(Bloomberg Markets) — 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.
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.”
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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.
The mere availability of food returned a sense of normalcy to parts of the country, quelling some resentment against the government. Still, noting the unresolved underlying economic problems, some skeptical Venezuelan economists refer to it as pax bodegónica, or peace by convenience store.
Venezuela was one of the only countries in the Americas to slash its deficit during the peak of the pandemic, defying the global trend. The shortfall declined from 30% of GDP to less than 5%, according to Luis Oliveros, an economist and a professor at Central University of Venezuela in Caracas. The government had implemented the kind of austerity typically imposed by the International Monetary Fund, the enforcer of global financial stability.
The shift toward freer markets is sparking the return of the gaudy consumerism of 1970s Venezuela—excesses among the elite that Chávez condemned. Maduro’s acceptance of some elements of American-style capitalism has served two goals: ending the financial crisis of the 2010s and staving off US-backed opposition leader Juan Guaidó. In 2019 the US toughened economic sanctions, citing antidemocratic behavior and other abuses in Venezuela, after concluding that Maduro rigged an election. To encourage him to negotiate with the opposition, President Joe Biden’s administration in May said it would ease some sanctions.
Across the country, residents have noticed a symbolic change. On highway billboards, a stark image of Hugo Chávez’s eyes—stylized in black, peering from a bright red frame—long gazed down at citizens, as if keeping watch over his legacy. The posters are mostly gone. It makes sense. Chávez would have railed against what’s happening in Las Mercedes.
Carved out of farmland a century ago, Las Mercedes in the 1950s became a middle-class enclave of single-family homes in the Basque style: timber and stone with red roofs. In the 1980s teenagers flocked here to hear Latin rock. It became a shopping destination, a compact district in the shadow of Avila Mountain where about 500 people now live.
The neighborhood’s fortunes ebbed and flowed along with petrodollars; it was also affected by the sanctions, which apply to US companies. “There has been a boom originated by money that had no other way out,” says Marco Negrón, a Venezuelan architect and urban planner who’s researched growth in Las Mercedes. “It’s very difficult to say how much results from drug-money laundering and how much from the savings from companies or individuals.”
Las Mercedes remains a study in contrasts. The office towers and boutiques line narrow, uneven sidewalks and one-lane streets prone to flooding. The power supply is unreliable. Restaurants sell arepas, the Venezuelan cornmeal griddle cake, near high-fashion European boutiques.
Oscar Ramirez, 30, manages a thriving fast-food diner, where half the customers pay—and tip—in dollars. But he and his wife have a small apartment and no savings. Although some of his friends and family have returned, others remain in Colombia and Peru. “Inflation hasn’t stopped for good,” he says. “Venezuela’s economy hasn’t been fixed. There’s much to be repaired, starting with water and electricity.”
Off Calle Nueva York, the neighborhood’s upscale Tolon Fashion Mall sells Montblanc pens and iPhones. International brands, many from Europe—some of which had recently pulled out of the country—are inquiring about space, says Horacio Velutini, CEO of Fondo de Valores Inmobiliario SACA, the real estate fund that owns the mall. Velutini is developing a boulevard that will stretch from the main square to the mall. “It’s a place where two worlds converge,” he says. “Where you can have people eating a hot dog for $1 and a person buying a $150,000 watch right across the street.”
On a Thursday evening in early May, the wife of a Chavista lawmaker sits in a restaurant at the Madrid Financial Center, her outfit accessorized with a black, cross-body Chanel bag. At 1 a.m., valets fetch hulking SUVs for customers emerging from the restaurant. Others are just arriving to hit the club on the building’s mezzanine. Some stop by the El Resuelve hot dog cart. “It’s brought more life, more people at night,” says the vendor, Ramon Rojas, 39, gesturing to the 16-story building. “The street has been improving, step by step.” A red Ferrari 458 Spider cruises past Mexican and Japanese restaurants as the sounds of karaoke fill the air.
On Sunday mornings, patrons of the Azu patisserie order $7 almond croissants. The Evans family opened the shop in November 2020. María Evans studied cooking in Madrid and learned to bake by traveling across Europe. She incorporates ingredients from the Amazon. The family started with four tables and now has 30 and can serve 120 customers. “People are spending more, and they want to live nice experiences inside the country,” says her cousin, Alejandro, who manages the restaurant. “Before, they went to Miami. Now they can get those experiences here.”
Nearby, Ilana Chavez and her husband are serving American-style brunch at their restaurant, Marguerite. As French jazz plays, about 50 diners sit around tables set with colorful ceramic plates. A meal typically costs $20, about three-quarters of the monthly pay of a civil servant. “People can indulge themselves,” Chavez says. “Things are changing. People go to Marguerite to enjoy a dessert when they didn’t before. We were in decline, and now I’m seeing a little bit of light.” —With Fabiola Zerpa
Itriago Acosta and Yapur cover Venezuela from Caracas. Fieser writes about Latin America from Bogotá.
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