We are now hopefully witnessing the death throes of the illegitimate Maduro regime. Latin American countries, the US, Canada, and many other states have declared National Assembly President Juan Guaido as the legitimate President. Hundreds of thousands of Venezuelans have taken to the streets to show their support for Guaido, notably from the deprived barrios that once backed Chavez.
Now that the end of Chavismo is in sight, it is worth reviewing how the Chavistas succeeded in ruining the richest country in Latin America, the country with the largest oil reserves in the world. The Chavista regime has destroyed much of the Venezuelan economy, crippled its oil production, and soon it will soon lose the remaining oil revenues that are sustaining it.
Attacks on property rights and the rule of law were fundamental to the economic collapse. Companies were subjected to nationalisation on political whim, as well as price controls that made their operations uneconomical. This resulted in the sustained decline and eventual collapse of the domestic manufacturing and agriculture sectors.
The regime sought to compensate for dwindling domestic production by increasing imports, which more than doubled in per capita terms between 2000 and 2012. It financed this with over a decade of unsustainable borrowing. Between 2002 and 2016 Venezuela increased its debt burden by a factor of 6. Venezuela’s foreign debt now equals more than 5 years’ worth of exports, a worse ratio than that of any other country. However, heavy borrowing during the boom cycle of a notoriously boom and bust economy would prove devastating in the years to come.
Following a fall in oil prices between 2014 and 2016, Venezuela’s heavily oil-centric exports plummeted in value. Combined with the continuing collapse in oil production due to Chavista mismanagement – a 54% drop in production since 1998 – insufficient funds were available to pay for imports. After over a decade of heavy borrowing, Venezuela did not have the credit necessary to see out a depression in the oil market.
Facing severe funding shortages, the regime cut imports of food by 70% between 2014 and 2017, and imports of medicines by 70% between 2012 and 2016. The huge reduction in imports was combined with continuing falls in domestic production. There was a 50% contraction in production of the key cereals rice and corn between 2013 and 2016.
The combination of both a decline in export earnings and the collapse of domestic industry triggered a serious funding shortage for the regime. In an ill advised response to the funding crisis, the regime printed money, beginning a trend of rampant inflation that reached 1 million percent in 2018. The impact of hyperinflation on buying power is staggering. While it took 47 hours of minimum wage work in August 2017 to buy a kilo of cheese, by August 2018 this had risen to an incredible 930 hours. The minimum wage in October 2012 provided 60,000 of the cheapest calories, but by August 2018 this had decreased to a mere 200 calories.
Given the obviously catastrophic impacts of these policies, one might question why the regime did not abandon them. The answer is partially because of an ideological commitment to the extremist Chavista dogma, and partially because the Chavistas themselves, the party elite and military, are benefiting financially amidst the carnage. Price controls created shortages that enabled state enterprise managers to make fortunes from selling goods on the black market. The oil revenues have been systematically plundered for personal gain, and a myriad of other corruption schemes have looted Venezuela’s resources.
As we hopefully near the end of this sad story, we must learn from Venezuela and ensure that this tragedy never repeats itself.
More information on the Venezuela Campaign can be found on their website.