Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

(Bloomberg) -- Venezuela has essentially stopped exporting oil and in its place, started exporting people.

Oil production has plunged almost two-thirds in the past 16 years, turning the country with the world’s biggest proven reserves into a mere fringe player in global markets. Venezuelans, meanwhile, are fleeing in droves. An estimated 1.6 million have left since 2015—roughly 5 percent of the population. The United Nations now estimates that are some 2.3 million Venezuelans living abroad, while in 2005 there were only 437,000.

This new export is paying dividends. As the Venezuelan diaspora earns ever greater income, they’re sending more to struggling relatives back home. Remittances surged to $1.5 billion in 2017 and will climb a further 60 percent this year to $2.4 billion, according to Caracas-based consultancy Ecoanalitica.

This is a paltry sum, compared to the riches that a good year of oil exports can generate. And it’s just a fraction of what traditional remittance-dependent nations receive. (Tiny El Salvador, for instance, takes in some $5 billion a year.) But in a country where millions have been driven into deep poverty by hyperinflation and economic paralysis, every dollar counts.

Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

The transfers, as little as $10 a month, evade currency controls and trickle into Venezuelans’ pockets through networks of small businesses and relatives lucky enough to possess foreign bank accounts. Ecoanalitica estimates that roughly 2.1 million Venezuelans sent money home last year. Asdrubal Oliveros, a company director, says access to dollars has split Venezuela as it faces inflation expected to soar to 1 million percent this year, as well as shortages of everything from chicken to car parts.

“You practically have two societies living side by side,” said Oliveros. For those without help from abroad, “hyperinflation makes it very, very likely they’ll end up in poverty or immiserated.”

For Kelly Marcano, a 40-year-old pediatrician in Petare, a vast hillside slum in Caracas, the $20 her brother Gabriel Marcano sends each month ensures his five relatives get three meals a day.

Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

Before Gabriel Marcano moved to Lima in December, Kelly Marcano was the breadwinner—when bread could be had. First, the family reduced portions and then cut out meat almost entirely, until Kelly Marcano found herself skipping meals altogether. Marcano stabilized her family’s diet, once money from Peru started arriving. “We’re still sacrificing, but at least our food is guaranteed,” she said.

In Petare, a carton of eggs costs 120 bolivars and kilo of chicken is about 78 bolivars—around $1.20 and $0.75 respectively. The prices are a steal for the select few with hard currency, but for most it’s a major expense.

Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

“It’s like magic,” said Gretty Tovar, 44, who lives a few doors from the Marcanos, said of stretching her salary to cover costs. “It’s never enough. Your money vanishes buying a hunk of cheese.”

For poor countries, remittances have long been a mainstay: The World Bank estimates that some $80 billion was sent to South America in 2017. Economists say, however, that it’s impossible to gauge exactly how much is arriving in Venezuela. But as the oil industry collapses—thanks to a lack of investment, the ouster of foreign companies from joint ventures and a brain drain of engineers and executives—remittances are ever more important.

Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

“Venezuela is moving in the direction of Haiti,” said Manuel Orozco, director of the Migration, Remittances and Development Program at Inter-American Dialogue, a Washington think tank.

Wages and prices are warped, thanks to currency controls the late Hugo Chavez established in 2003 in a bid to stem capital flight. They have become only more baroque under his successor, Nicolas Maduro.

The black market sets most prices. Officially, dollars sell for around 62 bolivars, while they fetch more than 100 on the street. Rates are tracked and published online by virtual exchange houses and news outlets, which base them in part on what dollars fetch at the Colombian border. In the end, each transaction is haggled out. Maduro, like his charismatic predecessor before him, has railed against the “criminal” or “mafia” dollar, and the government has jailed people accused of gouging consumers and spiriting banknotes out of the country.

Venezuelan Refugees Send Billions Back Home, Helping the Lucky Survive

“They’re applying economic warfare tactics on us,” Maduro said in a televised meeting with businessmen Sept. 5. “But all those war mechanisms will be dismantled, and a healthy, fluctuating, free and stable exchange system will prevail."

This year, the Maduro administration has tacitly embraced free-market rates as it rejiggers controls, including a 95 percent currency devaluation and lopping five zeros off the bolivar last month. In August, the regime enabled businesses and individuals to swap money at designated trading houses.

Francisco Rodriguez, chief economist of New York investment bank Torino Capital, said the adjustments are part of an effort to harness additional revenue. “But they won’t be able to successfully do that until they’re willing to recognize and validate the market equilibrium rate—the black market,” Rodriguez said.

Until then, Venezuelans will continue to seek help across borders.

“Two years ago, it was nothing,” said Oliveros. “As long as the situation continues, it’s only going to get bigger.”

©2018 Bloomberg L.P.