from Latin America Studies Program

Venezuelan Remittances Don’t Just Save Lives

Venezuela's President Nicolas Maduro holds up a mock 100-bolivar bill depicting the president of the National Assembly Henry Ramos Allup, during a pro-government rally in Caracas, Venezuela December 17, 2016. REUTERS/Carlos Garcia Rawlins

Sadly, they also help keep the country’s repressive regime in power.

Originally published at Bloomberg

April 5, 2019

Venezuela's President Nicolas Maduro holds up a mock 100-bolivar bill depicting the president of the National Assembly Henry Ramos Allup, during a pro-government rally in Caracas, Venezuela December 17, 2016. REUTERS/Carlos Garcia Rawlins
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Current political and economic issues succinctly explained.

In late January the United States announced widespread sanctions against Venezuela’s state-owned energy company PDVSA, ratcheting up pressure on the repressive regime of Nicolas Maduro in an attempt to force a democratic transition. Upon cutting off Venezuela’s primary source of hard currency, U.S. National Security Adviser John Bolton predicted the government’s downfall within a few weeks.

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Three months later, Maduro still sits in Miraflores, the presidential palace. Even this most oil-dependent of governments has remained afloat, at least so far. In part its resilience comes from cutting spending on basic necessities for the population: Food, medicine, even electricity.

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But it also reflects the regime’s access to dollars through other means. Drug trafficking, illegal mining and other contraband also bring in billions in hard coin to the regime. And as sanctions increase the deprivation and desperation of Venezuela’s people, one of these growing streams will come from remittances, money sent home by Venezuelans who were already abroad, or who have swelled the recent tide of the more than 3 million who have fled, most of them in the last three years.

Caracas-based consultancy Econoanalitica estimates some $4 billion will flow back to Venezuela this year alone. Add in another $1.5 billion in withdrawals from foreign bank accounts, and remittances will likely surpass oil dollars returning to the South American nation.  

A product of and palliative for misery, remittances have a long history in Latin America. Over decades, millions of migrants have sent money home to pay for food, medicine and school fees, to build houses and provide start-up capital for small businesses. While individually improving the situation of those left behind, in aggregate these flows have at times had insidious political effects, lessening the pressure on governments to represent and respond to their people, and even propping up corrupt and repressive regimes.

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In the Central American nations of Guatemala, El Salvador and Honduras, remittances make up well over 10 percent of GDP, bringing in more dollars than coffee, sugar, apparel or any other export. Yet by providing a stop gap for families, these flows also enabled governments to ignore voters and even loot their treasuries.

These inimical consequences are most vivid in Cuba. To offset the devastating end of economic support from the collapsing Soviet Union, the Castro regime opened up financial channels. Remittances from southern Florida and beyond skyrocketed, helping many survive the nation’s deepest depression, known as the “special period.” But these dollar flows also propped up the authoritarian regime, funding vital imports and servicing international debt and helping to keep the Castros in control.

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Venezuela’s regime has learned this lesson and already found ways to tap into remittances. With most of the money going to food, medicine, and basic necessities, it lessens the pressure on the regime to provide for its citizens, where even $20 a month can keep a family going.

Some of the money coming in ends up directly in the regime’s pockets.  Customs duties, taxes on cryptocurrency and other financial transfers, an unfavorable official exchange rate, and outright bribes all take a cut of family support. One anecdote: A Venezuelan friend sends home Amazon care packages via a woman in Tampa. For every $100 worth of powdered milk, pasta, Doritos, and other non-perishables, he pays an extra $500 to ensure the goods make it across the sea, through customs, and to the family’s apartment in Caracas.

Venezuela’s economic and financial collapse echoes that of Zimbabwe in the 1990s. Yet this and other historical parallels show that desperation doesn’t always lead to revolution. As remittances rise, well-meaning efforts to ease the suffering of millions of innocent individuals may inadvertently provide a lifeline to their oppressors – one more reason why economic pressure alone will not succeed without a savvy and sustained effort to negotiate an end to Venezuela’s horrific impasse.

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