At 10:30 p.m., gamblers are already packing the slot machines at the casino. Bartenders offer free booze, dancers swing to merengue music, and bingo players compete for a $500 prize near the poker tables. At midnight on this Friday in May, one lucky player wins a raffle for a $2,900 Yamaha motorcycle, then trades the keys for cash.
By Yahoo Finance – Andreina Itriago Acosta, Nicolle Yapur and Ezra Fieser
Jun 7, 2022
It’s Las Vegas with a Latin American twist. Not that long ago, gambling would have been illegal here in Caracas, bastion of the far left. Hugo Chávez, Venezuela’s firebrand populist leader who died in 2013, banned casinos, saying they caused social decay comparable to “prostitution, addiction, and drug use.”
Those days are gone, as is clear to anyone visiting Las Mercedes, the bustling neighborhood east of downtown that’s home to the new Humboldt Casino. “During this past 10 years, we were missing a place like this, where we could have fun,” says Maria Elena Millan, a 52-year-old real estate broker, before heading to a roulette wheel with her husband.
More than two dozen office towers are rising from the narrow lanes of Las Mercedes. On the ground level of the 15-story Jalisco Tower, passersby can marvel at three red Ferraris on display at a dealership. The four-seater Portofino convertible, the cheapest, retails for more than $200,000, which equals the annual pay of 590 entry-level public employees. Across the street, an apartment building is under construction. A brochure advertises a rooftop pool, game salon, gym, and co-working space. Stores sell Hermès and Pronovias clothing around the corner. Not far away, a shop displays $1,000 stilettos from Gianvito Rossi, the Milan designer.
This conspicuous consumption represents a remarkable turnaround – still early, delicate, and available only to the wealthiest in this nation of 30 million. Until recently, Venezuela was known as an economic basket case with hyperinflation that neared 2 million percent a year. Its currency, the bolivar, was worth so little that criminals no longer bothered to steal it and enterprising souls wove the bills into handicrafts to sell to tourists for a few US dollars. Around Las Mercedes, stores shut down and children foraged for food in garbage bags.
The neighborhood’s transformation follows a stunning about-face by President Nicolás Maduro, the barrel-chested former vice president handpicked by Chávez. Over the past three years, Maduro has eased restrictions on businesses, as well as price controls and regulations; last year he dropped the ban on casinos.
Most significant, in late 2018, Maduro let the US dollar circulate legally. Everyone, from executives to street vendors, now carries greenbacks, which could have led to jail time under Chávez. “Dollarization helped out a lot,” says Andrea Malavé, general manager of Las Mercedes’s Paw3r store, whose bright and sporty T-shirts and leggings are Venezuela’s answer to Lululemon. Malavé remembers how she and her seven employees struggled to keep up with rising prices. With inflation under control, her business is thriving. Paw3r T-shirts, the latest fashion trend among the young and athletic, are everywhere. The company now has 30 staffers working in two stores in eastern Caracas, with plans for two more by yearend.
Almost every data point shows the economy is improving. The country’s gross domestic product is expanding by anywhere from 1.5% to 20%, depending on which economist is forecasting. Hyperinflation officially came to a halt in January. Some of the 6 million Venezuelans who fanned out across Latin America in search of something – anything – better have started to move back home.
The manufacturing sector could grow 10% this year, if the government can stimulate consumption, reduce competition from imports, improve public services, and adjust tax policy, says Luigi Pisella, president of Conindustria, the country’s largest industry association.
Foreign investors who’ve shunned the country, in part because they fear violating US sanctions, have begun to visit. They’re encouraged by signs of a rapprochement between Venezuela and the US, as well as surging commodities prices. Venezuela has the world’s largest proven oil reserves; it’s a treasure that could grow more valuable as countries turn away from Russian oil after the invasion of Ukraine.
And yet, 90% of the country still lives in poverty, subsisting on as little as $30 a month. Those gleaming office towers in Las Mercedes are still fairly empty. Pisella and others worry that business-friendly policies could easily reverse. The state oil industry languishes from disinvestment. What’s more, Maduro has indicated that dollarization is temporary. In many ways, he clings to Venezuela’s revolutionary identity to keep Chávez’s legacy alive. He supports Russia’s Vladimir Putin, strikes oil deals with Iran, and defends fellow Latin American leftists in Cuba and Nicaragua. “This stabilization is fragile,” says Luis Arturo Bárcenas, senior economist at Ecoanalítica, a financial analysis company in Caracas. He notes the region’s long history of failed economic transformations.
In short, Venezuela’s economy is both undeniable and something of a Potemkin village. It may lead to a new path, or everything may fall apart just as fast.
The turnaround in Las Mercedes, emblematic of the pockets of prosperity across Venezuela, owes much to two unlikely figures. They’re economists from Ecuador: Patricio Rivera and Fausto Herrera, who both worked for their country’s former president, Maduro’s fellow socialist ideologue Rafael Correa.
The duo has been advising the Maduro administration behind the scenes since 2019. They’ve pushed for the adoption of the dollar, government deficit reduction, and flexibility for the private sector, according to people familiar with their roles who asked not to be identified because they weren’t authorized to speak publicly. They’d established some of these policies in Ecuador, another dollarized, oil-exporting economy that, like Venezuela, had defaulted on its debts. Rivera and Herrera didn’t respond to interview requests.
“They have the experience of working with an oil-producing country that became a pariah with the international investment community and then brought it back to have market access,” says Hans Humes, chief executive officer of Greylock Capital Management LLC in New York, whose interactions with Rivera and Herrera date to Ecuador.
With offices at the Finance Ministry, the Ecuadorians sit in on high-level meetings, participating in every financial decision. During their tenure, the ministry painted over murals depicting Chávez and removed political paraphernalia, according to businesspeople who’ve met them there.
Rivera and Herrera, who have no official titles, work as intermediaries for international investors and Venezuelan industrialists. Rivera, a shy technocrat full of nervous energy, advises on monetary policy and budgets, as well as communication with businesses. Herrera, Ecuador’s finance minister from 2013 to 2016, offers guidance on relations with investors and international creditors who’ve increasingly shown a willingness to negotiate the terms of the country’s $60 billion of defaulted debt.
Their boss is Delcy Rodríguez, Venezuela’s vice president. Rodríguez and her brother, Jorge, president of the legislature, rose through the Socialist Party ranks. She’s become the face of the government’s pragmatic wing. She studied labor law in Paris and wears bright tailored suits and chunky glasses, looking more like a European technocrat than a beret-wearing revolutionary Chavista. Maduro notes that others in government are now emulating her business-like style, joking that they’re living on “Delcy’s planet.” Still, she’s one of his most trusted advisers, often appearing beside him on state television. In a recent episode of a propaganda cartoon show, Maduro stars as the superhero Súper Bigote; a Rodríguez character helps him kill a destructive inflation monster sent by the US.
Under Rodríguez, relying on the Ecuadorians’ advice, the government has backed away from constant inspections and fines. It eliminated taxes for thousands of imported products, including the raw materials essential to local industry. Within months, empty store shelves filled with imports, often sold more cheaply than those produced locally.
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