“We stand before the collapse of a model of accumulation that was based on the perception of increasing international surplus value. This process allowed consumption and investment levels far greater than what the factors of domestic production could generate.” This quotation could be easily applied to the current Venezuelan economic context, but it actually belongs to a paper published by Víctor Álvarez—an economist who was later a minister in the administration of Hugo Chávez—in the March 1989 edition of SIC Magazine of Centro Gumilla, the Jesuit think tank in Venezuela. The piece was titled “El ocaso de la Venezuela rentista. Nueva estrategia de desarrollo” (The decline of rentier Venezuela. A new development strategy).
Just like today, at the time—the late 80s—Venezuela was facing an economic crisis related to the rentier model of oil exploitation. The times of bonanza were times of unlimited consumption and public profligacy; and they were always followed by times of hardship—usually after a fall in the international oil prices—for which neither the state nor the society were prepared.
The Bolivarian revolution enjoyed extraordinarily high oil prices for almost a decade, years when the crude barrel averaged more than $100. Today, Venezuelan oil fetches a meager $33 on international markets.
After being Chavez’s minister of basic industries and mining from 2005 to 2006, Victor Álvarez became an opponent of Nicolás Maduro’s government. As he did 27 years ago, he is now questioning the rentier model, a model that Chávez deepened.
In his 1989 paper, Alvarez called for diversifying the economy, stimulating growth and putting the country on a sustainable development track—all with the goal of generating income from productive activities other than the oil industry. The challenge for Venezuela, both then and now, is to achieve an economic dynamic that would make the country less vulnerable to the ups and downs of international oil prices, while ensuring industrial development policies in different areas that could supply the domestic market and generate export capacity.
In a nutshell, the challenge, both then and now, is to break the excessive dependency of Venezuela’s economy on crude exports.
The 1986-1987 oil boom boosted prices and created expectations for a new bonanza. But international oil dynamics readjusted in 1988 and oil prices decreased, ending lower than what had been expected. (The Venezuelan budget was calculated with an oil barrel at $16 but the average for 1988 was $13). Additionally, crude production expanded as the Organization of Petroleum Exporting Countries (OPEC) lost its market control and relevance.
Álvarez, together with most experts at the time, estimated that oil prices would remain low and there would not be additional price increases. It was unthinkable then to imagine oil barrel prices above $100, as the ones that blessed the Chávez’s administration just a few years after reaching power.
In that same March 1989 edition of SIC magazine, in a separate article “Perspectivas económicas del próximo quinquenio” (Economic perspectives for the next five years), Eduardo Ortiz foresaw a more positive scenario in terms of oil prices. Contrary to the expert consensus, he predicted high oil prices between $15 and $20 per barrel for the 1989-1994 period. In fact, prices topped out a new high of $36 in October of 1990. But by then the second administration of Carlos Andrés Pérez had recently begun. A few weeks after his inauguration, Venezuela suffered the events of the Caracas. The popular upheaval—even with the boon in oil prices—was a warning that regardless of expectations and global oil prices, Venezuela’s economic and political model was coming apart at the seams.
The high crude prices only lasted for a time and eventually proved to be well below the prices of the 2005-2012 boom. They never reflected a healthy or better-managed economy but instead global forces outside Venezuela’s control. Unfortunately, Venezuela remained a hostage to global events, all the while doubling down on a failed strategy and on unrealistic optimism.
The economic debates in Venezuela haven’t changed in more than 30 years. The academic and policy discussions and problems continue to be relevant throughout the years regardless of the political regimes. In this case, though, relevance isn’t a good thing.