Venezuela is undergoing one of the worst economic losses ever registered by any country in a three-year period, either by Latin American or world standards. Poverty rates have skyrocketed and stand today beyond 80%. We define two landmarks for recovery, and revise how much would Venezuela need to grow - oil and non-oil sectors - and how likely are those rates from the Venezuela and the world´s experience. We end up by outlining some of the adaptive challenges Venezuela would need to tackle to engine a sustainable recovery.

1. Venezuela:
Where
are
we
now
an
how
long
will
it
take
to
recover?
Miguel
Angel
Santos
@miguelsantos12
www.miguelangelsantos.net

2. Where
are
we
now?

3. 100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
1950*
1952*
1954*
1956*
1958*
1960*
1962*
1964*
1966*
1968*
1970*
1972*
1974*
1976*
1978*
1980*
1982*
1984*
1986*
1988*
1990*
1992*
1994*
1996*
1998*
2000*
2002*
2004*
2006*
2008*
2010*
2012*
2014*
2016*
Venezuela:*GDP*per*capita*1950<2016
(1950=100)
In
three
years
29.3%
of
Venezuela´s
income
per
capita
vanished:
It
is
now
just
above
national
strike
levels,
at
the
same
point
it
was
in
1956
Source:
Venezuela
Central
Bank,
Reuters,
author´s
own
calculations.

4. Faced
with
plummeting
oil
prices
and
hefty
debt
service,
the
government
chose
a
draconian
import
cut:
Imports
per
capita
today
are
26%
of
2012
peak
0"
500"
1,000"
1,500"
2,000"
2,500"
3,000"
3,500"
4,000"
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015E
2016E
Constant"2016"dollars"per"capita
Venezuela:)Exports)and)Imports)per)capita
(constant)2016)dollars)
Exports"real"per"capita Imports"real"per"capita
Source:
Venezuela
Central
Bank,
IMF
International
Financial
Statistics
Reuters,
author´s
own
calculations.

5. The
import
nose-­‐dive
was
also
the
end
of
the
illusion
of
abundancy,
as
now
production
and
consumption
are
forced
to
be
more
aligned
60.0
80.0
100.0
120.0
140.0
160.0
180.0
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2015
Venezuela:
Gross
domestic
product
and
consumption
per
capita
(1998-­‐2015,
1998=100)
Private
consumption Government
consumption Gross
domestic
product Baseline
Source:
Venezuela
Central
Bank,
author´s
own
calculations.

6. Poverty
skyrocketed
to
record-­‐levels:
81.8%
of
households
are
estimated
to
be
poor
and
30%
are
now
in
extreme
poverty
– only
18.2%
are
not
poor
Source:
INE.
Encuesta
de
Hogares
por
Muestreo.
1997-­‐2015.
UCAB-­‐UCV-­‐USB.
ENCOVI
2014-­‐2015-­‐2016
-
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2014 E 2015 2015E 2016E
EVOLUCIÓN DE LA POBREZA EN VENEZUELA 1997 - 2016
Pobres No Extremos Pobres Extremos
55,6
54,0
26,4
29,5
33,1
48,4
73,0
81,8
Venezuela:
Evolution
of
poverty
and
extreme
poverty
(1997-­‐2016)
Total
poverty Extreme
poverty

7. Multidimensional
poverty
has
gone
up
(71%)
and
become
more
intense:
The
average
income
of
a
poor
household
is
now
39%
away
from
the
poverty
line
0,320
0,190
0,529 0,560
0,71
0,370 0,350 0,352 0,343
0,39
0,118
0,067
0,186 0,192
0,28
0,000
0,050
0,100
0,150
0,200
0,250
0,300
0,000
0,100
0,200
0,300
0,400
0,500
0,600
0,700
0,800
0,900
1,000
2005 2012 2014 2015 2016
Mo(HxA)
IncidenciaeIntensidad
Incidencia Intensidad Pobreza Ajustada (Mo)
Source:
INE.
Encuesta
de
Hogares
por
Muestreo.
2005-­‐2012.
UCAB-­‐UCV-­‐USB.
ENCOVI
2014-­‐2015-­‐2016
Incidence
and
Intensity
of
Multidimensional
Poverty
Incidence Intensity Adjusted
poverty
Incidence
and
intensity
of
poverty

8. In
three
years,
a
significant
number
of
households
that
were
not
poor
became
(recent)
poor,
and
an
alarming
figure
ended
up
in
chronic
poverty
2014 Not
poor Poor
Not poor
Not
poor
44,7%
Inertial
poverty
6,1%
Poor
Recent
poverty
33,1%
Chronic
poverty
16,1%
Income
poverty
Structural/Multidimensional
poverty
2015 Not
poor Poor
Not poor
Not
poor
23,1%
Inertial
poverty
5,5%
Poor
Recent
poverty
47,1%
Chronic
poverty
24,3%
Income
poverty
Structural/Multidimensional
poverty
2016 Not
poor Poor
Not poor
Not
poor
16,4%
Inertial
poverty
3,2%
Poor
Recent
poverty
49,4%
Chronic
poverty
31,4%
Income
poverty
Structural/Multidimensional
poverty
ü Non-­‐poor
households
decrease
63%
in
two
years
(28.3
percentage
points)
ü Recent
poverty
increased
49%
(16.3
percentage
points)
ü Chronic
poverty
increased
95%
(15.3
percentage
points)

9. Are
the
precedents
to
such
a
catastrophe?

10. 100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
1950*
1952*
1954*
1956*
1958*
1960*
1962*
1964*
1966*
1968*
1970*
1972*
1974*
1976*
1978*
1980*
1982*
1984*
1986*
1988*
1990*
1992*
1994*
1996*
1998*
2000*
2002*
2004*
2006*
2008*
2010*
2012*
2014*
2016*
Venezuela:*GDP*per*capita*1950<2016
(1950=100)
Spells
where
countries
lost
29.3%
capita
in
three
years
are
not
very
common;
almost
unheard
of
in
cases
with
no
natural
disasters
or
armed
conflicts
Source:
Venezuela
Central
Bank,
Reuters,
author´s
own
calculations.

11. In
the
modern
history
of
Latin
America
(1960
onwards)
there
is
only
one
episode
where
a
country
has
suffered
a
greater
loss:
Cuba
!32.8%
!29.1% !29.0%
Cuba.(1991!1993) Venezuela.(2014!2016) Nicaragua.(1978!1980)

12. The
only
precedent
had
been
the
income
loss
registered
in
Nicaragua
at
the
outbreak
of
the
Revolución
Sandinista
between
1978-­‐1980
!32.8%
!29.1% !29.0%
Cuba.(1991!1993) Venezuela.(2014!2016) Nicaragua.(1978!1980)

13. Over
the
previous
twenty
years,
only
four
episodes
worldwide
registered
higher
economic
losses
than
Venezuela
2014-­‐2016
!60.5%
!45.9%
!36.2% !35.5%
!29.1%
Libya&&&&&&&&
(2009+2011)
South&Sudan&
(2010+2012)
Iraq&&&&&&&&&&&
(2001+2003)
Central&African&
(2012+2014).&
Venezuela&
(2014+2016)
Largest
GDP
loss
worldwide
in
three
years
(1985-­‐2015)

14. What
do
we
need
to
do
to
recover?
What
exactly
do
you
mean
by
“recover”?
How
much
would
we
have
to
grow?
For
how
many
years?
How
likely
is
that?

15. We
are
going
to
define
recovery
in
terms
of
income
per
capita
as:
a)
Our
historical
peak
(1977),
and
b)
the
most
recent
peak
(2012)
Source:
Venezuela
Central
Bank,
Reuters,
author´s
own
calculations.
100.0
120.0
140.0
160.0
180.0
200.0
220.0
240.0
1950*
1952*
1954*
1956*
1958*
1960*
1962*
1964*
1966*
1968*
1970*
1972*
1974*
1976*
1978*
1980*
1982*
1984*
1986*
1988*
1990*
1992*
1994*
1996*
1998*
2000*
2002*
2004*
2006*
2008*
2010*
2012*
2014*
2016*
Venezuela:*GDP*per*capita*1950<2016
(1950=100)
209.98&
192.08&
80#
100#
120#
140#
160#
180#
200#
220#
1950#
1952#
1954#
1956#
1958#
1960#
1962#
1964#
1966#
1968#
1970#
1972#
1974#
1976#
1978#
1980#
1982#
1984#
1986#
1988#
1990#
1992#
1994#
1996#
1998#
2000#
2002#
2004#
2006#
2008#
2010#
2012#
2014#
2016#

16. Based
on
these
targets,
we
calculate
how
much
do
we
need
to
grow
for
how
long,
and
how
likely
is
that
according
to
our
history?
Years&required&to&achieve&target&
2012&GDP&per&capita
CAGR&over&these&years&to&achieve&
target&2012&GDP&per&capita
Frequency&in&Venezuelan&history&
(1961D2015)&of&these&CAGR&rates&over&
these&years
5 8.3% 2.0%
10 4.6% 8.9%
15 3.4% 12.5%
20 2.7% 17.1%
25 2.3% 50.0%
30 2.0% 64.0%
35 1.8% 95.0%
Most&recent&peak&(2012)
Years&required&to&achieve&target&
1977&GDP&per&capita
CAGR&over&these&years&to&achieve&
target&1977&GDP&per&capita
Frequency&in&Venezuelan&history&
(1961C2015)&of&these&CAGR&rates&over&
these&years
5 10.3% 2.0%
10 5.6% 2.2%
15 4.0% 10.0%
20 3.2% 5.7%
25 2.7% 20.0%
30 2.3% 44.0%
35 1.8% 95.0%
Historical&peak&(1977)

17. What
about
oil?
We
have
lots
of
oil!
Can
we
make
it
in
five
years?

18. Let
us
think
of
a
fixed
time
horizon:
Five
years.
How
much
is
the
maximum
we
have
managed
to
increase
oil
production
in
five
years?
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Million
barrels
per
day
Venezuela:
Total
oil
production
(1935-­‐2016)
Chavez-­‐Maduro
2003-­‐2007:
0.34
MBD
1994-­‐1998:
0.71
MBD
(1978-­‐2016)
(1935-­‐2016)
1953-­‐1957:
0.71
MBD

19. Even
assuming
that
we
reach
the
maximum
oil
increase,
the
growth
required
in
the
non-­‐oil
sector
is
substantial…
and
not
very
frequent
in
our
experience
Historic(peak(((
(1977)
Most(recent(
peak((2012)
Historic(peak(((
(1977)
Most(recent(
peak((2012)
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'during'chavismo'(200352007)
340 11.83% 9.44% 1.96% 9.80%
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'since'1978'(199451998)
712 11.23% 8.80% 3.92% 11.76%
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'in'our'history'(195351957)
1,014 10.74% 8.26% 5.88% 13.73%
Scenarios
Total(increase(in(oil(
production(in(five=year(
(million(barrels(per(day)
CAGR(on(non=oil(GDP(required(to(
reach(target(GDP(per(capita(peak(
in(5(years
Frequency(in(Venezuelan(history(
(1961=2015)(of(these(CAGR(rates(
over(these(years

20. And
what
about
the
world´s
experience?
Are
these
episodes
of
growth
in
five
years
more
frequent
in
the
international
experience
(1961-­‐2015)?
0
200
400
600
800
1000
1200
Frecuency(of(CAGR(in(five1year(sequence
Compounded( annual(growth(rate((CAGR)(in(a(five1year(period
Fail+target Reach+most+recent+peak Reach+historic+peak

21. What
about
ten
years?

22. How
much
is
the
maximum
we
have
managed
to
increase
oil
production
in
ten
years?
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
Million
barrels
per
day
Venezuela:
Total
oil
production
(1935-­‐2016)
Chavez-­‐Maduro
1999-­‐2008:
0.20
MBD
1989-­‐1998:
1.42
MBD
(1978-­‐2016)
(1935-­‐2016)
1948-­‐1957:
1.44
MBD

23. In
this
case,
still
growth
required
from
non-­‐oil
sector
is
still
sizable,
although
more
likely
according
to
our
own
experience…
Historic(peak(((
(1977)
Most(recent(
peak((2012)
Historic(peak(((
(1977)
Most(recent(
peak((2012)
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'during'chavismo'(199952008)
201 6.52% 5.36% 21.74% 32.61%
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'since'1978'(198951998)
1,420 5.63% 4.37% 28.26% 36.96%
Maximum'increase'in'oil'production'registered'over'
a'five5year'period'in'our'history'(194851957)
1,440 5.62% 4.36% 30.43% 39.13%
Scenarios
Total(increase(in(oil(
production(in(five=year(
(million(barrels(per(day)
CAGR(on(non=oil(GDP(required(to(
reach(target(GDP(per(capita(peak(
in(5(years
Frequency(in(Venezuelan(history(
(1961=2015)(of(these(CAGR(rates(
over(these(years

24. And
what
about
the
world´s
experience?
Are
these
episodes
of
growth
in
five
year-­‐sequence
more
frequent
in
the
international
experience
(1961-­‐2015)?
0
100
200
300
400
500
600
700
800
900
Frecuencia)of)CAGR)in)ten1year)sequence
Compounded) annual)growth)rate)(CAGR))in)a)ten1year)period
Fail/target Reach/most/recent/peak Reach/historic/peak

25. Some
caveats
are
due…
• We
have
taken
growth
episodes
as
if
they
come
from
a
random
sampling
(but
priors
are
important)
• We
have
not
evaluated
the
quality
of
growth
• 1961-­‐1977:
Import
substitution
industrialization
model
• 2004-­‐2012:
Longest
oil
bonanza
ever
recorded,
foreign
debt
quadrupled
in
six
years
• Most
of
the
growth
spells
of
Venezuela
were
registered
in
the
earlier
side
of
our
sample
(1961-­‐1977),
the
fact
is
that
are
only
two
four-­‐year
sequences
of
growth
over
the
previous
forty
years

26. What
have
we
learnt
from
the
exercise?
• Oil
it´s
today
our
only
source
of
foreign
exchange
and
we
must
make
the
most
out
of
it,
but
the
key
to
a
fast
recovery
lies
in
the
non-­‐oil
sector

27. Oil
has
gradually
become
increasingly
small
for
the
size
of
Venezuela…
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Barrels
per
capita
per
year
Million
barrels
per
day
Oil
production:
Total
and
per
capita
(1965-­‐2016)
Oil
production
per
day Barrels
per
capita
per
year
Source:
PODE
and
PDVSA,
and
author´s
own
calculation
based
on
population
reported
by
INE.

28. What
have
we
learnt
from
the
exercise?
• Oil
it´s
today
our
only
source
of
foreign
exchange
and
we
must
make
the
most
out
of
it,
but
the
key
to
a
fast
recovery
lies
in
the
non-­‐oil
sector
• The
longer
the
time
it
takes
to
introduce
political
change
and
start
a
transition,
the
steeper
the
slope
(the
longer
the
time)
of
recovery
• Going
back
to
what
we
used
to
have
will
not
be
enough
to
recover:
The
“chavismo well
managed”
is
a
myth,
and
it
it
is
not
true
that
”we
were
happy
and
we
did
not
know”
• The
recovery
has
scant
probabilities
if
we
continue
formulating
policy
the
way
we
have
over
the
previous
40
years

29. How
can
we
get
on
track?

30. The
technical
solution:
Main
elements
of
a
new
policy
framework
Reestablish market mechanisms Substitute indirect subsidies for direct
subsidies
Reestablish sustainable international
finance
Curb deterioration of oil industry
• Unify exchange rate
• Liberalize price and interest rate controls
• Privatize small and medium SOEs in the
short term & regulate larger ones
• Secure international financial assistance
(IMF, WB, IDB and CAF)
• Re-profile debt and address arrears
• Reestablish credit lines (EximBanks,
Bilateral)
• Launch new oil policy with corresponding
regulatory changes
• Revamp relationships with JV partners and
service providers
• Audit finances, optimize expenditures and
review cooperation agreements
• Reform regressive indirect subsidies
(Gasoline, electricity, water, gas, telecom,
food and medicine)
• Improve provision of public goods
• Supplement income through direct subsidy
systems (i.e.: electronic transfers)

31. The
problem
is
not
technical,
is
mostly
adaptive:
How
can
we
manage
to
implement
the
things
we
know
we
need
to
do?

32. Some
example
of
the
adaptive
challenges
we
face…
• A
new
social
contract,
a
common
understanding
of
what
the
State
must
do
for
its
citizens
(equalize
opportunities)
and
what
people
must
do
for
the
State
and
for
themselves
• Too
many
claims
on
too
little
resources:
What
are
the
priorities?
– Foreign
financial
debt
(PDVSA;
sovereign,
Chinese
Funds,
Russia,
multilaterals)
– Commercial
debt
– ICSID
demands
– Social
debt!
• Reinvesting
Venezuela
and
igniting
recovery
necessarily
passes
for
an
IMF
package,
regulatory
changes
regarding
the
oil
industry,
and
dismantling
the
systems
of
controls
that
has
suffocated
private
initiative
and
ruin
the
economy:
We
need
a
leadership
convinced
of
the
strategy,
prepared
for
the
challenge,
and
a
public
narrative
of
the
reform
process
• Reform
will
take
place
within
the
context
of:
-­‐ large
institutional
destruction
and
State
fragmentation
-­‐ significant
social
unrest
and
chaos
-­‐ some
characteristics
of
failed
state

33. Epa Miguel. Te escuché en el
programa esta mañana. Nueve años
no son nada. Lo mejor es que a la
mañana siguiente cambiamos la
pendiente y empezamos a subir!!!
Me gusta esa idea. Te imaginas?
Nueve años subiendo, hasta llegar a
la cumbre !!

34. Thanks!
Miguel
Angel
Santos
@miguelsantos12
www.miguelangelsantos.net
March
3,
2017 Stanford
University:
Venezuela
at
a
crossroads