TIME Venezuela

Venezuela Is Slowly Coming Apart—and President Nicolas Maduro May Pay the Price

A boy with blood on his chest kneels in front of police after 14-year-old student Kluiver Roa died during a protest in San Cristobal, Venezuela, Feb. 24, 2015.
Carlos Eduardo Ramirez—Reuters A boy with blood on his chest kneels in front of police after 14-year-old student Kluiver Roa died during a protest in San Cristobal, Venezuela, Feb. 24, 2015.

Hyperinflation and shortages of basic goods have Venezuelans angry—and looking for new leadership

CARACAS – Amid the death of a 14-year-old boy killed by a policeman during anti-government unrest, the arrest of a key opposition mayor by armed government intelligence agents and talk of a coup plot against the government spearheaded by Washington, this last week also saw another another turn in Venezuela’s growing crisis. At DolarToday, a website little known outside of Venezuela that has become a key indicator of the country’s black market exchange rate, the bolívar local currency passed the psychological barrier of 200 per greenback. Four years ago, the dollar cost eight bolívares per dollar; five months ago it was 100; now it is already at 221 and counting. This rapid deterioration in the value of the local currency, 61% drop against the dollar over the last year, is one of the best indicators of just how much trouble Venezuela—and President Nicolas Maduro—is in.

While many in Venezuela have little direct engagement with the dollar—the country’s foreign exchange is strictly controlled—the currency crisis pervades everyday life. It means many doctors and engineers earn the equivalent of just a dollar a day and prefer instead to drive taxis or smuggle pasta or gas across the border to Colombia. It means that those who want to buy basic goods for their families must line up for hours every day due to shortages, and hoping all the time that shelves won’t be empty. It means that stealing is more valuable than working, fueling one of the world’s highest crime rates and the murder of one police officer nearly every day.

It means that people like Yormina Alguilera, a street cleaner earning the same as the minimum wage of doctor or engineer, are giving up. “We’re in crisis,” she said, taking a break from the sun at a fruit stall in the square at Caracas’ 23 de enero barrio, as murals of Che Guevara and Hugo Chávez loom over. Alguilera voted for Maduro and his predecessor Chávez, “but never again,” she said. “At least under Chávez I could get things. It’s a mess with Maduro and there’s no end in sight. Things are getting worse every day.”

Maduro, who was elected after the death of Chávez in 2013, is in serious trouble. His approval ratings are in the low twenties, according to Datanálisis, a respected local pollster. This time last year, the president faced down Venezuela’s biggest anti-government protests in more than a decade, and now they appear to be starting up again. In San Cristóbal, on the country’s border with Colombia and where unrest was sparked last February by similar though less severe economic problems, 14-year-old Kluiberth Roa was killed with a rubber bullet by police. That tragedy has only sparked further public anger.

Supermarket lines often run into the hundreds if not thousands due to shortages of the most basic goods, from shampoo to condoms. Inflation last year was near 70%. The economy, which has long been propped up by high crude prices, is crumbling as oil has tumbled over the last few months. (A barrel of Venezuela oil sells for half what it did a year ago; the country obtains 96% of foreign currency from oil.) Maduro has blamed this on an “economic war” being waged by the opposition with a hand from the United States, but many ordinary Venezuelans don’t believe that. “They talk about an economic war but we’re certainly not winning it,” said Aida Guedez Álvarez, a 61-year-old housewife buying a watermelon in 23 de enero. “I voted for Maduro but I’ve been deceived, like everybody else.”

Maduro’s government faces tough legislative elections later this year. “The government isn’t necessarily falling but it is weak and losing its leadership,” said Reinaldo Manrique, 24, an accounting student and student leader who was one of the very first detained for protesting in San Cristóbal, last year, sparking nationwide unrest. “But you know what? The leaders of the opposition are even more weak.”

Though former Chavistas are much angrier than they were a year ago, they do not see the opposition, led loosely by two-time presidential candidate Henrique Capriles, as a viable alternative. “Of course I’d never vote for Capriles,” said Alguilera, the street cleaner. “I give up. No one will change things.” Rather than protest, students are talking of finishing their studies and leaving the country. Many who took to the streets last year have left. “I’m studying to become a primary teacher,” said Leonardo Díaz, 25, in Caracas’ Plaza Altamira, a bastion of protest. “But as soon as I graduate, I’ll leave. All my friends at university are the same.”

Capriles, who stood against both Chávez and Maduro in presidential elections, is the more moderate face of the opposition. He continues to govern the state of Miranda and at least on paper lead the opposition. The government has cracked down on its more hardline critics. Leopoldo López, a major opposition heavyweight, has remained behind bars for more than a year for his role in inciting last year’s protests. “The government is working in a barbaric way to steal from public funds, destroy the country, rob the country’s oil while it says it’s constructing a homeland!” López’s father, also called Leopoldo, told TIME. Antonio Ledezma, Caracas’ mayor, was arrested and charged earlier this month in a conspiracy to overthrow Maduro.

María Corina Machado, another more radical leader, was charged in December with involvement in a plot to assassinate Maduro. “With Maduro there is more persecution than ever,” she told TIME. Next on the government’s list appears to be Julio Borges, an opposition party coordinator. The government requested a probe into his alleged conspiracies against Maduro this week. “Every year there are elections but this is the first time the government is up with a political crisis of this magnitude,” Borges told TIME. “In Venezuela everyone is scared—including the government.”

Maduro has remained tough. “Every fascist has his day,” the president said on Ledezma’s arrest. And he still has some support. As he completed a crossword on a park bench in the wealthy La Castellana area of Caracas, Emilio Neumann backed the government’s stance. “Lopez and Ledezma are exactly where they deserve to be, behind bars,” said the 69-year-old public administrator. “After calling so many people to the streets and committing who knows how many murders.”

President Maduro must hope, if he is to see out the next couple of years, that he can persuade people like Neumann to stay on side. To do this he must turn the country’s economy around, though with three official exchange rates as well as a black market on the dollar — with a spread between the highest and lowest of them of some 3,400 per cent — it is becoming increasingly difficult to do so. Pragmatic moves such as consolidating those exchange rates or raising the price of gas, currently the world’s lowest at just a few cents per tank, are politically dangerous especially when Chavistas are turning away from Maduro.


How Venezuela’s Collapse Helped Thaw Cuban-American Relations

Cuba's President Raul Castro shakes hands with Venezuela's President Nicolas Maduro during the opening session of the 10th ALBA alliance summit in Havana
© Enrique de la Osa / Reuters—REUTERS From Left: Cuba's President Raul Castro shakes hands with Venezuela's President Nicolas Maduro during the opening session of the 10th ALBA alliance summit in Havana on Dec. 14, 2014.

The late Venezuelan President Hugo Chavez helped keep the Cuban regime propped up, but that's not possible in an era of low oil prices

“We have two presidents: Fidel Castro and Hugo Chávez,” declared Cuba’s then Vice President Carlos Lage in a visit to Caracas just under a decade ago. A couple of years later, in Havana, then Venezuelan President Hugo Chávez added, “At heart, we are just one government.”

It is likely not a coincidence that talks between the United States and Cuba—which culminated yesterday in an announcement that the two countries would begin to resume full diplomatic relations—began just after the death the former Venezuelan president who had bankrolled Cuba’s Revolution.

Today a beleaguered Venezuela no longer has the spare cash to fund the island’s beleaguered economy. The Castros likely realized this as Chávez’s presidency was coming to an end and were not keen for a return to the scarcity of the euphemistically titled Special Period of the 1990s, after the collapse of Cuba’s first patron, the Soviet Union. “We had nothing, no food and no money,” one elderly man told me in Havana not long ago. The Cuban economy contracted 35 percent between 1989 and 1993, and oil imports decreased 90 percent. Cuba was in desperate need of money.

Chávez, then a nascent politician on the make in Venezuela, saw Castro as a political mentor, a simpatico ally against the elites and imperialists who he blamed for the world’s ills. Chávez also oversaw some of the world’s largest oil reserves. Venezuela currently sends almost 100,000 barrels per day of oil to the island—more than half of Cuba’s consumption—as well as aid thought to be worth in total between $5 billion and $15 billion a year, or some 15% of Cuba’s GDP. (More precise figures are hard to come by given the opacity of both governments.)

But Chávez is dead, and today Venezuela’s economy is in tatters, exacerbated by a fall in the price of oil, which provides 96% of Venezuela’s foreign revenue. The country’s local currency on the black market has fallen 35% in the last month; annual inflation is at more than 60% and there is serious talk of default on Wall Street. Many economists are talking of a “perfect storm” brewing for current Venezuelan President Nicolas Maduro, whose approval ratings have fallen to the mid-twenties.

The lack of guaranteed support from Caracas would have made Cuban President Raúl Castro “much more eager to negotiate and given the U.S. leverage,” said Ted Henken, President of the Association for the Study of the Cuban Economy and author of several books on Cuba.

As Havana makes peace with Washington, Venezuelan authorities are left increasingly isolated. While Cuba and Venezuela held onto leftist principles, other countries in the region have in recent years taken more pragmatic policy decisions. “Obama has pulled the rug out from under Maduro,” said Christopher Sabatini, Senior Director of Policy at the Council of the Americas. “It’s going to be a lot easier for other U.S. allies in the region to swing away from Venezuela.”

In the last couple of weeks, in response to sanctions by Washington on top Venezuelan officials for alleged human rights abuses, Maduro has rallied against the U.S. “It shows a lack of respect!” boomed the mustachioed president to a few thousand supporters in Caracas on Dec. 15. “They can shove their US visas.” On Wednesday, though, Maduro praised Obama’s “gesture” towards Cuba. “How sad it is to have a government who 72 hours ago launched an anti-imperialist diatribe against Obama and now describes him as ‘courageous,’” said Jesús Torrealba, head of Venezuela’s opposition coalition.

Cuba learned its lessons from the Special Period and in recent years began to diversify. On the ground, rules have been loosened on private restaurants, guesthouses and the buying and selling of property. Cubans are even allowed Internet access, though only about 5 percent of the country can reach the Web. On a more global scale, international investors have come in; the Scarabeo 9 oil rig sailed into the Florida Straits in January 2012. It was Chinese-built, Italian-owned, and was to be used by Spanish, Norwegian and Indian firms, among others.

Cuba was likely well aware those small reforms would not be enough in the long run. There are a mixture of elements that have come together to allow this historic moment: from Obama and Cuban President Raúl Castro themselves to mediators in the Vatican and Canada. Yet, the unwitting spur for the restoration of relations between the U.S. and Cuba may be Hugo Chávez himself, and the inability of his successors to manage Venezuela’s economy.

TIME Venezuela

Falling Oil Prices Turn Up The Heat On Venezuela’s Maduro

President Nicolas Maduro taking part in a press conference in Caracas, Venezuela, on Dec. 2, 2014.
Corbis President Nicolas Maduro takes part in a press conference in Caracas, Venezuela, on Dec. 2, 2014.

Oil and gas accounts for a quarter of Venezuela's economy, which was already struggling when global oil prices turned south, compounding Nicolás Maduro's political woes

On Nov. 27, as the OPEC oil cartel gathered in Vienna to discuss falling oil prices, the front page of Venezuela’s anti-government Tal Cual newspaper ran a cartoon showing President Nicolás Maduro and his former oil and economic tzar Rafael Ramírez praying before a barrel of oil. With the oil and gas sector accounting for a quarter of the Venezuelan economy and oil sales the source for around 95% of export earnings, the country has been hammered by the recent drop in prices. OPEC’s decision last week to hold off on production cuts to arrest the decline promises to sharpen the pain for oil-dependent nations like Venezuela. It is also a political challenge for Maduro who has grown increasingly unpopular since being elected after the death of his political mentor Hugo Chávez last year.

Although he tried to put a brave face on the OPEC decision—in a nationally televised address the same day, Maduro claimed there was nothing for Venezuelans to worry about—the fact is that the Venezuelan economy is in free-fall. Figures released by the government in September showed annual inflation running at over 60%, while foreign currency reserves have plummeted nearly 30% in the last two years despite being propped up last week by a Chinese loan. Venezuela boasts the world’s largest oil reserves—but years of mismanagement and a lack of investment have the left the country in a fiscally tight spot, without the resources to withstand a prolonged drop in the oil price. And although it is a member of the OPEC cartel, the grouping is dominated by Saudi Arabia, one of the world’s largest oil producers, which was reported to be the prime mover behind the Nov. 27 decision in a bid to undermine shale oil production in north America.

On the streets in Caracas, with Christmas around the corner, shelves are empty, as importers lack the foreign currency they need to bring the goods in. “The government is not sufficient,” says Eleanor Romero, a 58-year-old coffee vendor, who had to wait in line for two days to buy gifts and a new fridge at a Christmas fair organized by the government last month. “I voted for Chávez and miss him. Maduro isn’t working.”

Her views are reflected in a recent poll that put Maduro’s approval rating at under 25%.

Perhaps the most telling sign of the country’s mismanaged economy is the black market exchange rate for the local bolivar currency, named, like Chávez’s political revolution, for the Latin American independence hero Simón Bolívar. Officially, one U.S. dollar buys 6.3 bolivars, according to the strongest of the three official exchange rates. But thanks to controls enacted by Chávez more than a decade ago that have severely restricted the flow of hard currency, one U.S. dollar on the black market buys more than 150 bolivars. Measured against the greenback, the bolivar has slumped by 30% in the last month alone, as the government fails to provide enough U.S. dollars through official channels, increasing demand on the black market.

“The perfect storm is brewing,” said Diego Moya-Ocampos, a senior political risk analyst at IHS, a economic and political consultancy in London. “A severe economic crisis can be expected if there is no change in economic policy.”

To bring the economy back on its feet, economists recommend a series of reforms, including overhauling the currency controls and ending generous oil and gas subsidies to nearby Caribbean nations, something that cash-strapped Venezuela can ill afford. But the President shows little sign of going down this road. “The enemies of our country are rubbing their hands with glee, thinking this will end the Bolivarian Revolution,” he said in his televised address, striking a note of defiance, even as he put in motion plans to curb the government’s spending.

Part of the government’s fiscal woes stem from the domestic subsidies that for years have kept a lid on gas prices. Long before the recent oil price fall, Venezuela subsided the cost of gas at the pump to a point where it only cost a few cents to fill an entire tank. This was the case through the boom years when Chinese demand drove up global commodities prices. The result was billions of dollars in lost revenues—money that would have helped develop the Venezuelan oil industry and cushion the blow from the weakness in international energy markets today.

The subsidies are such that, even now, as the Venezuelan economy struggles, smugglers reap huge profits by stocking up on gas in the Bolivarian Republic before crossing the border and selling the fuel at market prices in Colombia. “Gas is practically a free gift here,” says Jesús Arias, a 33-year-old who makes more money smuggling gas than working as an engineer in San Cristóbal, a couple of hours from the border. He sells fuel that costs only a couple of cents in Venezuela for more than $10 over the frontier. “Doctors, lawyers, architects, engineers like me, we’re all doing it,” he adds. “On the border, I can earn in three or four days what I earn as a professional in a month.”

The economic dysfunction and falling price of oil leaves Maduro in a tough spot. He lacks both the political will and popularity to push through meaningful reforms to push Venezuela’s economic house in order. At the same time, he is being increasingly squeezed by the weakness in the oil price. Hugo Chávez was luckier. At the height of his powers, he commanded widespread domestic acclaim, and was buoyed by rising oil prices on the world markets (he was also adept at showmanship, hosting, for example, OPEC heads of state in Caracas soon after he first came to power). Maduro faces an altogether more challenging environment.

“Ordinary Venezuelans are starting to get tired of slogans and socialist rhetoric and no concrete actions on any front,” says Moya-Ocampos. “As the economy deteriorates, so will the political situation in Venezuela.”

TIME Venezuela

Venezuela’s New Opposition Leader Jesús Torrealba Takes on the Chavistas

Venezuelan Opposition Alliance Executive Secretary Jesus Torrealba speaks during a interview at his office in Caracas, Venezuela, Oct. 7, 2014.
Fernando Llano—AP Venezuelan Opposition Alliance Executive Secretary Jesus Torrealba speaks during a interview at his office in Caracas, Venezuela, Oct. 7, 2014.

Venezuela's opposition has tried and failed to beat Hugo Chavez's political descendants. Will a new leader make a difference?

In October 1958, the heads of the major political parties in Venezuela met at Punto Fijo, the Caracas home of former president Rafael Caldera. At the summit the political brokers agreed to share power between themselves—no matter who actually won future elections. For the next 40 years, Venezuela was essentially governed by a pair of conservative parties in what became called the puntofijismo. The left was sidelined and the poor largely ignored. The country, though, was prosperous and stable—up to a point.

Hugo Chávez came on the scene soon after the economy fell apart, partly thanks to a prolonged slump in oil prices that took a serious toll on Venezuela, a major crude producer. He campaigned for the presidency in the late 1990s, promising to end the puntofijismo and give a voice to the poor. “I am a product of history,” Chávez liked to say. He tirelessly toured the country’s less wealthy areas and went on to win the 1998 election in a landslide, redefining Venezuelan politics.

A decade and a half later, however, Chávez is dead and his successor Nicolás Maduro’s popularity is waning. One recent poll put Maduro’s approval ratings in the thirties, thanks in part to Venezuela’s annual inflation of more than 60%, shortages of the most basic consumer products and one of the world’s highest murder rates.

Yet, despite the widespread discontent, the country’s opposition still struggles to gain ground, limited in part by its perceived links to a failed old guard. Enter Jesús Torrealba, affectionately known as Chuo, a new executive-secretary of the Mesa de la Unidad Democrática (MUD, Democratic Unity Roundtable), the umbrella group which represents political parties opposed to the government. Torrealba was chosen in part because he is able to engage with the country’s poor—something the elite members of the anti-Chávez opposition have repeatedly failed to do. “I’m from the barrio,” he told TIME, adding that he has seen the failures of the socialist government first hand. “Those of us who were poor have stayed poor; those in the middle classes have become poor.” His job is to direct the disparate opposition and help pick the eventual presidential candidate that will take on Maduro in the coming years.

Torrealba is a former Communist Party member, community leader and a presenter of the TV show “Radar of the Barrios,” a program where h gave the poor a chance to voice their anger. He is aiming to attract people like bread vendor Ernesto López, who wears a Chávez t-shirt in the Caracas slum of 23 de enero. López demonstrates the long odds Torrealba will face—there is little chance the 60-year-old will vote for the opposition, even though López, like many in his neighborhood, isn’t happy with Maduro’s performance. “At least we don’t have the dictatorship of puntofijismo,” López said. “They wanted to rob Venezuela’s riches for themselves and we don’t want to return to that.”

Torrealba insists he does not want to go back in time to the days of conservative rule. “A return to the past is neither desirable nor possible,” he said. Torrealba is hoping to make electoral headway for the Venezuelan opposition in National Assembly elections late next year. A good showing in that vote would pressure the government and bolster a potential recall referendum against Maduro in 2016. If not, the opposition would have to wait until 2019 for the next presidential election. “It’s embarrassing that in 21st century Venezuela, we’re debating communism versus capitalism, as if the Berlin Wall hadn’t fallen, as if the Soviet Union hadn’t gone through perestroika,” said Torrealba.

Torrealba, 56, was born in Catia, a poor sector in the west of Caracas. He worked as a journalist and teacher as well in activism and, in line with his working class credentials, is more gruff in dress and character than many of his colleagues in the MUD. He wants to take advantage of Venezuela’s natural resources, including the world’s largest oil reserves. Chávez hoped to channel oil wealth to the poor by launching welfare programs—however, critics say much of the money was largely squandered through inefficiency, incompetence and corruption. “We should be looking to construct a Venezuela that has a quality of life similar to the Nordic countries, though with a Caribbean twist,” he said, giving a nod to prosperous Norway, which avoided the “oil curse”—where countries with bountiful natural resources tend to underperform economically—that has befallen so many oil-rich nations.

Henrique Capriles, who twice lost presidential elections against Chávez and Maduro over the last two years, understood that he had to shed his wealthy image in order to attract those who were disaffected by Chávez and Maduro. Despite his family’s wealth, on the campaign trail Capriles would wear a tracksuit, ride into the country’s slums on his motorbike and play basketball with the locals. “I’m not the candidate of the old establishment,” he told TIME in February 2012, before winning opposition primaries. He lost to Maduro by less than a quarter of a million votes in April last year. He still considers himself the opposition’s leader and may well go on to be the MUD’s presidential candidate again.

But Torrealba will have his work cut out. Silvana Lezama, 20 years old and studying communications at the leafy Monteávila University in Caracas, took part in anti-government protests earlier this year, but isn’t impressed by the opposition’s new leader. “We need a leader that motivates us and I don’t feel motivated at all by Torrealba,” she said. Luis Vicente León, a local political analyst, added: “It’s a tough challenge but Torrealba is capable.” Few protesters were interested in the MUD-led opposition that was personified by characters like Capriles and López. They just wanted a change, with little notion of how it would come about. Torrealba must tap into both the energy of protesters and the disaffected poor—and convince them that the days of puntofijismo are long gone.

TIME Venezuela

Venezuela’s Maduro Courts Chavez Faithful With Government Shake-Up

President Nicolas Maduro talks during a meeting with ministers at Miraflores Palace in Caracas, Sept. 3, 2014.
Reuters President Nicolás Maduro talks during a meeting with ministers at Miraflores Palace in Caracas, Sept. 3, 2014.

With the opposition posing little threat for now, Nicolás Maduro's real challenge is keeping the left—particularly supporters of the late Hugo Chávez—united behind his leadership

“Our Chávez who art in heaven, the earth, the sea and we delegates,” began María Estrella Uribe, a red-clad supporter of Hugo Chávez at the lectern of a Socialist party convention in Caracas earlier this month.“Hallowed be thy name… Lead us not into the temptation of capitalism, deliver us from evil and oligarchy.”

The latter part of the prayer to the former Venezuelan President was answered just a few days later, when Rafael Ramírez, the country’s oil minister minister and vice president responsible for the economy, was sidelined. A longtime lieutenant of Chávez, Ramírez had lately begun pushing to overhaul the struggling Venezuelan economy. In June, on his way back from an Opec meeting in Vienna, he took a detour to London to meet investors. His aim? To re-establish “communication with financial markets.” He wanted to refinance the country’s debt by tapping the international markets and talked publicly about raising the price of heavily-subsidized gas (the government loses out on some $12.5 billion a year to ensure that Venezuelans pay no more than a couple of cents per liter at the pump).

But he was pushed aside by Chávez’s successor, Nicolás Maduro, who, ever since he won a Presidential election last April, has struggled to get a grip on spiraling inflation and shortages of basic goods such as flour and shampoo. The crisis has knocked Maduro’s popularity—his approval ratings languish in the mid-thirties—and even fanned speculation in some quarters about the possibility of a default (the government insists it will honor its obligations down to last dollar).

Maduro announced Ramírez’s departure from the oil portfolio on Sept. 2, moving him to the foreign ministry in a televised speech billed as the great sacudón or shake-up. “We must begin a new stage in the revolution,” Maduro said, naming Chávez’s cousin, Asdrúbal, as the country’s new oil chief. Rodolfo Marco Torres, who participated in Hugo Chávez’s failed 1992 coup attempt against the then government of President Carlos Andrés Pérez, took over as the new vice president for the economy. Ramírez also lost his post as the head of the national oil company.

The reshuffle signaled another lurch to the left for Maduro as the souring economy takes its toll on ordinary Venezuelans. Ramírez’s move out of oil ministry also underscored the President’s main challenge—maintaining the support of the thousands of Venezuelans who backed Chávez. The opposition—divided as it is between a radical flank led by the still-imprisoned Leopoldo López and a more moderate faction spearheaded Henrique Capriles—poses little threat, at least for now. February saw the biggest anti-government protests in Venezuela in over a decade as students took to the streets. But the momentum behind that movement has waned. “The students have other priorities,” says Carlos Romero, a Venezuelan political analyst, “to finish their studies, to look for a job or to go abroad.”

Maduro’s real problem is keeping the left united behind his leadership, a challenge that is apparent in the Caracas slum of 23 de Enero—a well known bastion of the left and the place where Chávez and his co-conspirators planned the 1992 coup attempt. “Things are going from bad to worse,” says Winifer López, 20, a nurse who lives in the slum. “I always supported Chávez. He was wonderful for this country. But what on earth made him leave Maduro in charge?”

For Romero, the government reshuffle is a signal that “Maduro believes that a radical path would mean he will have more support from Chavistas [supporters of the late leader].”

“He does not like to be seen as a reformist, rather as a true believer of socialist ideas, of the legacy of Chávez,” Romero adds. “In order to maintain his popularity he has to be more radical to project him as a strong leader. That is why he moved Ramírez.”

TIME Venezuela

The ‘Cheapest’ Country in the World

U.S. dollars and Venezuelan Bolivares in Caracas on July 16, 2013.
Juan Barreto / AFP / Getty Images U.S. dollars and Venezuelan Bolivares in Caracas on July 16, 2013.

The socialist Venezuela propels those with contacts and currency to the one-percent

Vinny is in the middle of a whirlwind trip. He began in Caracas ten days ago, has already passed through New York, Chicago, Kansas City, Dallas, Indianapolis and Los Angeles and is about to board a flight from Miami to Milan and onto Madrid. The 28-year-old personal trainer will be there for around 36 hours before continuing his journey on to London, Johannesburg, Doha, Tokyo, Dallas, Lima and finally Caracas again in just over a week’s time. The entire trip — all 16 flights — cost him just $600.

“This is the holy grail,” Vinny says as he boards the flight to Milan. The journey will earn him some 100,000 air miles and help re-qualify him for American Airlines’ highest frequent-flier tier. When using money obtained on the black market, the cost of flights out of Venezuela can be up to ten times less than normal market prices. A return flight from Caracas to New York can effectively cost $150; to London, $300; and to Dubai, $500.

The reason: currency controls, brought in by Hugo Chávez in 2003, which severely limit the amount of foreign currency that Venezuelans are legally able to purchase from the government. Under the official exchange rate, one dollar buys 6.3 Bolívares, the local currency here named for Latin American independence hero Simón Bolívar. But the controls have created a black market on which greenbacks sell for more than 10 times as much. This week, authorities brought in a second exchange rate (essentially, a devaluation of just over 40 percent, though the government calls use of the d-word “enemy spin”) in an attempt to curb economic distortions. But economists are doubtful that the move will satiate the high demand for dollars.

The result is that, in socialist Venezuela, those with access to foreign currency can propel themselves into the one percent, flying around the world and living in five-star hotels, while locals earning in Bolívares battle one of the most expensive economies on the planet, struggling to find and afford basics such as cooking oil, chicken and toilet paper. Fed by inflation, the divide has grown rapidly in tandem with the expansion of the black market.

Those with dollars, or any hard currency, are able to take advantage of the thriving black market by buying local money either in shady street deals or in white-collar transactions with willing brokers by transferring their money between international bank accounts. “In this game, trust is the key,” says one illegal broker, sitting in an expensive Caracas hotel’s invite-only lounge. He says he earns several thousand dollars a month in fees and commissions, buying and selling “a couple of million” dollars every year. Clients will call him in order to obtain local money or to ask him to pay for flights and hotels directly in local currency, just as wealthy clients of invite-only charge cards, such as American Express’ famous Black Card, use its concierge service.

In stark contrast, the minimum wage here is equivalent to $519 a month at the official rate but around $50 at the black market rate. At Caracas’ airport, Linger Tiapa sells magazines and snacks. The 39-year-old earns $52 a month at the black market rate. “It’s madness,” she says. “The government has no idea how much we need to spend on food. I have to find other ways to make money — like selling my clothes.” A middle class professional may earn around four times Tiapa’s salary. These figures make Venezuela simultaneously one of the most expensive and one of the cheapest countries in the world: take-out noodles can cost $30 or $3 depending on whether you have access to the local currency or US dollars; a night at a five-star Marriott hotel costs $700 or $70. It is the same principle that allows Vinny, who has access to US dollars, to fly so cheaply.

Ricardo Cussano, who heads the Conseturismo tourism board here, estimates that 30% of airline seats are being taken up by foreigners. “People outside are buying a ticket into Venezuela and then when here, purchasing a ticket to their final destination using the black market,” he says. The currency controls are far from ideal for airlines. According to the International Air Transport Association (IATA), airlines are awaiting $3.3 billion which is locked up in local currency in Venezuela; the government, under pressure from airlines, has begun to exchange some of this for cash, fuel and bonds. IATA spokesman Jason Sinclair described the situation as “unacceptable and frankly unfair.” Owing to high demand, flights have become increasingly hard to come by in recent months.

Rafael Ramírez — head of Venezuela’s state oil company, Minister of Oil and Vice President of Economic Affairs — said this week that, in the future, airlines would begin to receive their money at the newly-announced second exchange rate, which could lower the differential between exchange rates that fuels Vinny’s cheap flights. The move will not affect the outstanding $3.3 billion. The new rate will be determined by weekly auctions and is expected to be initially around 11 Bolívares per dollar. The current official rate of 6.3 Bolívares to the dollar will be reserved only for state-run companies and certain vital sectors. “I’m not going to descend into a debate as to whether this is a devaluation or not,” said Ramírez.

With the news, the price of the dollar on the black market rose to 12.5 times the official rate, making common scams taking advantage of the differential between the exchange rates even more lucrative. Some business visitors here are paid expenses in US dollars at the official rate even though they obtain their local currency on the black market. One young European business consultant, who asked not to be named, was able to pay off his entire student loan after a month’s work in Venezuela. Those with foreign health insurance plans that pay out in foreign currency are able to make a more than ten-fold profit on claims. For example, a visit to the doctor can turn a profit of $115. This is because an appointment costs around 800 Bolívares, which is noted on the claim form. The insurance company then converts this at the official rate and pays out $127. But, if the patient had initially converted US dollars on the black market to pay for the appointment, the actual cost of the vist would have been around $13. Similarly, with such arbitrage, an MRI scan can net a profit of around $500. A week-long stay in the hospital can be even more lucrative, bringing in more than $10,000. This has turned a few foreigners here into hypochondriacs.

It is not only foreigners loaded with hard currency that can benefit. Locals can partake in an arbitrage process known as raspao, or the scrape: Venezuelans can claim a limited amount of foreign currency annually at the (now lower) official rate from the government. After jumping various bureaucratic hurdles, they are allocated the dollars on a credit card. The raspao involves flying out of Venezuela and essentially obtaining a cash advance on the money, bringing it back in and selling it on the black market. This “exchange rate magic,” says Angel Garcia Banchs, an economics professor at the Central University of Venezuela, “allows people to travel abroad for free.”

Alberto Ramos, a senior Latin America analyst at Goldman Sachs, is reminded of the Soviet Union. “Those that have the right connections and privileged access to hard currency at the official rate can do extremely well,” he says. Critics of the government say that it is the biggest beneficiary. In a stealth telephone recording leaked by critics here in May, a voice said to be of pro-government television presenter Mario Silva says that those in government are attempting to “steal as much as possible” before the Chávez regime “crumbles.”

Critics see the scams as inevitable and a result of tight controls. “A few opportunistic characters emerge and end up profiting from the disadvantaged position the general public is put into,” says Ramos. The idea behind the currency controls was to curb inflation and capital flight. Annual inflation at the end of 2013 stood at 56.2% and some $163 billion was deposited abroad in the third quarter of that year, according to Ramos.

As he lands “extremely tired and jetlagged” in Madrid, Vinny understands that his personal gain is at the expense of Venezuela as a whole. “It just so happens that I benefit with flights,” he says. “But,” he acknowledges, “the country continues to take a toll.”

TIME Venezuela

Death of Former Beauty Queen Prompts Soul-Searching, Anger in Venezuela

Venezuela's President Maduro shakes hands with Opposition leader and Governor of Miranda state Capriles during a meeting with mayors and governors at Miraflores Palace in Caracas
Carlos Garcia Rawlins / Reuters Venezuela's President Nicolas Maduro shakes hands with opposition leader and Governor of Miranda state Henrique Capriles during a meeting with mayors and governors at Miraflores Palace in Caracas, January 8, 2014.

The high-profile murder of a former Miss Venezuela and her husband in a roadside attack has shocked the nation and stoked anger in a country with one of the world's worst murder rates

Venezuelan President Nicolás Maduro has publicly called Henrique Capriles, his chief political opponent, a fascist pig and a queer posh boy, out of touch with the people. In return he is lambasted by Capriles as incompetent and illegitimate, a bus driver unable to find his way out of this country’s economic and social ills. Yet, on Wednesday, the pair shook hands in the Miraflores presidential palace at a hastily arranged meeting of state governors, called in response to the murder of a 29-year-old former Miss Venezuela that has rocked the nation. It has reminded people here of their country’s horrific murder rates: last year saw some 70 people killed every day. News of the deaths bridged, briefly, the country’s deep political chasm. “Nicolás,” Capriles wrote on Twitter, which has become a key vehicle for political rhetoric in Venezuela, “I propose we put aside our profound differences and meet.”

Mónica Spear, 29, and her husband Henry Thomas Berry, 39, were driving with their 5-year-old daughter on holiday in Venezuela — they lived in the U.S. According to authorities, robbers on the highway between the town of Puerto Cabello and the central city of Valencia laid an obstacle on the dimly lit road, which punctured a tire of their Toyota Corolla. Forced to stop, the couple realized what was happening and locked their doors. Gunmen fired upon the vehicle, killing the pair while leaving a bullet wound in the leg of their daughter Maya, who survived.

“We’ve lost somebody that was in love with Venezuela and someone that was loved in Venezuela,” says Spear’s 61-year-old father Rafael Spear, at Caracas’ Eastern Cemetery in La Guairita, where his daughter’s body and that of her husband lay in state on Thursday. A private funeral was scheduled for the next day. Rafael Spear, who lives in Florida, had not seen news of the Maduro-Capriles handshake, a rapprochement spurred by his daughter’s death. “All parties here need to get together to work toward ending violence,” says the grieving father. His priority now is safeguarding Maya.

Venezuela is a nation obsessed by beauty and, as with crime, the Miss Venezuela pageant transcends the various strata of society here. Spear’s murder has hit a deep-rooted nerve in country’s psyche and galvanized a populace tired of being unable to enjoy their streets and parks without genuine fear of attack. “I can’t go out at night. I can’t live a normal life here,” said Devadip Diez, a 19-year-old student lining up to pay his respects.

On the streets, hundreds protested on Wednesday to demand change, railing against a murder rate that has risen every year since the socialist government of Hugo Chávez came to power in 1999 and is now one of the highest in the world. “The government is responsible for what happened to Mónica Spear,” wrote opposition figurehead Leopoldo López on Twitter. Many in the crowds at the wake on Thursday shared López’s thoughts. “Thankfully, my children don’t live in this country,” says Nora Mazzoni, 60, lining up to see the slain couple, having seen Spear for years on television. “Venezuela is living through a horrible period. Maduro talks and talks and talks, and nothing happens.”

Maduro described the killing as a “massacre” on state television. “This is a slap in the face to all of us,” Maduro said, promising to take responsibility. Seven people have been arrested by authorities who, given the worldwide attention, appear to be pursuing the investigation thoroughly. This is not the case with the majority of murders here; more than 90% remain unsolved. The crime rate is fueled by easy access to weapons, an understaffed, undertrained and underequipped police force and a poorly controlled prison system that hardens inmates into more brutal criminals when they return to the streets.

Carlos Nieto Palma, a lawyer and university professor in Caracas specializing in human rights, says Venezuelans’ reaction to the death “will change the government’s agenda and force it to face the problem.” Though facing the problem is not always effective. Some 20 crime initiatives have been created here since Chávez came to power, including Plan Patria Segura (Plan Secure Fatherland) last year. Commentator Juan Nagel was not impressed on the Caracas Chronicles blog, writing that the government would form another initiative “full of smart logos, deceitful advertising and lots of fat men in uniform.”

David Smilde, a Caracas-based analyst, does not believe Maduro’s ideas, even if properly implemented, will have a positive impact. “The Maduro government has in mind a thoroughly militarized approach to citizen security,” he said. “In the past this has proved to be both ineffective and a threat to human rights.”

Meanwhile, the murder rate rises every year. Without serious figures from the government, which has for years refused TIME’s requests for data, NGOs like Roberto Briceño-León’s Venezuela Violence Observatory in Caracas are left to trawl through newspaper reports and public data. According to the organization, 24,763 people were killed in Venezuela last year. In contrast, Iraq saw fewer than 10,000 killings last year for a similar population of around 30 million people. “The government’s response seeks to reduce political costs,” Briceño-León says.

Support for Maduro has dropped dramatically since he came to power in April, in the wake of Chávez’s death. Severe problems including rampant inflation, shortages of the most basic goods and widespread power outages — coupled with a lack of the leadership qualities that made Chávez such a force to be reckoned with — have pushed him to appeal to the radicals within his own party. Luis Vicente León, a Caracas-based pollster, believes that Spear’s death is being used to shift that policy. “The murder of Spear is a good opportunity to avoid the radicals inside chavismo,” he said. “Maduro needs to moderate his government and take some unpopular economic decisions; radicals inside chavismo are a barrier for him.”

Spear won Miss Venezuela in 2004 before entering Miss Universe the following year. “The idea behind Monica going for Miss Venezuela was that it was a path into acting,” said Katty Pulido, Spear’s longtime manager. Indeed, Spear then acted in various telenovelas over the years and, even while living abroad, focused on furthering her career at home. “I always told her,” added Pulido, who last met with Spear in December, “that if she went to the U.S., she could work in Hollywood with her good looks and perfect English. Yet she loved this country. ‘My home is Venezuela,’ she told me, ‘I love my country.’”

Your browser is out of date. Please update your browser at http://update.microsoft.com