• Venezuela’s financial woes

    Crisis reaches students abroad

    Venezuelan students in the Netherlands may be far from home, but as their national currency continues to decline, financial problems are reaching them here, too. Studying abroad has become unaffordable for some, but going home may be even worse.

    in short

    A high inflation rate coupled with a dramatic drop in oil revenues prompted Venezuelan president Hugo Chavez to tightly control the bolivar starting in 2003.

    Since then, the value of the currency has only continued to shrink, reaching a low point in 2015.

    Venezuelans living abroad who want to convert currency first have to submit a request to the government with no guarantee it will be approved.

    Corruption within the system or even submitting the application in a folder that isn’t the right folder can cause the request to be denied.

    Families send money from home if they can, but that is becoming increasingly difficult – even the black market for the currency has grown unreliable.

    Crime rates have risen and access to staple goods is limited, and students abroad worry about their family’s safety back home.

    The crisis has made it difficult for some students to consider returning home, while others feel committed to trying to help after getting an education.

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    Karla Cioppa tried her best to follow the rules. But when the 20-year-old Venezuelan student of International Business and Management at the Hanze University of Applied Sciences attempted to exchange money legally, the government in her home country rejected her application.

    ‘I had to buy money from the black market. Unfortunately, I can’t even afford to do that anymore’, says Karla. Even though she is far from home, she and many other Venezuelan students abroad face financial difficulties due to the nation’s currency crisis.

    Currency control

    Venezuela’s high inflation rate and a dramatic drop in oil revenues, which had been the country’s main source of foreign currency, drove president Hugo Chávez’s administration to implement strict currency controls in 2003, along with a fixed exchange rate. The goal was to control capital flight and to counteract the country’s declining levels of foreign currency.

    Tjeerd Menno Boonman, who will receive his PhD next week for his research into currency crises in Latin America at the SOM Research Institute (part of the Faculty of Economics and Business at the RUG), says that has created an air of uncertainty for the Venezuelan people. ‘With the severe shortage of dollars, the country has restricted currency conversions. Depending on the use, it is either possible or impossible to exchange. But the exchange rate also depends on the use.’

    ‘It’s impossible’

    Currently, there are three official exchange rates for Venezuelans who want to change bolivars – the national currency – to dollars, the lowest of which is 6.3 bolivars for 1 U.S. dollar. However, people who want to exchange money have to send an application to the government first. Once the government approves their request, they can exchange money.

    That is a familiar challenge for Venezuelan students in Groningen. ‘You have to send a lot of documents along with your application, but after a certain point, you can’t follow the procedure anymore. Basically, it is impossible to send everything. The government even asks for things such as your curriculum, which doesn’t remain the same throughout the year’, says Tatiana D’ Agostini Herstad, a 19-year-old student of physics at the RUG.

    ‘However, if the application is not perfect, for example if the color of the folder is wrong, you have to change it. Otherwise, it will be rejected. So, I didn’t even try to apply’, she adds. She is one of only three Venezuelan students enrolled at the university. ‘Fortunately, my parents have been saving money in dollars since I was really young so that I would be able to study abroad one day.’

    Effects abroad

    The tedious bureaucracy makes it difficult for Venezuelans studying abroad to cope financially since there is no guarantee that the government will allow them to exchange money. ‘It is like a lottery. You never know if the government will approve your request and there is a lot of corruption in the middle, of course. There are a lot of people within the same organization who disapprove what their colleagues have already approved,’ Karla explains.

    In addition, the government exchanges money to dollars only, which makes it even more difficult for students living in European countries to afford their living expenses. ‘First you buy dollars, and then you have to exchange them to euros, so you lose a lot of money in the process due to different exchange rates among the three currencies’, says Karla.

    ‘Even calling abroad is limited’

    Since transfers at the official exchange rate are so complicated, many students rely on their parents sending them money. But this has gradually become more difficult, even for relatively rich families. Karla had to get a part-time job to earn a living and in order to afford her tuition fees.

    ‘My parents were helping me till the beginning of this year, but then it became ridiculously expensive. Fortunately, I have a well-paid job and I can manage my living costs now. But I have friends who came to the Netherlands and were forced to drop their studies, since they couldn’t buy dollars directly from the government anymore.’

    Black market

    The rest of the students who either are not able to exchange bolivars into U.S. dollars at the official rate or are rejected by the government are effectively forced to buy money through the black market. But even that is deteriorating quickly, Boonman says.
    Although the black market is typically a quick way to exchange bolivars for dollars, the exchange rate is extremely high compared to the official one: approximately 800 bolivars for 1 USD, according to Boonman.

    Venezuela’s severe price and currency controls also didn’t prevent inflation from rising even further. In fact, it led to multiple currency devaluations. The latest took place in 2015, which further worsened the situation for students.
    In a painful illustration of that point, Karla recalls that in 2012, she exchanged 50,000 bolivars for 4,000 dollars. ‘Right now, with the same amount, I can only buy 50 dollars.’

    ‘The situation is very difficult, so my parents exchange money whenever they are able and they even buy money through the black market, although it is very expensive’, Tatiana adds.

    Problems at home

    The dropping value of the currency and the crisis in general has sparked more problems in Venezuela and made it very difficult for companies to import goods from other countries, Boonman adds. ‘Even calling abroad is limited because the companies have not been able to pay their international bills’, he says.

    ‘I wish my parents would leave Venezuela soon’

    Daily necessities are also becoming scarce. ‘There is a lack of basic products such as toilet paper, flour, meat or sugar’, Tatiana says. ‘Once those products reach the local markets, people need to wait in long queues in order to buy them. My parents always store products for future use.’

    Crime rates have also risen. ‘Once, my parents were in the car early in the evening and they were stuck at a traffic light, and two people on motorcycles tried to open the doors. This is very common in Venezuela’, Tatiana adds. Karla is worried about her parents’ safety, too. ‘I wish my parents would leave Venezuela soon. My mother is a journalist, and every single day I am wondering what will happen to her.’

    The future

    Boonman is quite pessimistic about Venezuela’s future. ‘The country needs some strong reforms because the economy is deeply imbalanced. However, for political reasons, they do not want to make any change. The typical and expected end is therefore a financial crash.’

    For students abroad, that uncertain future means they are faced with the dilemma of staying far away or trying to go home and help. For Tatiana, the choice to remain in the Netherlands is clear. ‘The difference in my life right now is huge. I am able to buy everything I want and I can go out even at night. I feel safe here and I can do all the things I couldn’t do in Venezuela.’

    Karla, on the other hand, decided to study economics in the hopes of eventually returning home and putting her expertise to good use. ‘People are lacking knowledge. They are not well informed about the situation and they don’t even know the truth. It is really crucial for educated young people to go back and offer their knowledge to help the country.’