The international media jumped all over a study done by Venezuelan academics who claimed that income poverty in Venezuela hit an all-time high of 73% in 2015. The Spanish acronym for the study is ENCOVI.
The results of the ENCOVI study were presented but not the full details of its methodology. Regardless, Venezuela’s recent economic history shows that the results don’t pass the laugh test. From 1999 until 2013, the period Hugo Chavez was in office, poverty fell by 18 percentage points – from 50% to about 32%. During those years, real per capita GDP increased by 24% according to IMF figures. That means every percentage point increase in real per capita GDP has correlated, on average, to about a one percentage point reduction in poverty – actually a bit less but let’s keep the numbers simple. By rounding up we err on the side of over estimating the impact of Venezuela’s current recession on income poverty.
It must be stressed that “income poverty” is being discussed which does not account for government subsidized education, health care and housing for the poor.
The ENCOVI study claimed that income poverty increased by a whopping 25 percentage points in the past year alone. Is anybody claiming that Venezuela’s real per capita GDP has fallen by about 25% since last year? The answer is an emphatic “no”.
The IMF is a lever of US power over poor countries. See chapter four of Mark Weisbrot’s new book “Failed: What the ‘experts’ got wrong about the global economy” for good discussion about that. The IMF is no fan of Venezuela or of progressive governments generally. It has claimed that Venezuela’s real GDP will contract by 10% in 2015. Factor in Venezuela’s current population growth of about 1.4% per year and that works out to about an 11.2% fall in real per capita GDP. In other words, based on what we know about the relationship between real per capita GDP growth and income poverty in Venezuela in recent years, if we believe the IMF’s projection for 2015 then an increase of 11 percentage points in poverty would be plausible. However, Bank of America Merrill Lynch estimates that Venezuela’s real GDP will contract by 4% in 2015. That would make a 5 percentage point increase in poverty a reasonable estimate. Whether you believe the IMF or Bank of America, it should be clear why claiming that income poverty spiked by 25 percentage points in the past year is ridiculous.
Incidentally, during the 2002-2003 period, when Venezuela was hit with a coup and the shutdown of its oil industry, real GDP per capita fell by 20 percent. Poverty increased by 17 percentage points (to 62%) and unemployment reached 18%. Bear that 18% unemployment rate figure in mind as you review unemployment data below that Bank of America published in November.
Year Unemployment rate in Venezuela
Over the past two years, income poverty may well have increased from 32% to 39% (using Bank of America GDP growth estimates) or, using IMF numbers, maybe as high as 48%. That the international media swallowed the 73% figure shows, for about the billionth time, that it suspends all critical thinking when anything negative is said about Venezuela.