Caracas, Venezuela - Despite sky-high inflation, rigid currency controls and socialist expropriations targeting private firms, Venezuela boasted the world's best performing stock market over the past fiscal year.
The Caracas Stock Exchange rose a surprising 452 percent in 2013, according to data from financial services firm Morningstar, making it the world's highest growth index. Other firms confirmed the counter-intuitive trend, but local economists cautioned against believing "lies, damned lies or statistics".
"In Venezuela, the stock exchange is small," said Central University of Venezuela economist Rafael Antolinez, who advises the government. "If you put the figures in US dollars, it will seem even smaller," the adviser told Al Jazeera during an interview in a sparse government office.
Angel Garcia Banchs, an analyst with the firm Econometrica, went a step further. "In a nutshell, we don't have a stock market," the government critic told Al Jazeera. "The transactions in an average day are smaller than the value of a motorbike."
The stock market increase isn't strange... Every year capitalist private-owned enterprises are making huge profits, up to 1,000 percent.
There are fewer than 20 firms listed on the exchange, Banchs said, and they are mostly domestic banks. Other listed firms include Manpa, a paper-maker, and CANTV, the national phone company.
Venezuela has one of the world's highest inflation rates, at 56 percent. Currency controls mean one dollar is officially valued at 11.3 bolivars, but the black-market rate is 80 bolivars to the dollar, a spread of nearly 800 percent. These factors mean real growth in the stock market is significantly less than 452 percent, but it's still quite high.
"Venezuela has exchange controls meaning many international companies can't send revenues to their overseas headquarters. They use that money to buy stocks, bonds and many other things in Venezuela," Antolinez said. "Here the struggle against neoliberalism takes many shapes."
There are no men in pin-striped suits running around frantically in the Caracas exchange punching orders to buy or sell into high-speed computers. The building in an upscale neighbourhood is exceptionally quiet. The exchange's president, wearing business-casual attire, sauntered down to a security desk to meet with Al Jazeera reporters and then didn't return calls about a formal interview.
Representatives from Venezuela's Central Bank declined interview requests, as did spokespeople from foreign banks operating in Caracas, including BBVA, Santander and Citi Group.
Despite a lack of official interest in discussing the matter, Raul Arnaldo Borges, a teacher and backer of the socialist government, said he thinks he knows what's responsible for the rapid market growth.
"The stock market increase isn't strange," Borges told Al Jazeera during a rally supporting the government of President Nicolas Maduro. "I have friends who are business owners. Every year, capitalist private-owned enterprises are making huge profits, up to 1,000 percent. Public expenditures are higher now because oil prices have been rising. There is more state money in the street to invest."
Venezuela holds the world's largest proven oil reserves and it's the biggest crude exporter in Latin America.
Since the first election of the socialists in 1998, global oil prices have risen roughly 1,000 percent - from less than $8 per barrel to more than $100.
Given a tenfold rise in petroleum prices, Venezuela should be in the midst of an unprecedented boom. But shortages of basic goods and high inflation continue to plague its economy.
|Venezuela's inflation rate has hit 56 percent [EPA]
Oil dependence is holding back Venezuela's potential, Econometrica's Banchs said. Since the mid-1970s, Venezuela embraced a model of "petro-populism", according to the economist, where the state finances projects through oil rents, rather than genuine growth.
A series of governments have attempted to control the economy through overvaluing the currency, he said, allowing the state to become the main source of employment and turning citizens into "political clients".
"Oil rents are used by politicians to overvalue the currency," Banchs said. "Doing so gives wage-earners a purchasing power divorced from productivity and linked to oil rents. This makes it impossible for any firm, worldwide, to export from Venezuela."
Oil accounts for 95 percent of exports, and the country is dependent on foreign imports for food and manufactured goods. "Politicians needed to create poverty in order to have political clients; populism eroded our once-strong institutions," said Banchs
As of February 7, the market had risen 1.55 percent in 2014, regional media reported, which could indicate that the economic crisis is beginning to take the wind out of stock sales.
"If you expect a devalued currency over time, you can't have a stock market," Banchs said.
Prices and protests
Economic grievances are inspiring ongoing protests. Behind the scenes, some government officials are pushing for liberalisation to foster growth, while others believe hoarding and speculation are causing the problems and are urging for more expropriations and tighter state control.
Companies will be able to get money out of Venezuela through new convertible bonds denominated in US dollars, so the stock market will probably drop.
Unrest and expropriations have rattled international investors, meaning Venezuela has trouble finding financing on international bond markets.
To finance its spending, the government is now paying interest on Chinese loans with oil directly from the spigot in a form of dependency that many leftists would find enraging, if such terms were dictated by the International Monetary Fund or the United States.
"I agree, it's not a great situation," one senior government economic official told Al Jazeera, speaking on the condition of anonymity because of the sensitivity of the situation. "But we couldn't get money on the bond market, and this [deal] was necessary given our timing and circumstances."
The government knows the economy is facing severe hardships, the official said, and is working to rectify the situation. "In the next month, there will probably be big changes in the stock market [amid proposed amendments to foreign exchange rules].
"I believe the government will start to open some sectors [which had seen expropriations], especially steel and cement, to private investment," he said. "Companies will be able to get money out of Venezuela through new convertible bonds denominated in US dollars, so the stock market will probably drop."
Follow Chris Arsenault on Twitter: @AJEchris
Source: Al Jazeera