Venezuela’s Economy Under Siege: A Conversation with Luis Salas

A polemical economist reflects on the government’s policies in the face of harsh sanctions, including its general tendency toward dollarization.

Former Venezuelan Vice President for Productive Economy Luis Salas is a founder of the online journal 15 y Ultimo and a member of the economic think tank Vortice. He is well known for his prolific analyses of the country’s economy, always carefully documented. In this interview with Venezuelanalysis, Salas explores the government’s general tendency towards economic liberalization in the midst of a complex economic scenario.

The arrival of the Iranian oil tankers to Venezuela – breaking the US blockade – made headlines around the world. How important is this event, and how do you interpret the new gasoline distribution system?

First of all, the arrival of the Iranian tankers is an important geopolitical event. Two countries blocked by the US, two nations under siege, succeeded at overcoming the sanctions and the blockade! Along the way, the Iranian tankers had to circumvent the US fleet in the Strait of Hormuz and a sort of naval siege on the Venezuelan coast. In fact, there were overt threats from the US. From a geopolitical, geostrategic, and geoeconomic perspective, we can call this a victory.

Regarding the new gasoline distribution system, it’s a bit too early to evaluate. The shift includes a price hike for subsidized and rationed gasoline [120 liters per car/month] and the dollarization [US $0.5/liter] of non-rationed gas. The first days of the new distribution system were quite traumatic. In Caracas, which is always favored by the central government, the situation is somewhat normalized now, but days-long lines to purchase gasoline persist elsewhere in the country.

We still have to see what impact the price hike will have on prices of other goods and services, but there is no doubt that the new scheme widens the gap between those who have access to dollars and those who don’t.

Given the circumstances, my opinion is that the government’s priority should not be to adjust the price of services. Internationalizing the prices in a country where the minimum wage is around US $5 per month and where most public employees make around US $10… that’s not the way to go!


President Nicolas Maduro’s attitude toward dollarization is shifting. In the presidential campaign two years ago, Maduro harshly criticized candidate Henri Falcon’s proposal to dollarize the country. Yet, a few months ago he said the following about the ongoing dollarization process: “I don’t look at it negatively (…); it can serve for the recovery and deployment of the country’s productive forces and the activation of the economy (…) Thank God it’s happening!” Does this reflect a change of tactics or simply a defeat?

In my analysis of the political and economic situation, I try to read not what the political actors say, which is often tainted by underlying personal and group interests, but what they do.

What has been happening is that the government has been allowing a laissez faire dollarization. Hyperinflation plus a lack of circulating currency [due in part to the fiscal and monetary policies] led to the economy being de facto “de-bolivarianized” [term coined by Salas to refer to the process of spontaneous reduction in the use of the bolivar, Venezuela’s national currency]. Then came a Supreme Court sentence allowing for paying salaries and services in dollars [Sentence 884, December 2018].

The tendency is becoming more and more explicit. And this goes hand on hand with President Maduro’s public celebration of the dollarization process that you mentioned.

The government is tacitly approving the economy’s dollarization by every week adjusting the “agreed-upon prices” based on the market fluctuation of the USD. Obviously, the sale of non-subsidized gasoline in dollars is also an element to take into account.

All this means that there is an implicit recognition of the dollar as a unit of account. The policy aspects of this process are framed within the Economic Emergency Act, promoted by the Supreme Court and later ratified by the National Constitutive Assembly [ANC], which gives special powers to the president in economic matters. This is important because, as Maduro himself pointed out some two years ago during the presidential campaign, according to the constitution the only legal tender in Venezuela is the bolivar.

Of course, there could be an open debate regarding what has primacy in Venezuela now, the Constitution, or the ANC which gave special powers to President Maduro. In my reading, the dollarization policies are outside of the law and, what is worse, they widen the gap between those who have access to dollars and those who merely live off of their salaries.

Nonetheless, there is no doubt that the government is advancing towards dollarization, and this represents a hard turn away from Chavez’s economic and monetary policy. Is this a strategic shift? I don’t know, but the open question now is if the government will carry out an overt process of dollarization, or if it will be a future government that will fully formalize the process.


There is much talk of covert privatization processes underway. In the oil sector, “strategic alliances” are being signed, while we see services such as gas and city cleaning services being privatized. Meanwhile, the “inefficiency” of state companies becomes a pretext for silent privatizations. What can you tell us about these processes?

The process of privatization underway is an open secret. It is going forward through the channels of the Economic Emergency Act. However, as opposed to more “traditional” processes of privatization, this one is happening without public bidding.

For example, with the new model implemented some three weeks ago, gasoline distribution is being privatized. Also, in some parts of the country, cooking gas distribution, previously under the control of PDVSA GAS, is in private hands and the same is happening with electricity.

There are also many state enterprises that have been privatized. One case is the Mercal-PDVAL-Abastos Bicentenario, which was the public network for food distribution. The infrastructure of this public distribution network passed over to private hands (without a public bidding process) becoming what is known as “CLAP stores” [not to be confused with the government’s food box program CLAP], belonging to a Colombian conglomerate.

There are many other examples of privatizations, from food processing plants to landed property.

It’s no secret that in Venezuela there is a process of privatization, which was veiled in the beginning, and now is more overt. In fact, many government officials declare themselves in favor of less state and more private participation in the economy.

You can hear the demands of the capitalist sector in the mouths of ministers, National Constituent Assembly members, and governors. Anybody that follows the media is a witness to this shift in discourse and policy.

Among certain sectors of institutional Chavismo, there is a myth that Chavez simply rode out the giant oil bonanza that coincided with his presidency. This becomes an argument to legitimize the processes of privatization and structural adjustments underway. How important was the oil boom, and is it the key to understanding Chavez’s project?

It is true that during Chavez’s years as president there was an important hard currency revenue from oil exports, and that, for some time, the oil barrel was above US $100. But that wasn’t the norm.

When Chavez became president in 1999, the price of oil was around 10 USD a barrel, and then it slowly went up. Around 2007 and then also around 2011, the barrel went above 100. Nonetheless, the average oil price under Chavez was around US $55, and many of Chavez’s important social initiatives were pushed forth when the barrel was quite low. Think, for instance, about the Barrio Adentro Mission, which was set in place around 2003, when the oil barrel was about US $27. So those who explain Chavez’s policies in a direct correlation with oil prices are not interpreting things correctly.

Also, if we examine “real prices” by considering factors such as world inflation, we can see that, when compared to the dollar’s buying power, the dollar in the 2000s had about one-fifth of the buying power of a dollar in the ‘70s. Additionally, Venezuela’s population has more than doubled since the ‘70s.

All this means that in real terms, the true economic bonanza in Venezuela’s history was in the ‘70s with Carlos Andres Perez’s first government. By saying this I don’t mean to hide the fact that Chavez’s government benefited from periods of high oil prices, but we should see the situation with a broader perspective. At the end of the day, this contemporary interpretation of Chavez is petty and self-interested: it is being used to validate fiscal adjustments and other orthodox policies.

There is now a gold boom in a country that has become one of the most active mining regions on the planet. How are these resources being managed?

At one point, the government made a big effort to push for gold exploration in the Orinoco Mining Arc, but the sanctions affected the initiative negatively. Nonetheless, it is true that Venezuela has – in addition to the largest oil reserves in the world – huge gold reserves. From my perspective, it is possible to develop a model partly based on the rational use of those resources. However, the sanctions and the corrupt logic around gold exploitation are a real problem.

In its discourse, the Venezuelan government defends the working class, but in practice, it tends towards a conventional model based on substitution of oil exports. This model is inspired by a “post-rentier” conception of development ostensibly aimed at diversifying the country’s economy.

The attempted shift towards non-oil exports explains in part the policy of keeping the minimum wage at the lowest world level. The argument goes as follows: a cheap workforce together with the Special Economic Zones [offering incentives of all sorts to private investors, including extraordinary legal security guarantees, tax exemptions, etc.] will make Venezuela attractive in the world market, thus becoming a magnet for international investment. In other words, since the government launched the Economic Motors in 2016 [14 areas of economic development, from tourism to military industries to banking, etc.], and especially since 2018, the stated objective has been to become a center for exporting goods.

How would you compare Chavez’s economic policies with Maduro’s?

While it is true that President Maduro’s government is facing hard sanctions, it would also be wrong to paint a too rosy picture when it comes to describing the political and economic circumstances during Chavez’s presidency. Chavez lived through a brief but successful coup d’etat and multiple coup attempts; a lockout that brought oil production practically to zero; as well as long periods with low oil prices.

However, his presidency was characterized by a strong social focus, a permanent commitment to defending workers’ salaries, a transfer of power to communities and workers, a strengthening of the role of the state in the economy through price and currency controls, an important set of nationalizations, and so on. Finally, in the last three years of Chavez’s presidency, there was a firm commitment to supporting communes and other new economic actors.

If those are the key characteristics of Chavez’s economic (and social) policy, then we can safely say that the current government is going in a totally different direction…


What would you propose to come out of the current crisis in Venezuela?

From my perspective, the government should radically change its economic policy, which is driven by the idea of turning Venezuela into an export hub. Even before the crisis triggered by the coronavirus pandemic, this proposal had limited chances for success, and it would happen with a very high social cost for the country. After COVID-19, the plan became simply unfeasible due to slowdown of world trade. In other words, the international climate is even less favorable to the government’s proposed economic shift right now than it was in early 2020.

Given these unfavorable conditions at the global scale, and given that international markets are further closing up to Venezuela due to the sanctions and the blockade, we only have one option: building an internal market.

However, to incentivize an internal market, two key policies have to change: eliminating laws such as the 2019 Foreign Investment Law that favor foreign capital, and increasing wages to foster aggregate demand. In terms of demand, what there is right now in Venezuela is limited demand from sectors that have access to hard currencies, while most of the population lives in a subsistence economy. Obviously, this does not favor the growth of an internal market, so it doesn’t foster production. From my perspective, that is the only way out of Venezuela’s current crisis.