Venezuelan merchants face tough choice
Store owners either close down or hike prices amid reforms
SANTA TERESA DEL TUY, Venezuela — Franklin David was arrested last week in this impoverished town outside Caracas for doing what his family says he has done almost every day for the past 25 years: selling car parts.
In a surprise raid, about two dozen armed police officers flanked by Santa Teresa del Tuy’s mayor and journalists showed up at David’s four-story warehouse, Autopartes Guarico 2000, and hauled away the 49-year-old father of three for allegedly raising prices by too much in a country ravaged by hyperinflation.
His already-struggling business, built from scratch during a more prosperous era, was shut down, and David remains jailed on charges of speculation, a crime punishable with up to 10 years in prison.
“It was like they were celebrating a triumph,” said Julio Pernia, one of 20 employees who have no idea how they’ll feed their families now that their boss is behind bars. “They treated us like killers, but all we were doing was our work.”
David’s plight is shared to some extent by thousands of small-business owners nationwide — a few dozen who have been arrested and far more who fear having to choose between closing shop or hitting customers with steep price increases as they adapt to President Nicolas Maduro’s sweeping plan to rescue the crisis-wracked economy.
The plan imposes a more than 3,000 percent increase to the minimum wage while maintaining laws that threaten prison for store owners who raise their prices in excess of what state regulators determine.
Even so — despite the heavyhanded crackdown that trapped businesses like David’s — the reforms announced three weeks ago represent the most serious bow to market forces in two decades of socialist rule.
Developed in secret over several months with input from economic advisers to former Ecuadorian President Rafael Correa, the plan consisted of some measures that Wall Street had been urging for years, like hiking giveaway gas prices to close a yawning budget deficit and dismantling currency controls in place since 2003. Some opponents even accused Maduro of imposing a neoliberal blueprint — the ultimate insult in a country where hundreds were killed during days of looting the last time economic austerity was seriously attempted in 1989.
“We now have to play another way, with Prussian fiscal discipline to definitively eliminate the printing of non-organic money and sustain the creation of wealth through oil production, tourism and moreefficient collection of taxes,” Maduro said in announcing the reforms. He also encouraged supporters to be vigilant against pricegouging and denounce merchants who raise prices “excessively.”
But most economists view the plan as half-baked and ill-suited for a nation sitting atop the world’s largest petroleum reserves. They argue that the minimum wage hike will bankrupt businesses and require the government to print bolivars with abandon, further stoking inflation forecast to reach 1 million percent, according to the International Monetary Fund.
In August, as a new currency with five fewer zeros was being rolled out, prices jumped a whopping 223 percent, according to a report by the opposition-controlled National Assembly. The central bank stopped regularly publishing inflation data in 2004.
“To dismantle this requires dismantling the clientele base of Chavismo with all the obstacles fueled by ideology, populism and corruption,” said Orlando Ochoa, an Oxford University-trained economist who has been working the past two years with Venezuela’s opposition on an economic transition plan. “Asking Maduro to come up with a complex recovery plan is like asking him to undertake a human mission to Mars.”
But government backers blame U.S. financial sanctions and what Maduro calls an “economic war” by his opponents.
Pedro Paez, a former antitrust regulator in Ecuador, was among several officials linked to the leftist Correa as well as experts from Russia, China and multilateral banks who attended meetings in June with Vice President Tareck El Aissami to suggest ways out of Venezuela’s economic mess.
He believes that Venezuela’s biggest problem remains the pricesetting power of its anti-government elite, which for years profited from access to the illegal currency markets and almost free public utilities even as inflation slashed the wages of the working class in dollar terms to the lowest level in Latin America.
“There’s no increase in the cost structure that justifies such brutal increases in prices,” said Paez.
But that’s hardly comforting to small businesses.
Nationwide more than 130 merchants have been arrested since the measures were announced, according to the chief prosecutor’s office. They include store managers of the nation’s biggest pharmacy chain and at least two others — a Chinese grocer and a butcher — in Santa Teresa del Tuy.
Like many small business owners in Venezuela, the David family had become adroit at averting disaster. The business was started in 1991 by David’s father, a mechanic who gradually built a chain of three stores. Over the years the family business survived riots, a banking crisis and more recently a shortage of imports that depleted inventories by half. The day David was arraigned was the 15th anniversary of his father’s murder in a botched carjacking.
But David David, co-owner of the business, said that with his brother locked up, he doesn’t know how he’ll survive the potent mix of hyperinflation and ironclad controls.
For the first time, he’s seriously considering permanently closing shop and joining the exodus of 2.3 million Venezuelans who have fled the country in recent years. The only thing stopping him is the support of loyal employees he says are family and who this week took the unusual step of holding a small protest outside their shuttered workplace with signs that read “Free Franklin” and “Let us work!”
According to a police report obtained by the Associated Press, a manager for the Miranda state government visited the shop on Aug. 27 and asked for the price of a small engine part for a Toyota Tacoma pickup. When he returned a week later, the price had jumped almost fivefold, to 13,000 Bolivars, or about $210 at the new official exchange rate. As part of the reform package, Maduro devalued the official rate by 95 percent.
David David disputes the allegations in the complaint, but says that he had no choice to raise prices of his entire inventory by an average of 30 percent to absorb part of the higher costs for imports and now a 60-fold increase in wages. He says he didn’t hike them more for fear it would’ve dried up the trickle of business he still has.