Remember last time an oil economy crashed catastrophically?
Anders Aslund writes: Venezuela is not the first developed country to put itself on track to fall into a catastrophic economic crisis. But it is in the relatively unusual situation of having done so while in possession of enormous oil assets. There aren’t many precedents to help understand how this could have happened and what is likely to happen next.
There is, however, at least one — the Soviet Union’s similar devastation in the late 1980s. Its fate may be instructive for Venezuela — which is not to suggest Venezuelans, least of all the regime of Nicolás Maduro, will like what it portends.
Venezuela has been ailing ever since the decline in oil prices that started in June 2014, and there is no reason to think this trend will shift anytime soon. Energy prices move in long quarter-century circles of one decade of high prices and one decade of low prices, so another decade of low prices is likely. Similarly, the biggest economic blow to the Soviet Union was the fall in oil prices that started in 1981 and got worse from there.
“Maduro seems intent on printing money like crazy, so the next step will be hyperinflation.”
But the deeper problem for the Soviet Union wasn’t the oil price collapse; it’s what came before. In his book Collapse of an Empire, Russia’s great post-Soviet reformer Yegor Gaidar pointed out that during the long preceding oil boom, Soviet policymakers thought that they could walk on water and that the usual laws of economic gravity did not apply to them. Soviet policymakers didn’t bother developing a theory to make sense of their spending. They didn’t even bother paying attention to their results. The math seemed to work out, so they just assumed there was a good reason.
This is as true of the current Venezuelan leaders as it was of the Soviet leaders. The Venezuelan government, though it doesn’t claim to be full-fledged in its devotion to Marxism-Leninism, has been pursuing as absurd an economic policy mix as its Soviet predecessor. It has insisted for years on maintaining drastic price controls on a wide range of basic goods, including food staples such as meat and bread, for which it pays enormous subsidies. Nonetheless the Venezuelan government, like the Soviet Union’s, has always felt it could afford these subsidies because of its oil revenues.
But as the oil price has fallen by slightly more than half since mid-2014, oil incomes have fallen accordingly. And rather than increase oil production, the Venezuelan government has been forced to watch it decline because of its mismanagement of the dominant state-owned oil company, PDVSA.
And now Venezuela seems intent on repeating the Soviet folly of the late 1980s by refusing to change course. This is allowing the budget deficit to swell and putting the country on track toward ultimate devastation.
The Soviet Union in its latter years had a skyrocketing budget deficit, too. In 1986 it exceeded 6 percent of GDP, and by 1991 it reached an extraordinary one-third of GDP. Venezuela is now following suit. The Soviet Union used its currency reserves to pay for imports, but when those reserves shrank, the government financed the budget deficit by printing money. The inevitable result was skyrocketing inflation.
It seems as if President Nicolás Maduro has adopted this tried-and-failed combination of fiscal and monetary policy. Venezuela already is dealing with massive shortages as a result of its controlled prices, because the government can no longer afford its own subsidies. But it will get worse from here.
Maduro seems intent on printing money like crazy, so the next step will be hyperinflation. Inflation is already believed to have reached 700 percent a year, and it is heading toward official hyperinflation, that is, an inflation rate of at least 50 percent a month. Read the rest of this entry »
Nicolás Maduro es Encantador y Persuasivo! Venezuelan President Nicolás Maduro Threatens to Jail OpponentsPosted: October 29, 2016
Caracas (AFP) – Venezuela‘s President Nicolas Maduro threatened on Friday to jail his political opponents if they follow through on their vow of launching a legislative trial to remove him from power.
Shrugging off a partially-observed strike which the opposition called to raise pressure on him, the socialist president went on the counterattack.
Maduro sharpened the tone in a volatile political and economic crisis that has sparked food shortages and riots in the South American oil producer.
“If they launch a supposed political trial, which is not in our constitution, the state prosecution service must bring legal action in the courts and put in jail anyone who violates the constitution, even if they are members of Congress,” Maduro said in a speech Friday.
Friday’s strike was called after authorities blocked a bid by the center right-dominated MUD coalition to hold a referendum on removing Maduro from power.
After that move, the crisis heated up this week. Opposition lawmakers vowed to put Maduro on trial and exchanged accusations of coup-mongering with the mustachioed president.
Friday’s strike seemed to be only partially observed.
In the capital Caracas and cities such as Maracaibo and San Cristobal, the streets were quieter than normal but public transport was running and banks and some schools opened as usual.
Clashes broke out in recent days between riot police and pro- and anti-government protesters around the country.
Maduro earlier threatened to break the strike by sending the army to take over firms that took part in it.
The center-right coalition’s latest move to pressure the unpopular leftist leader came after anti-government protests drew hundreds of thousands of people on Wednesday.
Maduro vowed to respond forcefully. Read the rest of this entry »
Argentina’s top TV journalist Jorge Lanata has alleged that he was held in the basement of Caracas airport for nearly two hours while Venezuela’s secret service erased his team’s camera, computer and cellphone memories. Only then, he says, were they allowed to leave the country…
- Venezuelan President Hugo Chavez wins re-election (edition.cnn.com)
- Chavez Re-Elected as Venezuelan President, Defeating Capriles (fox2now.com)
- Update: Tanks in the streets as Venezuelan electoral council declares Hugo Chavez victory (punditfromanotherplanet.com)
- Venezuelan election day – peaceful and transparent please! (dcmontreal.wordpress.com)