Venezuelan Dystopia Deepens

May 9th, 2016 by

Severe food shortages. Daily blackouts. Shortages of even basic medical supplies. Nationwide water shortages. Public sector paralysis. Highest inflation rate in the world. Deepest recession in the world. A 76% poverty rate. A capital city with the worst murder rate in the world.

Welcome to Venezuela.

How Bad Is It?

Even though the nation sits atop the world’s largest petroleum reserves, Venezuela is basically bankrupt. The socialist government has seized and nationalized a long list of businesses from foreign companies and domestic political opponents, and run up monstrous debts. A plan that seized ranch land and gave it to the poor was a spectacular failure, forcing Venezuela to import six times the amount of food than before.

Daily four-hour rolling blackouts mandated by the government to save electricity often stretch to 12 hours or more. Government employees have been cut to a two-day workweek to ease the burden on the electrical grid, further paralyzing the country.

Venezuela relies on the Guri hydroelectric dam for 75% of its power. A severe drought caused by the El Nino weather pattern has led to the Guri Dam’s reservoir to almost run dry. Power has to be shut down when the water is too low to power the turbines leading to unplanned blackouts. There are some small oil-burning power plants, but they are in disrepair, and often break down.

The blackouts have only made a critical shortage of medicine and medical supplies even worse. Dialysis machines are broken down, with no parts to repair them. The president of the Venezuelan Pharmaceutical Federation said “We are witnessing a human crisis, patients are dying for lack of medication.” Compounding the misery is the government’s refusal to admit there is a Zika epidemic, and there being no medicine to fight it.

To combat the eye-watering inflation that grips the country, President Maduro recently raised the minimum wage by 30% – to the equivalent to $13.50 a month. To cope with an inflation rate expected to top 700% this year, the Maduro government has had to go on a massive money printing scheme. The old joke about needing a shopping basket full of money to buy a single loaf of bread is no laughing matter in Venezuela.

In perhaps the most bizarre twist in this Latin American tragedy, the government has so many outstanding debts to foreign banknote printing companies, that they must now pay cash up front. The government is so broke, they don’t have enough money to pay for their money.

Skilled workers and professionals have been fired at confiscated businesses and party loyalists installed, regardless of qualifications. Perhaps the most obvious obvious example is the most important company in Venezuela: the state-owned oil company, PDVSA.

The Broken Socialist Piggy Bank

Chavez used the PDVSA as a socialist piggy bank to pay for greatly expanded social programs. This left little money for equipment maintenance. After a 2002 strike at PDVSA failed to force early elections, Chavez fired over 18,000 workers. Replacements were hired on the basis of party loyalty instead of technical skill.  Since then, PDVSA has slowly deteriorated. It is now considered the most run-down, dangerous oil company in Latin America. This has led to Venezuela’s oil production falling faster than first expected.

gold-piggy-bank-brokenAdding to the misery, there is no money to buy the chemicals needed to turn crude oil into gasoline. According to Secretary General of the Falcón Oil and Gasoline Workers Syndicate, “a ship of 150,000 barrels of Tame, an oxidant used to obtain the necessary octane rating in petroleum, is stalled at the Cardón refinery. They asked for payment in cash, but Petróleos de Venezuela (Pdvsa) has not completed the payment to date.” The main refinery has suddenly shut down, and is not scheduled to reopen for 45 to 60 days. This means there is 10 days worth of gasoline left in the country.

 

Socialism Can’t Trump Economics

It takes a serious effort to outspend production of 3 million barrels of oil a day when prices are $100 a barrel. But that’s exactly what Venezuela’s socialist government did. It doesn’t help when the nation’s “economy czar” believed that inflation is imaginary, and masked a global capitalist conspiracy to cheat the poor. He thankfully was sacked in short order, due to the backlash over his statements.

Street protests in Venezuela

This was just the most fantastic economic belief circulating through the halls of government in Caracas. President Maduro and the Chavista movement have long held that supply and demand are a capitalist conspiracy. To this end, the government has implemented a massive program of price controls and restrictions on foreign currency.  This has led to nothing being produced and nothing being sold, since the mandated prices are too low to cover costs.

Those companies that are lucky enough to receive US dollars from the government to buy imported goods find that they can make more money by just selling the dollars for 1,125 bolivars each the black market, instead of using them at the official exchange rate of 200 bolivars to the dollar.

Hungry? You’re Just Being Greedy

One government official declared in 2013 that food shortages were being caused because greedy people were eating three meals a day.  He should be pleased with the current state of affairs, because millions of Venezuelans are eating two, one, or no meals a day. Many of the poor can fit all the food in their house in one shopping bag.

By ZiaLater (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Lines start forming outside the state-run grocery stores before dawn. If you’re lucky, there might be something left that afternoon, when you finally get inside. Of course, that assumes that you weren’t kicked out of line based on the last digit of your ID card. It doesn’t matter if the store was empty by the time you were let in, it counts toward the two days a week you’re allowed to shop.

To enforce this law, and track what you’re buying, the government has deployed an expensive fingerprint ID system to catch “cheaters.” Even for the smallest of purchases, you must fill out a lengthy form to identify yourself, in addition to your thumbprints

Murdered For Your Food or Motorcycle

Acute shortages of everything for the last three or four years is causing a breakdown in society. Not only might you get mugged for any food you manage to buy, you can be murdered for your motorcycle. Motorcycle “chop shops” break down stolen bikes for parts, and sell them on the black market. Police are being gunned down for their pistols.

Riots are becoming more frequent. Last week, anti-government demonstrations broke down into violence, with over 30 riots and cases of looting reported in Venezuela’s second-largest city, Maracaibo. Riots have spread to other cities, with crowds roaming the streets yelling “We are hungry!”

 

Political Crisis About To Explode

The purgatory that Venezuela has been suffering through saw a coalition of opposition parties gain a majority in Congress for the first time in the Chavez Era. Determined to use non-violent means to remove Maduro and his socialists from power, they have been blocked by a Supreme Court that rules in favor of Maduro in every case it hears. Hope has turned to winning a nationwide referendum to force a recall election against Maduro.

A referendum faces huge hurdles, made worse by power outages and government intimidation. Firstly, the opposition must collect the signatures of 1% of registered voters within 30 days (198,000 signatures.) As a sign of national discontent in Venezuela, the opposition delivered 1.85 million signatures. These signatures must now be validated by the election commission. The second stage requires the signatures of 20% of registered voters to start the referendum. On the actual vote itself, the “recall” votes must total more than the number of votes Maduro received in the last election – 7.6 million votes.

Empty bellies trump ideology for the average person. Many of the poor in Venezuela who voted for Maduro to succeed Chavez as president have turned against him. When interviewed by Counterpoint at a signature drive in Caracas why he was in favor of a recall, 61-year old Maritza Guevara said that she had never seen the food shortages and crime that gripped the country now. “I’m tired, and want a change. I voted for Chavez, but Maduro has long since failed.” Maria Elena Gutierrez said “I want the recall because I have no food,” noting that there was no medicine for her diabetic daughter.

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Can It Get Worse?

Can it get worse? The short answer is “yes.”  Will it get worse? the answer is also “yes.” The IMF predicts a total collapse of the Venezuelan economy in 12 to 18 months unless drastic economic measures are taken.

afraid-emoticon-face_318-41311Politically, President Maduro has called for violence if he is ousted by the recall referendum. He not only has the Supreme Court and Chavista government officials on his side, he has bought the loyalty the military with extravagant perks and privileges (including turning a blind eye to illegal activities.) The officers are now in the situation that, if Maduro goes down, they go down, too.

While some analysts see the possibility of Venezuela undergoing a swift, cataclysmic readjustment that reset their economy, others say that a descent into lawless anarchy a la Somalia is more likely.

 

Is There A Way Out Of This Nightmare?

The usual way out of an economy as broken as Venezuela’s is an overthrow of the current government and a renunciation/default of all government debts. This can be a constitutional change of government by elections, as in Argentina, an impeachment trial as is ongoing in Brazil, or assassinations and civil war.

Conversely, the Maduro government could decide that saving themselves is better than holding on to ideology with a death-grip, and rapidly initiate reforms such as charging market price for gasoline (still at 11 cents a gallon,) and letting the bolivar float. Maduro could also allow international food and medical aid into the country, instead of letting people die.

No matter what, this Venezuelan dystopia will not end soon.

 

 

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product

 

2 thoughts on “Venezuelan Dystopia Deepens

  1. Frank Little

    No good options now exist, because Maduro has driven Venezuela too deep into a hole. Of course, getting rid of Maduro and his ilk remains first priority. Only then can reform begin. No matter what, this nation is in for long periods of pain.

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