Venezuela's economic merry-go-round in the 21st century: a study through the prism of the political management of the oil rent

The political management of oil revenues, combined with more conjunctural factors, constitutes the central reference from which to understand, with a long term perspective, the heterogeneous phases of the volatile macroeconomic evolution and its close relationship with the accelerated deterioration of the state-owned oil company Petróleos de Venezuela (PDVSA). Based on a combined study of PDVSA's operative and financial condition and its relationship with the Venezuelan central bank (BCV), this article identifies two stages in the political management of oil revenue that have shaped all these economic phases of the country in the last two decades as well as the dramatic crisis of the oil company. In a first stage, until 2017–2018, national access to international wealth was subsidized at the expense of PDVSA's viability. Since then, through monetized credit from the Central Bank and the reorientation of the exchange rate policy, an attempt is being made to save the oil company at the cost of an abrupt internal adjustment. The temporary combination of the subsidized access to foreign currency and the attempt to save PDVSA explains the hyperinflation period of 2017–2020. This long-term view allows us to relativize the assertion that Venezuela was a typical case of the ‘Dutch disease’ during the expansion and crisis phases. On the other hand, we show that hyperinflation has a para-fiscal origin rather than a fiscal one. The strong nominal devaluation since 2018 marked the beginning of the incomplete contemporary recovery, in terms of growth, price moderation and financial relief for PDVSA. • The political management of oil explains the variegated economic cycle in Venezuela. • The Dutch disease falls short in describing the country's expansion in the 2000s. • Overvaluation jeopardized the viability not only of PDVSA, but also of the economy. • Hyperinflation (2017–2020) does not have a fiscal origin, but a para-fiscal one. • Economic and political controversies undermine the recovery in the 2020s.