cancel2 2022
Canceled
Venezuela is in an economic crisis. Inflation is running at more than 50%. There are shortages of basic goods including water and toilet paper. Last month, the central bank was forced to restrict the amount of dollars that it sells at the official exchange rate, a de facto devaluation. The current crisis may lead to a regime change in Venezuela. That could push down the oil price. It could also open new opportunities for Western oil companies in Venezuela…
Time is running out on revolution
Of course, this isn’t the first time that Venezuela has faced tough economic conditions. Since Hugo Chavez took power in 1999, growth has lagged behind the rest of Latin America, with recessions in 2002-3 and 2009-10. Social problems, like crime, have also exploded. However, Chavez died of cancer last year. While his handpicked successor, Nicolás Maduro, won the subsequent election, it looks like time may be finally running out for the ‘Bolivarian Revolution’. Protestors have taken to the streets and experts think there is a good chance they could win.
Why Venezuela is such a mess
Chavez made many mistakes whilst in power, but perhaps the most serious was to greatly expand the role of the state in the economy. Over 300 private firms were taken over by the government. What’s more, large sums of money were wasted on buying political support, or on foreign policy gestures (such as support for Iran and Cuba). These policies generated huge amounts of inflation. Rather than reverse course, the government doubled down on control. The prices of a large swathe of consumer goods are now capped, with shops and supermarkets forced to sell their goods below cost. However, despite strict ‘anti-hoarding’ measures, many people are stockpiling goods, as inflation destroys the value of their savings.
The only thing preventing a complete collapse is the oil sector, which now accounts for virtually all exports. However, even this sector has been hit by interference and lack of investment. Chavez’s decision to scrap plans for a greater private role, meant that the industry couldn’t take advantage of foreign funds and expertise. The state firms were also hampered by the tendency to make decisions on political, rather than business, grounds. Experienced managers were fired and replaced with Chavez’s cronies. As a result, despite the fact that prices have risen, production is below the level when Chavez took over and US exports are down to levels last seen in 1985.
http://moneyweek.com/money-morning-how-change-in-venezuela-could-hit-oil-price/
Time is running out on revolution
Of course, this isn’t the first time that Venezuela has faced tough economic conditions. Since Hugo Chavez took power in 1999, growth has lagged behind the rest of Latin America, with recessions in 2002-3 and 2009-10. Social problems, like crime, have also exploded. However, Chavez died of cancer last year. While his handpicked successor, Nicolás Maduro, won the subsequent election, it looks like time may be finally running out for the ‘Bolivarian Revolution’. Protestors have taken to the streets and experts think there is a good chance they could win.
Why Venezuela is such a mess
Chavez made many mistakes whilst in power, but perhaps the most serious was to greatly expand the role of the state in the economy. Over 300 private firms were taken over by the government. What’s more, large sums of money were wasted on buying political support, or on foreign policy gestures (such as support for Iran and Cuba). These policies generated huge amounts of inflation. Rather than reverse course, the government doubled down on control. The prices of a large swathe of consumer goods are now capped, with shops and supermarkets forced to sell their goods below cost. However, despite strict ‘anti-hoarding’ measures, many people are stockpiling goods, as inflation destroys the value of their savings.
The only thing preventing a complete collapse is the oil sector, which now accounts for virtually all exports. However, even this sector has been hit by interference and lack of investment. Chavez’s decision to scrap plans for a greater private role, meant that the industry couldn’t take advantage of foreign funds and expertise. The state firms were also hampered by the tendency to make decisions on political, rather than business, grounds. Experienced managers were fired and replaced with Chavez’s cronies. As a result, despite the fact that prices have risen, production is below the level when Chavez took over and US exports are down to levels last seen in 1985.
http://moneyweek.com/money-morning-how-change-in-venezuela-could-hit-oil-price/
