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Page added on January 29, 2016

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Venezuela is on the brink of a complete economic collapse

The only question now is whether Venezuela’s government or economy will completely collapse first.

The key word there is “completely.” Both are well into their death throes. Indeed, Venezuela’s ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it’s hard to see that getting any better for them any time soon — or ever. Incumbents, after all, don’t tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It’s no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.

That’s not an easy thing to do when you have the largest oil reserves in the world, but Venezuela has managed it. How? Well, a combination of bad luck and worse policies. The first step was when Hugo Chávez’s socialist government started spending more money on the poor, with everything from two-cent gasoline to free housing. Now, there’s nothing wrong with that — in fact, it’s a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn’t.

Why not? The answer is that Chávez turned the state-owned oil company from being professionally run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn’t go in. That last part was particularly bad, because Venezuela’s extra-heavy crude needs to be blended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn’t been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.

The rest is a familiar tale of fiscal woe. Even triple-digit oil prices, as Justin Fox points out, weren’t enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more. And by “some,” I mean a lot, a lot more. That, in turn, became more “a lots” than you can count once oil started collapsing in mid-2014. The result of all this money-printing, as you can see below, is that Venezuela’s currency has, by black market rates, lost 93 percent of its value in the past two years.

It turns out Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system.

Now you might have noticed that I talked about Venezuela’s black market exchange rate. There’s a good reason for that. Venezuela’s government has tried to deny economic reality with price and currency controls. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it’s not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That’s left Venezuela’s supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela is well-supplied with are lines.

Although the government has even started rationing those, kicking people out of line based on the last digit of their national ID card.

And it’s only going to get worse. That’s because Socialist president Nicolás Maduro has changed the law so the opposition-controlled National Assembly can’t remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn’t even believe there’s such a thing as inflation to be the country’s economic czar. “When a person goes to a shop and finds that prices have gone up,” the new minister wrote, “they are not in the presence of ‘inflation,’ ” but rather “parasitic” businesses that are trying to push up profits as much as possible. According to this — let me be clear — “theory,” printing too much money never causes inflation. And so Venezuela will continue to do so. If past hyperinflations are any guide, this will keep going until Venezuela can’t even afford to run its printing presses anymore — unless Maduro gets kicked out first.

But for now, at least, a specter is haunting Venezuela — the specter of failed economic policies.

Wash Post



45 Comments on "Venezuela is on the brink of a complete economic collapse"

  1. onlooker on Fri, 29th Jan 2016 7:02 pm 

    While capitalism seems to be afflicted with the malady of excess, socialism seems to be afflicted with the malady of incompetence.

  2. Fishman on Fri, 29th Jan 2016 7:26 pm 

    Feel the Bern!!!

  3. GregT on Fri, 29th Jan 2016 7:28 pm 

    And both systems will eventually be taken down by the Central Banking Cartels. They don’t care about political systems, all they care about is power, control, and greed.

  4. twocats on Fri, 29th Jan 2016 8:54 pm 

    https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    Stupid socialists. Why don’t they just print their own money like we do. Idiots!

    I’ve also read recently that Venezuela has some of the highest borrowing costs in the world. They borrowed from the Chinese a few years back at like 16%.

  5. roman on Fri, 29th Jan 2016 9:00 pm 

    Grow some coconuts and bananas. Go fishing. Kill every “authority” like banker, politician, cop. It’s not that hard

  6. makati1 on Fri, 29th Jan 2016 9:08 pm 

    GregT, you beat me to it. ALL of the countries are “on the brink”. Some closer than others, but all will go down together in the near future. No exceptions.

  7. makati1 on Fri, 29th Jan 2016 9:09 pm 

    roman, throw in a few cassavas, pineapples and mangoes and you have a good life. ^_^

  8. twocats on Fri, 29th Jan 2016 9:31 pm 

    One of the issues they were having is… because goods were being kept low for the population, the country was importing things, people were buying stuff in Venezuela, and then immediately returning to the country of export, et al, and selling stuff for an instant profit. I’ve heard many a communist/socialist from the former Russian block admit, “Socialism could have worked if it hadn’t been for Capitalism”

  9. joe on Sat, 30th Jan 2016 6:15 am 

    Not sure what the writer means by ‘socialist’. America is a country run by committees and elections and votes etc, it recognises property rights and allows people to live and persue happiness, since Chavez rose to power he gave the people property rights and allowed them to form committees and to vote. The fact that people could throw out the proChavez party without a shot fired testifies to what he achieved.

  10. joe on Sat, 30th Jan 2016 6:26 am 

    And yes, his government recognised the rights of people who were so poor they had to build their houses on the mountainside, before him, they were not recognised and so didnt even qualify for basic civil service care, imagine if a mllion US born people could not get a sewer installed or a hospital build or get a vote because their house was not allowed to be put on a map by the authorities. That would be a breach of their civil rights, but when its happening in another country they are ‘socialist’.

  11. Davy on Sat, 30th Jan 2016 8:08 am 

    Power corrupts and corrupts absolutely. The US government and financial system is completely corrupt now and part of the economic end game. Expect the 1%’ers to maintain their privilege and wealth until the bitter end. This is nothing new because all advanced civilizations have collapsed and the upper 1%ers have always moved to this point near the end. This is just another marker of the global end game.

    “Former Citigroup Trader Explains How Wall Street Came to Own the Clintons and the Democratic Party”

    http://libertyblitzkrieg.com/2016/01/29/former-citigroup-trader-explains-how-wall-street-came-to-own-the-clintons-and-the-democratic-party/

    “Former FX trader at Citigroup, Chris Arnade, just penned a poignant and entertaining Op-ed at The Guardian detailing how Wall Street came to own the Democratic Party via the Clintons over the course of his career. While anyone reading this already knows how completely bought and paid for the Clintons are by the big financial interests, the article provides some interesting anecdotes as well as a classic quote about a young Larry Summers.”

    “I owe almost my entire Wall Street career to the Clintons. I am not alone; most bankers owe their careers, and their wealth, to them. Over the last 25 years they – with the Clintons it is never just Bill or Hillary – implemented policies that placed Wall Street at the center of the Democratic economic agenda, turning it from a party against Wall Street to a party of Wall Street.”

  12. shortonoil on Sat, 30th Jan 2016 2:28 pm 

    “Venezuela’s oil revenues account for about 95 per cent of export earnings. The oil and gas sector is around 25 per cent of gross domestic product.”

    Venezuela did not make the price of oil go down. It has no toilet paper because its exports have declined by 70%, and that had nothing to do with its socialist policies. It had to do with the fact that it recently lost the majority of its income. Blaming its predicament on that nation’s political situation is like claiming that the Titanic sank because some left a bathroom faucet on. Its a good excuse for someone with a political ax to grind, but misses the point entirely. Venezuela, like every other sovereign nation with an oil export dependency is, or will be collapsing. It is what will happen at the end of the oil age.

  13. GregT on Sat, 30th Jan 2016 2:41 pm 

    “Venezuela, like every other sovereign nation with an oil export dependency is, or will be collapsing.”

    Which won’t exactly bode very well for nations with oil import dependancies.

  14. Davy on Sat, 30th Jan 2016 2:43 pm 

    “Nothing to do with socialist policies”. I would agree because there is nothing wrong with a well run socialistic system.

    This has as much to do with a poorly run socialistic system as the bottom dropping out of Venezulla’s oil exports. There is more to economic collapse than oil. Oil is only part of the equation. Just as Venezuela is cratering because of a poorly run economic system combined with energy issues so is the global economic system.

  15. GregT on Sat, 30th Jan 2016 4:01 pm 

    Venezuela is being purposefully brought to ruin by the same interests that took down Argentina in 2001.

    Argentina’s Economic Collapse (Memoria Del Saqueo 2004)

    Documentary on the events that led to the economic collapse of Argentina in 2001 which wiped out the middle class and raised the level of poverty to 57.5%. Central to the collapse was the implementation of neo-liberal policies which enabled the swindle of billions of dollars by foreign banks and corporations. Many of Argentina’s assets and resources were shamefully plundered. Its financial system was even used for money laundering by Citibank, Credit Suisse, and JP Morgan. The net result was massive wealth transfers and the impoverishment of society which culminated in many deaths due to oppression and malnutrition.

    https://www.youtube.com/watch?v=0CzS6eHqtnQ

  16. shortonoil on Sat, 30th Jan 2016 4:03 pm 

    “This has as much to do with a poorly run socialistic system as the bottom dropping out of Venezulla’s oil exports. There is more to economic collapse than oil. Oil is only part of the equation.”

    Venezuela is corrupt! It is so corrupt that they don’t even try to hide it. It is the day to to day way of doing business, and always has been. I know, I’ve worked there. Venezuela is not collapsing because it is all of a sudden being poorly run. It has always been poorly run. Venezuela is collapsing because its petroleum income, that has always been stolen by one group or another, has dried up. Venezuela has gone from a nation of very rich thieves and very poor peasants to a nation of very poor thieves and even poorer peasants. That is because its main cash crop, outside of cocain, oil has collapsed. Venezuela is a basket case, always has been, and always will be. It’s their national heritage. The problem now is that the basket has gone empty.

  17. Boat on Sat, 30th Jan 2016 4:06 pm 

    Their are many countries with few FF resources yet they are in much better shape than Venezuela. It has everything to do with socialism. It has everything to do with education and hard work.

  18. Davy on Sat, 30th Jan 2016 4:13 pm 

    “It has always been poorly run”. Yes, but the degree of bad policy is extreme today. This is beyond corrupt the current policies are flaunting reality to maintain power and privilege for those who are in control.

  19. Davy on Sat, 30th Jan 2016 4:14 pm 

    Argentina and Venezuela are two different animals that lack comparison.

  20. shortonoil on Sat, 30th Jan 2016 4:22 pm 

    “Which won’t exactly bode very well for nations with oil import dependancies.”

    Now that you mentioned it, no, it does not look good! The US should have spent a little more time looking that gift horse in the mouth. It is going to be spending a lot more bailing out these failing suppliers than it assumed.

  21. shortonoil on Sat, 30th Jan 2016 4:25 pm 

    They thought that they could do it with a few F-16s and a couple of tanks. Surprise!

  22. twocats on Sat, 30th Jan 2016 4:34 pm 

    short – thanks for the inside perspective on Venezuela. I had been under the impression from some progressive economists that the reforms of Hugo Chavez did have a fairly positive impact on the country. I mean, I’m not disagreeing, just wondering how counterpunch got it so wrong…

    http://www.counterpunch.org/2012/12/14/the-achievements-of-hugo-chavez/

    on a somewhat different angle I would like to point out that the US has systematically undermined even mildly reformative democratic leaders from very early on. And the number of dirty wars its propagated has taken quite a toll on the fabric of social integrity in many countries. I’m not excusing the Venezuelans, but this stuff does have an impact.

  23. Northwest Resident on Sat, 30th Jan 2016 4:35 pm 

    Venezuela is going broke fast because they are socialists, lazy, and run by a gang of fat cat criminals. Got it! But American shale producers are going broke fast despite the fact that they are capitalists, hard working, and run by a clean cut crew of fine honest upstanding citizens. (cough, choke) The sudden dramatic plunge in the price of oil has nothing to do with either of these — it is simply a matter of socialists versus capitalists — except one thing, the capitalists are in the same exact boat as Venezuela. Or am I missing something here?

  24. Apneaman on Sat, 30th Jan 2016 4:37 pm 

    South Sudan on brink of economic collapse
    Last month South Sudan devalued its currency in response to the slump in global oil prices. That in turn led to rapid inflation, which is now threatening to cripple the economy.

    http://www.dw.com/en/south-sudan-on-brink-of-economic-collapse/av-19008309

  25. Apneaman on Sat, 30th Jan 2016 4:39 pm 

    Don’t forget russia in the media priming blitz.

    Russia on brink of economic disaster

    http://www.examiner.com/article/russia-on-brink-of-economic-disaster

  26. Apneaman on Sat, 30th Jan 2016 4:43 pm 

    As always, not in exceptional America. Everyone else are the fuck ups and to blame. Can’t happen here.

    Obama Helped Avert Economic Collapse, but Full Recovery Is Distant

    http://www.nytimes.com/roomfordebate/2016/01/12/reflecting-on-obamas-presidency/obama-helped-avert-economic-collapse-but-full-recovery-is-distant

  27. Northwest Resident on Sat, 30th Jan 2016 4:43 pm 

    The only difference between Venezuela oil producers and American oil producers, the way I see it, is that American shale producers have the full backing of the U.S. Treasury printing press behind them combined with a world class propaganda machine that is finely calibrated to drag in the investing suckers, turn the upside down and shake every last dime out of their pockets. IF Venezuelan oil producers had THAT then they too would still be going strong, JUST LIKE American shale producers.

  28. GregT on Sat, 30th Jan 2016 4:56 pm 

    NSA Spies on Venezuela’s Oil Company, Snowden Leak Reveals>/b>

    The U.S. National Security Agency accessed the internal communications of Venezuela’s state-owned oil company, Petroleos de Venezuela (PDVSA) and acquired sensitive data it planned to exploit in order to spy on the company’s top officials, according to a highly classified NSA document that reveals the operation was carried out in concert with the U.S. embassy in Caracas.

    “Venezuela has some of the largest oil and natural gas reserves in the world,” the NSA document states, with revenue from oil and gas accounting “for roughly one third of GDP” and “more than half of all government revenues.”

    “To understand PDVSA,” the NSA analyst explains, “is to understand the economic heart of Venezuela.”

    Increasing surveillance on the leadership of PDVSA, the most important company in a South American nation seen as hostile to U.S. corporate interests, was a priority for the undisclosed NSA division to which the analyst reported. “Plainly speaking,” the analyst writes, they “wanted PDVSA information at the highest possible levels of the corporation – namely, the president and members of the Board of Directors.”

    PDVSA has long been a target of U.S. intelligence agencies and the subject of intense scrutiny from U.S. diplomats. A February 17, 2009, cable, sent from the U.S. ambassador in Caracas to Washington and obtained by WikiLeaks, shows that PDVSA employees, were probed during visa interviews about their company’s internal operations. The embassy was particularly interested in the PDVSA’s strategy concerning litigation over Venezuela’s 2007 nationalization of the Cerro Negro oil project – and billions of dollars in assets owned by U.S. oil giant ExxonMobil.

    “According to a PDVSA employee interviewed following his visa renewal, PDVSA is aggressively preparing its international arbitration case against ExxonMobil,” the cable notes.

    In May 2011, two months after the leaked document was published in NSA’s internal newsletter, the U.S. State Department announced it was imposing sanctions on PDVSA – a state-owned enterprise, or one that could be said to be subject to “government influence or direction” – for business it conducted with the Islamic Republic of Iran between December 2010 and March 2011. The department did not say how it obtained information about the transactions, allegedly worth US$50 million.

    Beyond the obvious importance of oil, leaked diplomatic cables show PDVSA was also on the U.S. radar because of its importance to Venezuela’s left-wing government. In 2009, another diplomatic cable obtained by WikiLeaks shows the U.S. embassy in Caracas viewed PDVSA as crucial to the political operations of long-time foe and former President Hugo Chavez. In April 2002, Chavez was briefly overthrown in a coup that, according to The New York Times, as many as 200 officials in the George W. Bush administration – briefed by the CIA – knew about days before it was carried out.

    The Venezuelan government was not informed of the plot.

    http://www.telesurtv.net/english/news/NSA-Spies-on-Venezuelas-Oil-Company-Snowden-Leak-Reveals-20151118-0010.html

  29. Apneaman on Sat, 30th Jan 2016 4:57 pm 

    Das Boat, is there any ceiling on your stupidity? Keep slaving away, the 1% need that other 1%.

    ‘Richest 1% own more than the rest of us’

    http://mg.co.za/article/2016-01-18-richest-1-own-more-than-the-rest-of-us

  30. shortonoil on Sat, 30th Jan 2016 4:58 pm 

    “I mean, I’m not disagreeing, just wondering how counterpunch got it so wrong…”

    Chavez did do a lot of good; the poor got to eat a deceit meal once in an while, and they weren’t as likely to die in a gutter for lack of medical care. He took the money from the dictator, and oil barons that were stealing it before, and gave it back to the people. He also wasted a great deal of it trying to spread his utopian day dream. The whole thing might of worked if oil prices hadn’t crashed by 70%. Who knows? But the one thing that he couldn’t change was the country’s character; the attendant that stood you up for $5 in the men’s room for a piece of toilet paper, or the custom’s officers who wants 100 American dollars to let you back on the plane. That’s Venezuela!

  31. twocats on Sat, 30th Jan 2016 5:03 pm 

    He also wasted a great deal of it trying to spread his utopian day dream [short]

    totally agree there. if you throw enough money at a problem your bound to have some things improve.

    But the one thing that he couldn’t change was the country’s character; the attendant that stood you up for $5 in the men’s room for a piece of toilet paper, or the custom’s officers who wants 100 American dollars to let you back on the plane. That’s Venezuela! [short]

    okay, now i’m starting to get a clearer idea of the picture. thanks short. Ah, Que lastima!

  32. GregT on Sat, 30th Jan 2016 5:04 pm 

    Bold text not intentional. My bad.

  33. onlooker on Sat, 30th Jan 2016 5:04 pm 

    http://www.cnn.com/2015/02/12/americas/venezuela-coup-attempt-foiled/
    Venezuelan President Nicolas Maduro says his government had blocked what he called a U.S.-backed coup plot that included plans to attack the presidential palace with a military jet.

  34. Davy on Sat, 30th Jan 2016 5:13 pm 

    My home town has something in common with Caracas:

    http://www.zerohedge.com/news/2016-01-30/2-worlds-20-most-violent-cities-are-america

  35. shortonoil on Sat, 30th Jan 2016 5:40 pm 

    “And the number of dirty wars its propagated has taken quite a toll on the fabric of social integrity in many countries. I’m not excusing the Venezuelans, but this stuff does have an impact.”

    “They thought that they could do it with a few F-16s and a couple of tanks. Surprise!”

    Bad, bad policy for a very long time. It is now time to pay the piper. As we have been saying you have to watch depletion; it’s sneaky. It will creep right up on you if you aren’t not paying attention. When Washington finally gets around to looking over its shoulder, it’s going to scare the crap out of them!

    http://www.thehillsgroup.org/

  36. Boat on Sat, 30th Jan 2016 5:46 pm 

    apeman,
    That is the job of congress. If and when public sentiment takes the lead, (for example elect burning Bernie Sanders) laws, regulations and tax can change. This is how the it works.

  37. Apneaman on Sat, 30th Jan 2016 5:47 pm 

    Das boat, your hard work don’t mean shit. It’s other’s hard work and resources that give you your lifestyle.

    America’s Empire of Bases

    “As distinct from other peoples, most Americans do not recognize — or do not want to recognize — that the United States dominates the world through its military power. Due to government secrecy, our citizens are often ignorant of the fact that our garrisons encircle the planet. This vast network of American bases on every continent except Antarctica actually constitutes a new form of empire — an empire of bases with its own geography not likely to be taught in any high school geography class. Without grasping the dimensions of this globe-girdling Baseworld, one can’t begin to understand the size and nature of our imperial aspirations or the degree to which a new kind of militarism is undermining our constitutional order.

    Our military deploys well over half a million soldiers, spies, technicians, teachers, dependents, and civilian contractors in other nations. To dominate the oceans and seas of the world, we are creating some thirteen naval task forces built around aircraft carriers whose names sum up our martial heritage — Kitty Hawk, Constellation, Enterprise, John F. Kennedy, Nimitz, Dwight D. Eisenhower, Carl Vinson, Theodore Roosevelt, Abraham Lincoln, George Washington, John C. Stennis, Harry S. Truman, and Ronald Reagan. We operate numerous secret bases outside our territory to monitor what the people of the world, including our own citizens, are saying, faxing, or e-mailing to one another.”

    more

    http://www.tomdispatch.com/blog/176033/best_of_tomdispatch%3A_chalmers_johnson_on_garrisoning_the_planet/

  38. Apneaman on Sat, 30th Jan 2016 5:51 pm 

    Alfred McCoy, Maintaining American Supremacy in the Twenty-First Century

    http://www.tomdispatch.com/blog/176044/tomgram%3A_alfred_mccoy,_maintaining_american_supremacy_in_the_twenty-first_century/

  39. Apneaman on Sat, 30th Jan 2016 5:54 pm 

    Hard work fucking over the weak. Good benifits.

    U.S. military is the largest employer in the world

    http://www.marketwatch.com/story/us-military-is-the-largest-employer-in-the-world-2015-06-17

  40. Apneaman on Sat, 30th Jan 2016 5:55 pm 

    Das Boat, the job of congress is to continue to rape you. I think you like it.

  41. Boat on Sat, 30th Jan 2016 6:03 pm 

    apeman,
    The size of the military is another reason to vote for burning Bernie Sanders.

  42. onlooker on Sat, 30th Jan 2016 6:12 pm 

    Thanks AP for continuing to highlight many realities and give a dose of truth to the few fools abounding this site.

  43. Practicalmaina on Sat, 30th Jan 2016 6:22 pm 

    Yeah the us congress, the only people who get lifelong benefits that make socalist countries look like they screw theor workers.

  44. makati1 on Sat, 30th Jan 2016 10:39 pm 

    The Empire is going down under it’s own hubris and greed. The sooner the better. Maybe Ground Hog Day? LOL

  45. Kenz300 on Sun, 31st Jan 2016 10:18 am 

    Fossil fuels are the past………alternative energy sources like wind and solar are the future…………..

    These countries that have their economies centered on fossil fuels need to wake up and see that the world is changing. Climate Change is real and will impact all of us. It is time to diversify their economies away from fossil fuels……..

    Pope Francis’s edict on climate change will anger deniers and US churches | World news | The Guardian

    http://www.theguardian.com/world/2014/dec/27/pope-francis-edict-climate-change-us-rightwing

    Head Of The Episcopal Church Says It’s ‘Sinful’ To Ignore Climate Change

    http://www.huffingtonpost.com/2015/03/26/katherine-jefferts-schori-climate-change_n_6949532.html?utm_hp_ref=green&ir=Green

    How Is Climate Change Affecting the Philippines?

    http://ecowatch.com/2016/01/22/climate-change-affecting-the-philippines/?utm_source=EcoWatch+List&utm_campaign=da3a287be1-Top_News_1_22_2016&utm_medium=email&utm_term=0_49c7d43dc9-da3a287be1-86023917

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