Sunday, July 2, 2017

A Suummary Of Veneuela's Problems

See ‘The Last Battle for Democracy in Venezuela’: Under Nicolás Maduro, a country that had been one of Latin America’s wealthiest is having its democratic institutions shredded amid rising poverty and corruption by David Luhnow and José de Córdoba of the WSJ. Excerpts:
"As in many petrostates, oil accounts for 95% of Venezuela’s foreign-currency earnings. Since the government administers the oil, one sure way to get ahead is not by creating a new business but by getting close to the government to secure access to oil rents. Venezuelans call the enterprising class following this model “los enchufados”—the plugged-in ones.

The path to power in Venezuela is often said to run through the army and oil. Once in power, the populist Mr. Chávez went after the oil, eventually firing 19,000 employees of the state-run oil firm Petróleos de Venezuela to stack the company with his yes-men. After a brief and unsuccessful coup against him in 2002, he also cleaned out the barracks, handing over indoctrination and training to his Cuban allies.

In the following years, oil prices rose sharply, and Mr. Chávez spent lavishly. He saved none of the windfall, ran large budget deficits even at peak-oil prices, raided the country’s rainy-day oil fund, and borrowed heavily, first from Wall Street and then from the Chinese and the Russians. He handed out billions of dollars worth of cut-rate oil to Cuba, Nicaragua and even Boston and London to show off Venezuela’s growing energy clout.

The number of government employees doubled, to five million, and spending skyrocketed. Printing so much money caused inflation, so the government set prices, sometimes below the cost of production. Companies that refused to sell at a loss were seized, aggravating shortages. Less local production made the country ever more reliant on imports.

But once the price of oil began to drop in 2014, Venezuela could no longer afford the imports, which have fallen from $66 billion in 2012 to about $15.5 billion this year. And there is little domestic industry left to pick up the slack.

“It is classic Latin American populism on steroids, and now we have the worst hangover in history,” said Juan Nagel, a Venezuelan economist living in Chile.

Beyond some new public housing, little was built. Mr. Chávez left Venezuela littered with the bones of ambitious, half-finished public-works projects. Among them was a $20 billion scheme to build a train network, which now lies abandoned. In Caracas, a new subway line ended up being just one additional stop on an existing line, prompting local wags to call it the Centi Metro (centimeter) rather than just a plain Metro." 

"Mr. Chávez’s revolution attacked the old elites, sending nearly two million Venezuelans—and billions of dollars—packing in the past 10 years. But in their stead rose a new elite: the so-called Boliburgueses, or Bolivarian bourgeoisie, who enjoyed a life of premium wines, Scotches and cars as poverty levels rose."

"Corruption helps the government maintain political control. And no tool has been more effective than exchange controls, initially adopted by Mr. Chávez in 2002 during a national strike to control capital flight. Fifteen years later, they have reshaped Venezuela’s economy and given the government enormous power to pick who gets dollars from the country’s oil wealth—often at absurdly low rates.

For instance, firms and others who import food get dollars at the official rate of 10 bolivars. But they can turn around and sell those dollars on the black market for 8,300 bolivars.

Venezuela’s army recently got the rights to set up its own mining and oil companies, and the armed forces are in charge of most critical imports. In 2016, 18 generals and admirals were tasked with importing key foods and sanitary items. One brigadier general was put in command of acquiring black beans; another was charged with acquiring toilet paper, feminine napkins and diapers. Logically, an admiral was placed in charge of acquiring fish.

No one knows how much money has been lost. Mr. Giordani estimated that a third of the $59 billion that the government handed out to companies to bring imports into the country in 2012 might have ended up in fraudulent schemes.

“It’s a terrible economic model, but it’s great for politics and power,” says Asdrúbal Oliveros, a prominent Venezuelan economist."

"“The army is now a criminal organization,”"

" Venezuela’s national baseball league now plays to empty stadiums and is considering suspending this year’s season."

"The museum [Caracas Museum of Contemporary Art] is so empty that a thief replaced a Matisse portrait with a fake without anyone noticing for several years."

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