Paradise lost: Venezuela’s economic nightmare

Image: Andreas Lehner

Image: Andreas Lehner

Last month the president of Venezuela Nicolás Maduro announced a nationwide state of emergency, after his country slumped into perhaps the worst economic crisis this century. In a speech broadcast on national television, Maduro came out fighting: “Washington is activating measures at the request of Venezuela’s fascist Right,” he thundered, “who are emboldened by the coup in Brazil.” Shirking domestic responsibility by blaming foreign political enemies isn’t the most original manoeuvre, but if it worked for Castro then maybe it could work here too.

Unfortunately for the benighted president, his people don’t seem to be buying it. Protesters are filling the streets, a covert black market flourishes, and opposition MPs pack the National Assembly. It’s not hard to see why: with rolling blackouts, desperate food shortages and enforced two-day weeks, many citizens are becoming frantic. 85 per cent of businesses, both private and public, have now enacted severe cuts to production, while Lufthansa and LATAM have suspended all service to the country. The economy contracted more than 7 per cent in 2015, and is projected to lose another 16 per cent before this year is out.

As is so often the case with international financial meltdowns, a lot of it comes down to oil. Sitting on the largest oil reserves of any country in the world, Venezuela relies on the viscous chemical for 95 per cent of its foreign income, so falling prices have shattered its export economy. Since OPEC buddies Saudi Arabia chose to flood the market with crude, in a misguided attempt to shaft American shale producers, the Venezuelan treasury has been in freefall. It’s fair to say that Hugo Chavez had never heard of ‘economic diversification’.

But for years the oil has covered up deeper problems. When the soaring crude prices of the early 2000s left government finances billions in the green, the Chavez administration spent and embezzled at will. Lavishly irresponsible social programmes and cash transfers kept the poor on side, while high-ranking officials systematically plundered the national vaults. In the annually published Index for Economic Freedoms Venezuela lost 26.2 points in the Chavez tenure, the largest drop of any country in the world. The once-proud South American nation now languishes third from bottom, above only Cuba and North Korea.

After the boom comes the bust, and the Chavez chickens are now coming home to roost, take out a mortgage and start a family. Hours-long food queues stretch around every building, hospitals lack 80 per cent of essential medical supplies, and toiletries like soap have all but vanished. Just last week Coca-Cola became the latest corporation to buckle, as sugar shortages halted production of all Coke-branded products. With default looming the national deficit is becoming untenable, with government officials servicing debt by exporting piles of gold bars to Switzerland. One of Chavez’s daughters reportedly has $4 billion stashed in foreign banks, while the national currency is practically worthless.

Reaction to the protest has been, to put it kindly, sluggish. To quote an official statement from Barclays: “It is impossible to understand why the government has not taken measures to alleviate the economic distortions that are destroying the real income of Venezuelans.” Unrestrained social spending continues, while inflation has now hit levels comparable with Zimbabwe and Weimar Germany. Maduro has finally made some effort to curb the surge, deliberately devaluing the currency (gas prices in particular have increased more than 6000 per cent) while hiking the minimum wage by 20 per cent, but most onlookers agree that it’s far too little, far too late. In the words of analyst Luis Vicente Leon: “It’s like putting truffle oil on a rotten steak.”
This sumptuously incompetent main course has a garnish of sheer bad luck. The so-called ‘el Nino’ weather pattern has caused droughts, exacerbating already critical food shortages, while the timely arrival of Zika has heightened social problems. Right now Venezuela must feel like God’s toilet, and most of its people are stuck in the U-bend.

Whatever else Maduro tries to blame, however, the buck stops with economic totalitarianism, appalling corruption, incompetence, and electoral fraud. How is it that in a self-proclaimed socialist utopia, a contraband packet of butter costs 4 per cent of a lawyer’s monthly income? How is it that Caracas, home of Petrolas de Venezuela, consistently records the second highest murder rate of any city in the world? How is it that when Jose Luiz Vasquez visits a public hospital with a gunshot wound to the chest, he has to pay for his own syringes? The socialistas Chavistas are going to have to explain to their people how the most resource-rich nation on the planet lies on the verge of catastrophic bankruptcy.

Nicholás Maduro finished his rousing speech by promoting Gustave Gonzalez (a former intelligence head implicated in the murder of protestors) to Minister of the Interior, and claiming that “the sole enemy of Venezuela is the government in Washington”.
Pull the other one Nicholas, it’s got bells on.

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