Thursday 1 June 2023

Drug Trafficking and Money Laundering Fuel Venezuela’s Dollarization

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Dollar Exchange

¢539.05 BUY

¢546.19 SELL

1 June 2023 - At The Banks - Source: BCCR

Paying the bills


Much of the dollars now circulating in Venezuela allegedly come from money laundering and drug trafficking.

ndrea Rondon: “When the state is the trafficker, the dollar injections are much wider because it doesn’t have the natural obstacles” (Andina)

A study carried out by Ecoanalítica and published by Bloomberg revealed that more than half of the retail transactions in American currency in a country where salaries are set in bolivars and the minimum wage is less than five dollars a month.

The dollarization, which has rebounded in the country, is due to the recent relaxation of price controls. However, prices are so high that those who depend on wages in bolivars cannot afford anything.

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Although there is the talk of a kind of “normalization” of the economy in the South American country, what is happening is a “mercantilism of the 21st Century,” according to Andrea Rondon, a university professor and member of CEDICE Libertad’s academic committee.

The expert explained that the economy would not improve unless the laws and controls change. On the contrary, what we have is a “relaxation” that was forced because the state was “strangled” with sanctions.

“In these last two months there is a kind of feeling of improvement because you see inns, premises that are opening and that create the appearance of investment; and I say appearance because they are not necessarily so. Many are probably linked to money laundering,” he explained.

Rondon pointed out that the state injects a lot of those dollars that are circulating today in Venezuela.

“We must remember that one of the biggest problems of drug trafficking is to mobilize cash and launder it, but when it is the state that is trafficking, the injections are much more extensive because it does not have the natural obstacles. That is why it is also assumed that the largest injection of dollars comes from there,” he said.

The specialist explained that for Nicolas Maduro’s regime, the dollars no longer come from oil rent but from illicit transactions: money that arrives in cash and is laundered with “investments” in legal businesses.

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For more than two decades, chavismo imposed laws, economic and penal sanctions on those who freely accessed the dollar. Besides, the exchange control killed more than 10,200 companies and devalued the Bolivar to its peak. However, Maduro, who had said that the dollar was a currency “without backing,” is now thanking God for the dollarization of the country.

After drowning in international sanctions, chavismo was forced to give in and allow Venezuelans to trade dollars. It is already common in the South American country to charge in U.S. currency for private medical consultations, insurance, tourist services, electrical appliances, real estate, restaurant bills, private education, and even commercial activities such as shopping in the market and transportation.

Professionals such as dentists, lawyers, surgeons, etc., offer their services in exchange for payment in dollars with no question because it is logical to assume the source of the money.

An economic bubble

Despite the talk of a supposed “normalization,” the truth is that Caracas is immersed in an “economic bubble.” According to Andrea Rondon, this is a “feeling of improvement” that is removed from reality.

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“In Caracas, the lack of water and electricity, for example, continues. But there is a supposed feeling of improvement because that is where the establishments, the Russian, Chinese, and Iranian companies that are also injecting dollars into Venezuela, are visible. Caracas is the city that shows this economic bubble,” he added.

“The economy is not improving because the same policies persist. The only difference is that they have had to relax the controls because they themselves have been suffocated. The laws and controls are in force, and as long as they remain in effect, we cannot say that there is an improvement,” he said.

Venezuela has become a kind of “modern Cuba.”

Rondon explained that it is tough to provide unbiased information about what is happening in Venezuela because there are no official data available.

“There is massive economic intervention and no official information. It is impossible to surgically separate what part of the money belongs to the state, what comes from drug trafficking, what comes from private enterprise, etc.,” he added.

“Any explanation is short; the market must be transparent and give you as much information as possible. But the intervening state is the one giving the information. That makes everything uncertain, and there is no transparency,” he said.

For Rondon, Venezuela’s economy today resembles that of Cuba and what is happening in China.

“It is a kind of modern Cuba; for example, they do not have to restrict people’s freedom to leave the country. Instead, they set excessive prices and taxes making it hard to buy passports or airline tickets. We have the same shortcomings as Cuba, but it has been modernized. On the other hand, capital is injected, and that is very similar to China. It is not the capitalism of a liberal regime, but a mercantilism of the 21st century. There is no rule of law, and the state intervenes in economic freedoms,” he concluded.

Article originally appeared on Today Venezuela and is republished here with permission.

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Q24N is an aggregator of news for Latin America. Reports from Mexico to the tip of Chile and Caribbean are sourced for our readers to find all their Latin America news in one place.

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