A year ago this week, I wrote an op-ed on this page that said Venezuelan President NicolásMaduro was committing economic suicide by clinging to delusional statist policies. At the time, I worried I might be exaggerating.
I don’t anymore.
Especially not after the International Monetary Fund issued a forecast Monday that sounded more like a dark Old Testament prophecy. The IMF says in 2016 Venezuela’s hyperinflation will explode to 720 percent and that the economy, which shrank as much as 10 percent last year, will implode another 8 percent.
In other words, the worst economic meltdown on the planet right now.
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The demoralizing food lines Venezuelans stand in will get longer. Their violent crime, already the worst in South America, will get scarier.
And more of them will flock here to enclaves like Doral. “Doralzuela.”
Venezuela is the Western Hemisphere’s largest oil producer. So yes, to help explain this catastrophe you can point to oil prices that have collapsed some 80 percent since they peaked eight years ago.
But most economists agree the bulk of the blame for Venezuela’s demise lies with Maduro and his predecessor, the late Hugo Chávez. After bringing their left-wing revolution to power 17 years ago, they squandered hundreds of billions of petro-windfall dollars, indulging in their antiquated Marxism as recklessly as derivatives traders wallowed in unfettered capitalism.
The revolution's policies destroyed the productive capability of Venezuela in every sphere, whether it was oil, coffee or chocolate or toilet paper. – Russ Dallen
Even those who welcomed the revolution’s anti-poverty project early on find themselves agreeing today with conservative analysts like Russ Dallen, managing partner of the banking firm LatInvest in Miami:
“It’s further proof that Castro-communism can bring even a rich economy to the brink of bankruptcy,” Dallen told me. “The only thing that made it look like it wasn’t a disaster was the incredible rise in oil prices during Chávez’s presidency.”
Dallen says the rot started as far back as 2002, when Chávez began wholesale firings of employees at PDVSA, Venezuela’s state-run oil monopoly.
“He replaced them with political hacks, people who were loyal to Chávez and the revolution but had no idea how to pump oil out of the ground,” says Dallen. “Policies like that destroyed the productive capability of the country in every other sphere, whether it be coffee or chocolate or toilet paper.”
Venezuela’s latest humiliating shortage, he adds, involves “people in Caracas lined up for blocks last weekend to get underarm deodorant – but just the filler. There’s no dollars to import deodorant, and even for domestic producers who can still make it there’s no dollars to get the plastic to make the deodorant containers. So people have to bring in their old deodorant containers to be refilled. Depressing.”
Depressing, but typical of the malodorous mess Chávez left behind when he died three years ago, and which Maduro has since made radioactive. What many economists call most unforgivable, though, is how the revolution has now shafted the poor – the folks who’d been screwed by Venezuela’s corrupt old guard and whom Chavismo was supposed to save.
Hyperinflation, after all, is the worst form of economic arson you can perpetrate on a working-class household.
As a result, even Chavistas voted against Maduro’s socialist party last month and handed Venezuela’s congress, the National Assembly, to his opposition.
TROPICAL TITANIC
But even so, as oil prices keep tanking, can the new National Assembly pass anything this year to ameliorate the catastrophe?
“No,” is Dallen’s short answer, especially as Maduro – who just appointed a sociologist with no economic training as his economic vice president – fights for "emergency" economic decree powers.
“The Assemby is blocked because the Supreme Court is controlled by government loyalists," Dallen notes. "So even if it had enough votes to override Maduro’s vetoes, the Supreme Court would rule anything it legislates to be unconstitutional.”
As a result, the Assembly’s most important work this year may not be economic but political: Calling a constitutional recall referendum, as soon as April, that could boot Maduro from office three years before his term ends.
His exit would set up a special election. But the winner, be it a government or opposition candidate, will feel as though he or she just took the helm of the Titanic. That’s because as Venezuela keeps hemorrhaging foreign reserves, says Dallen, the country will likely default on its foreign debt in 2016 – and steepen the country's nosedive.
“Venezuela this year owes $10.5 billion just to service maturing debt obligations,” Dallen points out. “They simply don’t have enough money to pay for everything else.
“So to get cancer in Venezuela right now is almost a death sentence. There’s no medicine.”
The remedy to this economic suicide is anyone’s guess.
