Trust, reported recently that at least 550,000 people had to depend on its food banks alone at some point during the last year. Leading charities have blamed government austerity policies as key causes of the situation. However the official response to rising food poverty has been to deny the data, request that the state’s charity regulator investigate Oxfam for “politicising” poverty, and to secretly threaten the Trussel Trust with closure for its criticism of government policy.

Meanwhile a total of around 13 million Britons (21%) live in poverty according to the last official statistics to be released, which charities expect to have increased in the present due to austerity policies and falling wages. A recent report found that the poorest fifth of the population have the worst living standards in Western Europe, while the wealthiest fifth have the third-largest disposable income in the region. 

It’s a reminder that in any country, beyond the disputed role of the “hidden hand” of the market, the more visible will of a government and its use of available resources plays a determining role in the struggle to reduce poverty and social deprivation. In Venezuela citizens don’t have to worry about whether their government has the willingness achieve further progress in this regard, but whether it can employ the correct means to do so.  

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