Just how bad has Venezuela’s economic crisis become? The Nicolas Maduro government in Caracas is now arresting people for taking pictures of the food lines, which have become legendary. The currency in what should be the richest country in South America has collapsed, as well as its economy, under the dual weight of falling crude prices and the Chavista socialism that has been choking the country for more than a decade. The oil crisis has just accelerated the inevitable, and now the Washington Post’s Matt O’Brien notes all of the internal contradictions of the Maduro/Chavez policies that have driven Venezuelans to utter ruin:
It shouldn’t be this way. Venezuela, after all, has the largest oil reserves in the world. It should be rich. But it isn’t, and it’s getting even poorer now, because of economic mismanagement on a world-historical scale. The problem is simple: Venezuela’s government thinks it can have an economy by just pretending it does. That it can print as much money as it wants without stoking inflation by just saying it won’t. And that it can end shortages just by kicking people out of line. It’s a triumph of magical thinking that’s not much of one when it turns grocery-shopping into a days-long ordeal that may or may not actually turn up things like food or toilet paper.
This reality has been a long time coming. Venezuela, you see, has the most oil reserves, but not the most oil production. That’s, in part, because the Bolivarian regime, first under Chavez and now Maduro, has scared off foreign investment and bungled its state-owned oil company so much that production has fallen 25 percent since they took power in 1999. Even worse, oil exports have fallen by half. Why? Well, a lot of Venezuela’s crude stays home, where it’s subsidized to the you-can’t-afford-not-to-fill-up price of 1.5 U.S cents per gallon. (Yes, really). Some gets sent to friendly governments, like Cuba’s, in return for medical care. And another chunk goes to China as payment in kind for the $45 billion it’s borrowed from them.
That doesn’t leave enough oil money to pay their bills. Again, the Bolivarian regime is to blame. The trouble is that while it’s tried to help the poor, which is commendable, it’s also spent much more than it can afford, which is not. Indeed, Venezuela’s government is running a 14 percent of gross domestic product deficit right now, a fiscal hole so big that there’s only one way to fill it: the printing press. But that just traded one economic problem—too little money—for the opposite one. After all, paying people with newly-printed money only makes that money lose value, and prices go parabolic. It’s no wonder then that Venezuela’s inflation rate is officially 64 percent, is really something like 179 percent, and could get up to 1,000 percent, according to Bank of America, if Venezuela doesn’t change its byzantine currency controls.
Venezuela’s government, in other words, is playing whac-a-mole with economic reality.
O’Brien delves more deeply into monetary policies that exacerbate the issue, but the problem is a lot more simple — and already identified above. Venezuela’s Chavista policies have always ignored economic reality. Socialism is a fantasy economic system, especially as implemented by Hugo Chavez and Nicolas Maduro.
The difference between Venezuela and the nanny-state petro-economy in Norway is that the latter preserves itself by respecting private property and foreign investment. From the beginning, Hugo Chavez attacked both, nationalizing oil production and criminalizing private investors as part of his “Bolivarian” revolution. When it did that, it chased off the talent needed to run oil production and the investment needed for all other kinds of goods and services. For a short period of time, their oil revenue allowed it to succeed in ignorance. When that failed, Chavez and now Maduro reacted to those predictable consequences by predictably imposing all sorts of rationing mechanisms which only decreased incentives for production and investment, especially in the legitimate economy. Now that the price of oil has collapsed, so has the official Venezuelan economy — and a populace used to a high standard of living now endures massive shortages and ever-increasing oppression to cover it up.
The Chavista economy has prompted the creation of one new industry … queuing agents:
The Financial Times offers a lengthy analysis of what this all means for Venezuela’s bondholders, which can be boiled down to one sentence — they’re screwed:
Less than two weeks ago, fellow OPEC petrostate Qatar pledged to give Venezuela access to “several billion dollars,” which the Maduro government said would provide “enough oxygen to cover the fall in crude prices.” That pledge was and still is rather gauzy, and even an infusion of $10 billion won’t stave off the problems for much time at all. The issue isn’t a fall in the oil prices — that’s just the catalyst. The real problem is the Chavista system itself, which creates all of the same contradictions as all other socialist systems, and produces the same result — misery, poverty, and fascism to keep power in the hands of those profiting by it.