eBookNew Edition (New Edition)
Available on Compatible NOOK devices, the free NOOK App and in My Digital Library.
Related collections and offers
Overview
Crude Nation reveals the ways in which this mismanagement has led to Venezuela’s economic ruin and turned the country into a cautionary tale for the world. Raúl Gallegos, a former Caracas-based oil correspondent, paints a picture both vivid and analytical of the country’s economic decline, the government’s foolhardy economic policies, and the wrecked lives of Venezuelans.
Without transparency, the Venezuelan government uses oil money to subsidize life for its citizens in myriad unsustainable ways, while regulating nearly every aspect of day-to-day existence in Venezuela. This has created a paradox in which citizens can fill up the tanks of their SUVs for less than one American dollar while simultaneously enduring nationwide shortages of staples such as milk, sugar, and toilet paper. Gallegos’s insightful analysis shows how mismanagement has ruined Venezuela again and again over the past century and lays out how Venezuelans can begin to fix their country, a nation that can play an important role in the global energy industry.
Product Details
| ISBN-13: | 9781612348575 |
|---|---|
| Publisher: | Potomac Books |
| Publication date: | 10/01/2016 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 256 |
| Sales rank: | 480,085 |
| File size: | 1 MB |
About the Author
Raúl Gallegos, an associate director for the consulting firm Control Risks, has been a featured columnist for Bloomberg View, covering Latin American politics, business, and finance. He has been an oil correspondent with Dow Jones and the Wall Street Journal.
Read an Excerpt
Crude Nation
How Oil Riches Ruined Venezuela
By Raúl Gallegos
UNIVERSITY OF NEBRASKA PRESS
Copyright © 2016 Raúl GallegosAll rights reserved.
ISBN: 978-1-61234-857-5
CHAPTER 1
1-800-LEO
Staying on the twentieth floor of the Renaissance Caracas La Castellana, a Marriott hotel, can be a bizarre experience. Rooms have the usual upscale hotel amenities: expansive city views, a king-size bed, a forty-two-inch flat-screen television, high-speed Internet, and twenty-four-hour room service. Guests can swim laps in the hotel's infinity pool, work out at the gym, and have a daily buffet breakfast. In January 2015 one night in a standard single room cost 9,469 bolivars, or US$1,503 calculated at Venezuela's top official exchange rate. At that price the Renaissance was one of the most expensive hotels in the world. But reality here is not that simple. At the oil-rich country's second exchange rate, the hotel room went forUS$789 a night. That was still pricey, and enough money to buy a round-trip economy flight from New York City to Barcelona. At a third exchange rate the room went for US$190 a night. That should have been the real price of the hotel room, but it wasn't.
Having dinner was equally mystifying. One could ride the elevator down to the hotel restaurant, Mijao, and enjoy a tandoori chicken for 520 bolivars. What was the price of that plate in U.S. dollars? Depending on which of the three legal exchange rates was used: US$83, US$43, or the more realistic US$10. It is hard to wrap one's head around various prices for the same plate of spicy chicken. The puzzle doesn't end there. I stayed at the Renaissance for three weeks in late January to do research on my book, but I exchanged my dollars in the black market, a fourth and illegal exchange rate that I negotiated in secret. I ended up paying US$53 a night for my room, and my occasional two-course meals at Mijao never cost me more than US$5 — a fraction of what I would have paid for a hotel room and dinner of the same quality nearly anywhere else in the world.
This is Venezuela, a country where a dollar can have four different prices and where the cost of living can be both the cheapest and one of the most expensive in the world at the same time. The U.S. dollar affects everything in this country, from the price of a box of matches to a car or a home. How much did satellite service provider DirecTV make in bolivar sales in 2014? Was it the US$900 million the company reported on its books, or was itUS$216 million or US$60 million? DirecTV's profitability in Venezuela depends on which exchange rate is most realistic to value its sales.
The various dollar rates affect the size of the Venezuelan economy too. How does one value the size of Venezuela's nominal gross domestic product (GDP) in dollars? Was it US$658 billion, larger than the economy of Sweden and twice the size of Denmark's GDP, or US$346 billion, slightly larger than Malaysia's economy, or US$83 billion, less than what global oil giant ExxonMobil averaged in quarterly sales in 2014? It could have been less still, if the economy were valued at the black market rate. That would put the value of all goods and services produced in Venezuela that year at just US$23 billion — equivalent to the net worth of Chinese magnate Jack Ma, founder of e-commerce company the Alibaba Group.
For many years Venezuelans have lived in different economic dimensions. A small percentage of people who earn dollars inhabit one of them. In that world, a Big Mac was worth 270 bolivars in early 2015, or US$1.50, a fraction of the price one paid for the same burger nearly anywhere else in the world, according to the Economist magazine's Big Mac Index. How much for a twelve-ounce can of Coca-Cola? That was 52 bolivars, or 29 U.S cents. Try finding a coke that cheap in the United States. People living in this economic stratosphere could — and often did — hire a car and driver to chauffeur them around the city for less than US$50 per day.
The reality most Venezuelans faced was very different. For them, a no-frills forty-two-inch LGflat-screen television could cost 80,000 bolivars, orUS$6,667, at the second strongest exchange rate. This amounted to more than a year's salary for a minimum-wage worker. A Bolivar-earning Venezuelan may aspire to buy Apple's sixteen-gigabyte iPhone 6, a luxury item in Venezuela. But the smartphone sold for as much as 208,000 bolivars, or US$17,333, at Mercadolibre.com, Venezuela's version of eBay while selling for a few hundred dollars with a phone service contract elsewhere. A Venezuelan worker earning minimum wage would have to save every penny earned for three years to afford that phone.
In Venezuela the price people pay for a dollar depends on who they are and what they do for a living. Venezuela's leftist government sold dollars for 6.3 bolivars to an elite few. These people included business owners in a handful of industries like food processing, pharmaceuticals, and personal care products. The reasoning behind this arrangement is that these firms require access to foreign currency at the most favorable rate to acquire the raw materials they need to produce everyday necessities in Venezuela. Those who import paper products and clothing could sometimes get the 6.3 rate as well. A number of well-connected government cronies — and there are too many of them in Venezuela — can buy dollars at the cheapest rate too.
The 12-bolivar-per-dollar rate was the cheapest that regular people could get if they were lucky. Venezuelans were allowed by law to chargeUS$3,000 on their credit cards at that rate, but they could use those dollars only overseas. And Venezuelans could acquire dollars only after spending hours filling out forms and waiting for days, weeks, even months for a government bureaucrat to approve their dollar quota. Theoretically, foreign companies based in Venezuela could also buy dollars at the 12-bolivar rate to repatriate their gains, but the government stopped making dollars available for that purpose in 2012.
The third, 50-bolivar-per dollar exchange rate was reserved for everyone else who couldn't access the first two. The central bank auctioned dollars at that price to industries that lobbied and cajoled the government hard enough to get a few dollars so they could stay in business. Dollar auctions have been held for auto part companies that are running out of inventory, glassmakers who need to import soda ash, footwear makers who need leather or grommets or want to import finished shoes, dentists who need anesthesia and the material used to fill cavities, even eye doctors who are running out of imported contact lenses and lens fluid. Occasionally regular Venezuelans got to bid for dollars at that rate too. Foreigners who used credits cards in Venezuela were charged one dollar for every 50 bolivars they spent in the country. Everyone else desperate to buy greenbacks had to go to the black market, where a dollar in early 2015 cost 180 bolivars — but that was temporary, because the black market dollar rises daily, weekly, monthly. As I edit this text in March 2016, the black market dollar stands at nearly 1,200 bolivars per dollar, a 5,600 percent increase in roughly a year. The truth is, I cannot write fast enough to keep up with the bolivar's loss of value. In this country, those who earn dollars can live like royalty, and those who don't do whatever they can to get their hands on them.
I arrived at the Renaissance on a Saturday at 10 a.m. carrying no credit cards and no cash, but my room was ready because someone had arranged my stay. Fifteen minutes after my arrival that someone called my room. The man on the line asked me to meet him at the café next door so we could do business. Minutes later I sat across from my contact in a crowded café in the heart of La Castellana neighborhood, an area of the city known for glittering office buildings, chic hotels, and top restaurants. We exchanged some pleasantries, and the man nonchalantly slid a fat brown paper bag across the table. It had 40,000 bolivars in cash. I didn't count it, not for fear of offending him, but because discretion is important and holding a five-inch-thick brick of money tied together by rubber bands in a public place is an invitation to get mugged or arrested in Caracas.
What my moneyman and I were doing made us enemies of the Venezuelan government. As far as the state was concerned, a dollar was legally worth 6.3, 12, or 50 bolivars. Any other price negotiated outside the banking system was the kind of thing that could get you into trouble. In the black market, where my friendly dealer does business, a greenback fetched twenty-nine times more than the cheapest official rate. At those prices, anyone with basic mathematic literacy and a handful of dollars had an incentive to sell U.S. currency in a back alley. This explains why I flew into Venezuela with no cash. Someone was willing to provide me with as much cash as I needed. No informed foreigner ever charges purchases in Venezuela using an international credit card. If I had done that, my hotel bill would have added up to more thanUS$4,000 for a twenty-one-day stay. Thanks to my dollar dealer I paid far less — $1,105 in total.
The name of my contact is not relevant here. All I will say is that he is known by some of his customers as 1-800-LEO. That's not an actual working phone number but a playful pun that says a lot about his line of work. Need to pay for furniture in Venezuela? Call 1-800-LEO. Want someone to pay your phone or cable bill, even the monthly rent of your Caracas apartment? Call 1-800-LEO. You get the picture. He's a six-foot-plus-tall economist who abandoned his career to become a professional black market dollar dealer — and he is impeccably professional for someone doing something illegal.
He punctually paid my hotel bill every week, he gave me cash on demand, he secured transportation to and from the airport, he took care of airfare reservations and provided me with a cell phone ready for use. When his services were done, he promptly e-mailed me an account summary in a PDFor an Excel file. I never paid him in cash, not in Venezuela anyway. I wired money to his dollar account overseas. In most cases I didn't even pay him at all. I sent money to someone else's account, someone to whom he owed money. This is preferred. If his name rarely appears in a check or wire transfer he becomes invisible — that is exactly how he likes it.
He is a human credit card for me and for scores of diplomats, oil executives, journalists, and any person living in Venezuela who needs to convert a dollar paycheck into bolivars. He buys dollars from those who have them and sells dollars to Venezuelans and companies who desperately need them. He operates in secret. As far as the government is concerned his business doesn't exist. He naturally gets a commission for his services and has done quite well in this line of work for more than ten years. His two-hundred-plus-square-meter apartment has enviable views of the city, and he takes his family on overseas vacations almost every year — when he's not too busy doing business with people like me.
Some consider this line of work shady or, worse, a plague. The late Venezuelan president Hugo Chávez referred to people like my dealer and me as currency speculators. The political movement he built, known as chavista, blames those who openly buy and sell dollars for feeding what they call an economic war against their socialist revolution.
In 2003, four years after Chávez came to power, the president banned the buying and selling of dollars. It was a time of political upheaval. Chávez's enemies in the oil industry, fed up with what they saw as the leader's heavy-handed intrusions into their business, organized a nationwide strike they hoped would unseat the president. Oil engineers and industry executives abandoned their posts in the fields and offices. Wells stopped pumping crude. For weeks oil tankers floated near Venezuelan ports, unable to load their precious cargo. The resulting collapse of the country's fuel supply caused long lines of cars to snake out of gasoline stations across the country. Crude exports, the country's main source of income, trickled down to almost nothing. Nervous about the economic implosion to come, Venezuelans did what they have learned to do over and over again in times of crisis — they began to buy any hard currency, especially U.S. dollars, to protect themselves from a devaluation of the bolivar.
Under normal circumstances a weaker currency shouldn't hurt people too much, but in Venezuela where almost everything people consume comes from abroad, especially from the United States, a weaker bolivar means virtually everything a family might need or want, from food to clothes, television sets, fridges, washers, and cellular phones, can become more expensive in just days. The more dollars people demanded, however, the more the value of the bolivar fell, making it increasingly expensive for Venezuela to import the food, medicines, and machinery the country needed. Nearly seven of ten goods people buy in Venezuelan stores, supermarkets, and shopping malls are imported. Clothing and footwear are shipped in from the United States, frozen chicken sometimes comes in from Jamaica, and beef cuts arrive from Brazil. If the Andean country suddenly stopped all imports, most Venezuelans would be left naked and hungry. This is because Venezuelans produce very little apart from oil, but they want to consume everything.
The government stopped making dollars freely available in 2003 and fixed the price of the exchange rate by law, hoping to stop the dollar frenzy. It didn't work. People bought and sold dollars illegally, and a black market price for dollars emerged in the streets, hotel rooms, homes, and cafés of Venezuela. Regulation of the flow of dollars, known as capital controls, was meant to last just six months until the country's economic troubles passed, but as of 2016 capital controls were still in place. Chavistas believe the country needs these restrictions to survive. The open dollar market, leftist politicians claim, sabotages the entire economy, making everyday products impossibly expensive. This is why people like 1-800-LEO and myself are considered dangerous.
In truth, nearly everyone in Venezuela who is in a position to do so becomes a speculator. Companies, politicians, doctors, lawyers, chefs, cabdrivers, and quite a few prostitutes engage in the illegal U.S. currency trade in some way or another. In an ideal world, companies would stick to their business. Doctors would tend to patients, and lawyers would defend clients. But Venezuelans have a perverse incentive to buy and sell dollars on the side, even abandon their careers altogether to trade dollars illegally.
Put a price limit on any good, and chances are that increased demand will eventually make it scarce — dollars are no exception. The government's dollar auctions are met with insatiable demand. Think of the free-for-all one sees on television when aid workers deliver food to a starved African community. People run over themselves for a share of what's being given. The fast-rising price of the dollar in the black market is an indication of this madness. By late May 2015, the black market price had reached 400 bolivars per dollar, a 120 percent increase in four months. At that rate Venezuela's 100-bolivar note — the country's largest bill — which was worth 55 U.S. cents in January, was worth only half in May 2015. By the time my editors and I got around to reviewing this text in March 2016, with the black market price at almost 1,200 bolivars per dollar, that same bill was worth 8 U.S. cents, and when you read this book the 100 bolivar bill will be virtually worthless against the world's major currencies.
There should be no shortage of dollars in Venezuela. In recent years, the country's government earned roughly US$100 billion annually from oil sales. That is the equivalent in today's dollars of what the United States spent on the Marshall Plan to help Europe recover from World War II. From the day Chávez took office all the way through 2014, Petróleos de Venezuela (PDVSA), the country's state-run oil company, earned US$1.36 trillion in oil sales — more than thirteen times the Marshall Plan expenditures.
The annual flow of money was so large it amounted to nearly 60 percent of Venezuela's GDP, which the British bank Barclays estimated atUS$181 billion in 2014.15 The country can get more greenbacks too. Venezuela has more than 299 billion barrels in proved oil reserves trapped underground, the biggest known cache of crude on the planet. That is more oil than can be found under the sands of Saudi Arabia. Yet in 2016 Venezuela doesn't have enough dollars to invest in its depleted oil sector. It doesn't have enough so that it can finance the imports of milk, chicken, beef, cell phones, and even the polyester and cotton fiber local paper companies need to produce toilet paper. The central bank's dollar reserves, a widely watched indicator of how many dollars Venezuela has handy to cover imports and pay debts, stood at US$13.5 billion in mid March 2016, its lowest level in seventeen years.
(Continues...)
Excerpted from Crude Nation by Raúl Gallegos. Copyright © 2016 Raúl Gallegos. Excerpted by permission of UNIVERSITY OF NEBRASKA PRESS.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Contents
List of Illustrations,Acknowledgments,
Author's Note,
Prologue,
1. 1-800-LEO,
2. Infinite Wants,
3. Let There Be Oil,
4. Everyman,
5. Funny Business,
6. Oil for the People,
7. Mango Management,
Afterword,
Chronology,
Notes,
Selected Bibliography,
Index,