Why Brazilian trade with Venezuela has hit a 20-year low

. Jan 21, 2020
Due to the economic crisis and hyperinflation in Venezuela, the unofficial dollar exchange rate reaches VEF 250,000 for USD 1. Photo: Sunsinger/Shutterstock Hyperinflation has haunted Venezuela. Photo: Sunsinger/Shutterstock

Venezuela was once among the top 10 buyers of Brazilian products. In 2008, during the Lula administration, Brazil’s exports to its northern neighbor added up to USD 5.13 billion. But since current President Nicolás Maduro took over from the late Hugo Chávez, bilateral trade between the two nations has spiraled downward. In 2019, it reached its lowest point in 20 years—less than USD 500 million, or ten times less than in 2013, when trade in both directions hit USD 6 billion.

Brazil’s far-right President Jair Bolsonaro has been

an adamant opponent of Mr. Maduro&#8217;s and has advocated for cutting all ties with Venezuela. Last year, after tensions rose between the two sides, <a href="https://brazilian.report/newsletters/brazil-daily/2019/02/22/escalating-tensions-at-brazil-venezuela-border-a-test-for-bolsonaro/">Mr. Maduro closed the Brazil-Venezuela border</a> in a move to prevent his opposition bringing humanitarian aid into the country—and cut off the <a href="https://brazilian.report/society/2017/11/29/venezuela-crisis-roraima-power-brazil/">energy supply</a> to Brazil&#8217;s northernmost state of Roraima, which is off the Brazilian grid due to its territorial isolation and is now reliant on thermal power plants.</p> <div class="flourish-embed" data-src="visualisation/1261615"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>However, the lackluster trade numbers have little to do with political feuds, and more to do with <a href="https://brazilian.report/latin-america/2018/08/19/fall-south-america-pink-tide/">the region&#8217;s economic cycles</a>.</p> <p>The peak of Brazilian trade with Venezuela coincided with the <a href="https://brazilian.report/society/2019/11/23/latin-america-boom-bust-frustrations/">commodities boom</a> that propelled South American economies in the 2000s—and <a href="https://theconversation.com/from-pearls-to-oil-venezuelas-long-history-of-boom-and-bust-24049">crashed</a> at the same intensity after it passed. “South America’s exposure to commodities prices is unique around the world,” Augusto de la Torre, World Bank chief economist for Latin America and the Caribbean, <a href="https://www.wsj.com/articles/south-america-suffers-from-end-of-commodities-boom-1460487125">told</a> <em>The Wall Street Journal</em>. “Not even middle-income African countries have such strong exposure.”</p> <p>In recent years, Venezuela has been engulfed by what is arguably the worst humanitarian crisis in the Western Hemisphere. Its currency has lost <a href="https://www.investing.com/currencies/usd-vef-historical-data">29 million percent</a> of its value since February 2018—and the International Monetary Fund estimated its inflation rate for 2019 at <a href="https://in.reuters.com/article/venezuela-economy/imf-sees-venezuela-inflation-at-10-million-percent-in-2019-idINKCN1MJ1YX">10 million percent</a>. The minimum wage is a measly <a href="https://g1.globo.com/mundo/noticia/2020/01/11/venezuela-eleva-salario-minimo-em-6666percent-para-cerca-de-us-37-por-mes.ghtml">USD 3.71 per month</a>. Since Venezuela’s descent into chaos began in 2015, an estimated 4 million Venezuelan migrants fled the country, with <a href="https://brazilian.report/society/2018/02/21/venezuelans-moving-brazil/">thousands coming to Brazil</a>. As Matt O’Brien <a href="https://www.independent.co.uk/news/world/venezuela-the-country-that-should-have-been-so-rich-but-ended-up-this-poor-a7038421.html">wrote</a> for <em>The Independent</em> in 2016: “Venezuela is the answer to what would happen if an economically illiterate drug cartel took over a country.”</p> <div class="flourish-embed" data-src="visualisation/1264691"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <h2>Venezuela, an outcast in South America</h2> <p>In 2017, during the presidency of Michel Temer, Brazil&#8217;s Central Bank suspended guarantees given to local companies exporting goods and services to Venezuela under an agreement that allowed trade to be done with the Brazilian government acting as surety. The move came shortly after Brazil, Argentina, Paraguay, and Uruguay began the process of <a href="https://brazilian.report/power/2018/10/10/brazil-crisis-venezuela/">expelling Venezuela</a> from South American trade bloc Mercosur.</p> <p>That same year, Nicolás Maduro suspended payments on <a href="https://brazilian.report/newsletters/brazil-daily/2019/06/24/june-24-2019-turkish-people-brazil-supreme-court/">loans</a> given by the Brazilian Development Bank (<a href="https://brazilian.report/power/2019/06/17/exit-bndes-president-ideological-whim-bolsonaro/">BNDES</a>) to projects in Venezuela—which also had the Brazilian government as guarantor—forcing the Brazilian administration to use part of the federal budget to cover the losses.</p> <p>In a statement, Brazil&#8217;s Economy Ministry believes that these recent sanctions may be linked to the decrease in bilateral trade with Venezuela.&nbsp;</p> <blockquote class="wp-block-quote is-style-default"><p><em>&#8220;According to current legislation, Brazilian exporters wishing to enter into export contracts with the country cannot claim government instruments for official export support (financing and guarantees), which may decrease the volume of Brazilian exports to Venezuela. However, trade operations that do not have public financing/guarantees are not impacted by Venezuela&#8217;s default situation.&#8221;</em>

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