Friday, January 25, 2019

On the crisis in Venezuela

I wrote a few entries over the last few years that might be useful to understand what is going on in Venezuela. This one from 2016, tries to explain how the crisis is related to an old problem, the dependence on oil exports and the balance of payments constraint. Venezuela can't manage to get beyond the oil dependence in the boom, since a sort of Dutch Disease sets in. One can certainly blame the Chavista governments for not breaking with that dependence, but in all fairness conservative governments also were unable to do it. In the period of a fall in international oil prices a crisis normally occurs (this one is probably already worse than the Caracazo).

Here for context the data on exports (note that about 90 percent of exports are basically oil, and those go mostly to the US that has refineries that specialize in the Venezuelan oil).
The numbers are from the World Bank Development Indicators up to 2016, and then I use the IMF estimates of growth (actually decline) from the World Economic Outlook database. So this is a brutal collapse, something the US government is doing, even at the price of some costs to local refineries, in order to promote regime change in Venezuela. Whatever your views on Maduro and the Chávez period, note that the US is fine with Saudi Arabia. Trump and Dems before too. And remember that Obama tightened the embargo as one of his last measures. Double standards are incredible, and difficult to defend.

Mind you with the collapse of exports and the fiscal capacity of the state, the economy collapsed too, and so did imports. The embargo makes imports of almost everything impossible and heightens the humanitarian crisis, and the refugee problem. It is somewhat hypocritical, to say the least, to complain about the humanitarian crisis and not acknowledging the US role and the embargo in causing it.

Note also, that in the absence of dollars, not only imports collapse, but payments on foreign denominated debt too. Hence, the close possibility of a complete financial meltdown. Not only default will take place, but scarcity of almost anything imported (including food essentials) and the rapid depreciation of the currency would lead to hyperinflation. If you want to understand external crisis in general read this entry, and for hyperinflation go to this one.

On the complex issues of democracy in Venezuela read this entry from 2017, and this one from 2018. For those that think that the current coup, or any coup including a military one would reduce violence (the opposite is more likely to happen) read this.

1 comment:

  1. I'll quibble about something. The 1989 Caracazo was not a crisis, it was the consequence of Venezuela's chronic crisis (about which you very correctly write) and of the politics of the Acción Democrática (AD) government of Carlos Andrés Pérez (or CAP, as he was popularly known).

    A little stroll down memory lane may help. Venezuela nationalised the oil industry in the 1970s. It was the days after the Yom Kippur War oil embargo and oil prices were sky-high. The oil industry nationalisation only increased the share of Venezuela's increased oil revenue (which, as you aptly remark, are and have always been since the early 20th century, the bulk of Venezuela's exports). CAP -- in spite of his personal corruption and ineptitude, which extended to his whole government -- became very popular precisely because of that. Booms have a way of making even the shittiest politicians popular.

    Fast forward to 1988, election year. Venezuela had gone through about 10 years (give or take a year) of uninterrupted crisis (debt crisis, shock therapy, popular unrest). CAP promised a 1970s repeat; he would never, ever, deal with the IMF and/or World Bank; their policies were "like the neutron bomb: designed to kill people while leaving the physical structures untouched". Sólo-mata-gente, is how they put it.

    And he won. By a landslide, too. Just to announce on his inauguration speech that he, sadly, had had a change of mind: he would have to do, everything he promised he would never, ever, do. You know, IMF, World Bank, debt refinancing, increase oil and public transport fares, the works.

    The Caracazo followed a few days after that announcement, when public transport fares were increased. It was a bloody affair.

    To this day nobody really knows how many people were killed in 3-4 days of riots. At the time, the CAP government put the death toll on 300 fatalities. Amnesty International put the same figure -- if memory serves -- on more than a thousand.

    To make things worse, his own second administration wasn't a boom period. There alternated deflation and inflation, the eternal debt negotiations and the banking crisis.

    Years of violent almost daily unrest (two failed coup attempts included, the first one led by Hugo Chávez) and repression followed until CAP was finally impeached.

    That was the end of both AD and main opposition party Copei. They just vanished: poof!

    Guys like Ricardo Hausmann and Moisés Naím were leading voices in CAP's cabinet.

    People need to remember that.


    Chávez did not fix the country and things may have gotten worse under Maduro -- for all the reasons you mentioned -- but those guys did not create the crisis. The next guy, whoever it is, won't fix it either. Mark my words.


The economic and social consequences of the war on Europe and Italy

By Sergio Cesaratto With a certain pride I remember having already mentioned for some years, within the framework of my economic courses, po...