The Fall of the Latin American Left, Part II: Venezuela’s Heterodox Collapse

By Ignacio Portes, formerly the economy editor of the English-speaking daily Buenos Aires Herald. He has also published at Pando Daily and NSFWcorp. See Part I in this series here

The approach of Venezuela’s left was quite different to that of Brazil’s. Hugo Chávez’s government got into a frontal conflict with the country’s historical ruling classes early into his first presidential term. Things got nasty quickly. Boycotts, threats of disobedience, even a full-on military coup in 2002 backed by much of the opposition, told him and his people that nothing in the system could be trusted. So borrowing out ideas or negotiating moves with the elite was much more of a no-go, and opposing them was the first instinct whenever something came up.

Thus, when Chávez was challenged, say, by the management of the state-owned oil giant PDVSA firm, who refused to accept the new government’s reforms in the summer of 2003, he didn’t back down and appease them. Why would he do so when they were part of the same elite that had supported a coup against him just months ago?

PDVSA’s top officials wanted to paralyze the country’s most vital industry, and Venezuela massively depended on oil exports to afford importing the many goods that weren’t locally produced. In the two months that their boycott lasted, the local currency plunged from 1,300 bolívares per US dollar to 1,900 each, making Venezuelans struggle to afford the basics, while the Central Bank was also bled of foreign bills amid the draught in exports and additional capital flight away from the country.

In that context, the prudent advice might have been: “hey, this is something too vital to mess up with, the economy needs the oil dollars to survive, we can’t take these risks. Give some pro-market concessions to the PDVSA people, get their drills back to work and keep that hard foreign currency flowing, even if the government doesn’t control as much of it as we would want.”

But that could never sit well with the Chavistas, who had seen enough of their country’s elites to distrust the idea of making concessions at such time. So they went about things their way, challenging the oil managers first and then embarking in more unorthodox economic reforms as a shield against future attacks.

Eventually, the government got a big win, regaining control of the country’s oil and putting some friendly directors and middle-managers in place of the previous hostile ones. While doing so, Chávez also A) fixed the country’s exchange rate at 1,600 bolívares per dollar, cushioning the blow of the devaluation on Venezuelan’s purchasing power, and B) established currency controls to stop the central bank from leaking so many of US dollars again, giving priority to purchase them to importers of basic goods over, say, citizens willing to go on holidays abroad or firms looking to store their savings in hard currency. This, he believed, would protect the country’s foreign sector from being newly targetted.

A year later, PDVSA was up and running again, and after a devastating 2002 and 2003 in which the country’s economic output had plunged by almost 9 and 8 percent respectively, the lost ground was recovered in a year, with GDP bouncing back by 18 percent in 2004.

Chávez’s bold approach seemed to be paying off, and that was only the beginning. With international oil prices now skyrocketing, those incredible growth rates continued beyond that one-year bounce back: 10% in 2005 and 2006, 9% in 2007, 5% in 2008. Venezuela was having a boom of its own, all while distributing income and turning the country’s political landscape on its head.

But the country was also planting the seeds of its own downfall during those times of success, even if they were different to Brazil’s.

Hidden under the boom-time euphoria, a couple of basic dangers loomed. They were being brushed off by a combination of the US$100+ per oil barrel euphoria and a growing confidence in one simple idea that began to underlie almost every political debate: that questions to the government’s economic policies ultimately amounted to a defence of the traditional powers that be.

Almost any economist, be it a leftist modern monetary theorist, a more centrist liberal or a hard-line right-wing Austrian, would spot trouble if presented with the scenario that began to grow in Venezuela after the foreign sector reforms of 2003: high inflation combined with a fixed exchange rate. Things get a bit technical here, but they can be understood in practical terms.

What happens is that, for anyone who holds part of the increasing amount of local currency (in this case, Venezuela’s bolívares), everything else in the economy is getting nominally more expensive except the foreign bills that the Central Bank holds and sells at a fixed price. So buying that foreign currency (or any imported product) becomes the best business of the land, more so with every day that passes.

That leads to two dire consequences. First, local production becomes unsustainable, as it can’t compete with increasingly cheap foreign imports. Next, the Central Bank runs out of foreign currency reserves, after giving them away at what in real, inflation-adjusted terms is an increasingly cheap price. That means that importing becomes less and less viable too, as the country has nothing to pay for it.

Those problems started becoming increasingly obvious in Venezuela, but the government’s mindset — that criticism from trained economists amounted to attacks from enemies of the people’s will — put it in denial about how this time it was mostly their own policies that were causing them.

So while the government mocked and demonized anyone pointing out that the policies were backfiring, officials tried alternative solutions. Businesses big and small were sanctioned or expensively nationalized after accusations of boycotting the economy. But they did no better post-nationalization, as the base problems kept worsening. More restrictions were placed on what could be imported, but even banning everything minus food and medicine proved insufficient to contain the demand for the few remaining Central Bank dollars. The military was put in charge of eliminating import black markets, but the profits were so good and the bribes so big that the generals ended up running them. In a nutshell, none of them really worked.

Today, Venezuela’s economy is in ruins. Leaked government documents show GDP contracting by a staggering 19 percent last year, the third consecutive of recession. With local production collapsing, non-oil exports plunged from 35 to 10 percent, making the country even more dependant on the ups and downs of global crude markets than it already was. Local prices, meanwhile, are now in hyperinflation territory, rising by 800 percent last year, as various subsidies and stimulus programmes aimed at re-starting local production fail on their purpose and even backfire.

But hyperinflation, as crazy and damaging as it can be, is not even the country’s main problem. The real enemy is scarcity. With local production collapsed, growing limits on imports and very little foreign currency in public or private hands to afford them anyway, hunger is growing widespread ( ). Crime and lootings are the order of the day, and only get worse with moves such as India-style overnight bans on cash (supposedly aimed at stopping flimsily-evidenced economic conspiracies), which have just added to the chaos.

All in all, a thoroughly depressing scenario. The challenge that Venezuela’s left began against establishment economics ended up with its government harassing and threatening its own economic dissidents with jail ( ) when it ran out of answers, and proving that economic failures outside of the mainstream are just as possible as inside it.

The much more resounding institutional abuses seen in the last few days, including a shortly-lived ruling which passed the lawmaking powers of the opposition-controlled National Assembly to the government-friendly Supreme Tribunal, stem from the same economic impotence: that move came as the legislative branch refused to approve a proposal to sell oil rights to Russia, in a bid to raise some hard cash days before a looming foreign debt payment that would further deplete the country of dollars. With two and a half years still to go on Maduro’s term, there’s room for more authoritarian moves as long as the lack of economic answers continues to make the government focus on scapegoats.

But as we’ll see in Part III, the consequences of Venezuela’s crisis are also spreading beyond the country. After the collapse of 1990s neo-liberalism, the initial victories of chavismo helped push a continental turn to the left, up unto the inaugurations of hydrocarbons-nationalizing Evo Morales in Bolivia (2006) and foreign debt re-negotiator Rafael Correa in Ecuador (2007). A decade later, it is now the right-of-centre parties across Latin America that are gaining ground helped by variations of one simple slogan: “would you rather we became Venezuela?”

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  1. jackiebass

    I believe that the CIA has a big part in this. Our government doesn’t want any S,A, country to practice socialism. They consider it a threat to our Capitalism.

    1. wlawlor

      where is the info on how the U.S. sabotaged the Venezuelan economy. There is a depressingly long history of U.S. ruining Latin America’s countries economically and militarily.

    2. nonsense factory

      I don’t doubt that the U.S. wanted to sabotage the Venezuelan government and get their a U.S.-friendly obedient puppet in power – but the big mistake Chavez made was putting all his faith in fossil fuel sales and relying on that cash flow to float all his social programs.

      If instead he’d put 80% of the money into domestic manufacturing and other jobs and infrastructure improvement (kind of like an FDR New Deal program for Venezuela), that could have created a broader economic base that would have allowed them to weather the collapse in oil prices without so many problems.

      When you’re dependent on a single resource like fossil fuels, it doesn’t matter if you’re economy is socialist or capitalist, you’re always at risk at getting the rug yanked out from under your feet.

        1. John

          Oh, absolutely. Every country with oil as a major export is afflicted with a resource curse of the worst kind, unless they direct the industry’s profits into diversification.

        2. Ignacio Portes

          Yes, but in a very strange way. It’s interesting how a lot of these governments spoke a lot about dutch disease but ended up creating one of their own in a very convoluted way, by artificially appreciating their exchange rates through their subsidized dollar selling schemes.

  2. Jim Haygood

    “Any economist … would spot trouble [in] high inflation combined with a fixed exchange rate.”

    Not merely “a” fixed exchange rate, but several of them (with the flagship rate grossly overvalued).

    Multiple exchange rate regimes have been tried in many places and never worked. Overvalued exchange rates correspond to a tightening of monetary policy.

    When the main exchange rate becomes overvalued by a factor of ten or a hundred times, it’s the functional equivalent of putting your hands around the economy’s neck and squeezing till it turns blue.

    Maduro is still squeezing.

    1. JohnnyGL

      Many of us have our ideological, strategic and tactical differences with Comrade Haygood, but there’s really no disputing the exchange rate debacles.

      This is something I think many heterodox economists would have gotten wrong a decade or two ago. Many who argue with Neoliberals still agree that a flexible exchange rate is a very useful tool. This seemed especially clear after Argentina’s disastrous end to its currency board.

      Venezuela’s exchange rate debacle, contrasted with Ecuador’s astute management of its fully dollarized economy should make a lot of people re-consider what’s possible under what circumstances.

      1. PlutoniumKun

        Thats an excellent point about exchange rates. I’d love to see an article which gives a good overview of the options available to a progressive government. I’ve been curious about how Equador has managed with its dollarized economy because I assumed that keeping the dollar peg would be asking for trouble, especially with a declining oil price.

      2. Yves Smith Post author

        Please read this article which has Argentina as one of its main focuses. The problem isn’t flexible exchange rates. It was Argentina dollarizing.

        The abstract:

        This paper provides an analysis of Keynes’s original “Bancor” proposal as well as more recent proposals for fixed exchange rates. We argue that these schemes fail to pay due attention to the importance of capital movements in today’s economy, and that they implicitly adopt an unsatisfactory notion of money as a mere medium of exchange. We develop an alternative approach to money based on the notion of currency sovereignty. As currency sovereignty implies the ability of a country to implement monetary and fiscal policies independently, we argue that it is necessarily contingent on a country’s adoption of floating exchange rates. As illustrations of the problems created for domestic policy by the adoption of fixed exchange rates, we briefly look at the recent Argentinean and European experiences. We take these as telling examples of the high costs of giving up sovereignty (Argentina and the European countries of the EMU) and the benefits of regaining it (Argentina). A regime of more flexible exchange rates would have likely produced a more viable and dynamic European economic system, one in which each individual country could have adopted and implemented a mix of fiscal and monetary policies more suitable to its specific economic, social, and political context. Alternatively, the euro area will have to create a fiscal authority on par with that of the US Treasury, which means surrendering national authority to a central government—an unlikely possibility in today’s political climate. We conclude by pointing out some of the advantages of floating exchange rates, but also stress that such a regime should not be regarded as a sort of panacea. It is a necessary condition if a country is to retain its sovereignty and the power to implement autonomous economic policies, but it is not a sufficient condition for guaranteeing that such policies actually be aimed at providing higher levels of employment and welfare.

        In addition:

        1. Having what the BIS refers to an overly elastic system, which is their way of trying not to offend anyone by saying that we have too much mobile international capital. We used to have capital flows 2x trade flows. It’s now over 60x.

        2. Overly mobile capital is very highly correlated with the frequency and severity of financial crises.

        And who pushed for this system? The US, to make the world more hospitable first to Citibank and later US investment banks. This is not inherent to having floating rates. And a fixed rate system is just as vulnerable, since supposed fixed rate systems are subject to cheating, as in resetting of the rate. This happened all the time under the gold system too. It’s actually more inviting for speculators to attack a country with a fixed peg, since when the adjustment occurs, it will be more abrupt and hence more profitable.

        1. JohnnyGL

          Good stuff. Dollar pegs and currency boards in a context of highly mobile capital invite speculative attacks. I agree and think the evidence is clear on this. Argentina obviously got crushed and even Hong Kong, with it’s fairly massive supply of currency reserves, nearly cracked in 1998 under pressure from the Soros-style hedgies.

          So, if highly mobile capital is the problem, perhaps the question should be as much about which country has the best capital controls rather than who has the best exchange rate regime? Ecuador seems to have fared better on this front? Is their regime of capital controls the reason why?

        2. Grumpy Engineer

          The capital-flow to trade-flow ratio has increased by more than a factor of 30?!? Holy cow. I’ve been aware for some time that where was too much money sloshing around the financial system, but I had no idea it was THAT bad. Sheesh. No wonder things seem so unstable these days.

        3. PlutoniumKun

          The final paragraph of that Levy Institute report is very prophetic (published in 2007)

          Keynes’s plan relied on the existence of some form of international governance. If it became possible to construct international institutions to promote economic growth by focusing attention on financing development, this could also improve international economic performance by making it possible to give exchange rates and terms of trade more stability. In this perspective, the European experience is a telling example. Monetary integration can be, in principle, the correct response to the need for more stable external conditions in the European countries, but the present European arrangements, although they give stability to exchange rates, do not seem to work effectively to guarantee more growth and higher levels of employment. The basic reason is that there is no supranational institution that plays the role played by the governments of sovereign nations. In other words, the EMU does not seem to work satisfactorily for the same reasons that a world regime of fixed exchange rates cannot function well without a supranational institution with tasks analogous to those envisaged by Keynes and others.

      3. lyman alpha blob

        I remember a Chavez supporter saying at about the time of the failed coup against him that “he may be an idiot, but he’s our idiot.” As much as I rooted for Chavez to succeed, I suspect he may have been out over his skis in trying to rework a national economy.

        Contract that with Correa, who earned a PhD in economics and served as the country’s finance minister before becoming president and had a much better idea of what he was up against. The might help to explain the different outcomes you bring up.

        Appreciate this series for illuminating the policy mistakes of the leftists – an honest reckoning is not something you see a lot in the mainstream press. The problem I see though is that the PTB were and continue to be aligned against the left. We’ve had neoliberals cratering the economy for most of us in the US now for decades and yet somehow they don’t get swept out of power and we get a prescription from them of moar of what didn’t work the last time.

        The leftist administrations clearly made some mistakes in these countries but they weren’t given much of a chance to fix them. The boom was based on surging oil prices and a drop definitely hurt them, but they had to start somewhere after decades of exploitation and a decade or so isn’t really enough of a time frame to fully develop other robust industries. I haven’t seen USAID mentioned in this series yet and they have been large players in Latin American politics trying to thwart the rise of the left. The neoliberal wealthy elites in their own countries with the help of those in the US are only too glad to help give the leftists the boot in the hopes that we’ll all be convinced that there is no alternative.

        1. Brian M

          Is part of the problem Maduro was just not as brilliant as Chavez? He flounders and flails and attacks those who question him?

        2. nampa

          The main problem was sabotage by the owners. The inflation from a booming economy and the black market were additional factors.

          Industry should have been more vigorously nationalized. The post-Chavista leadership refused to carry through the revolution.

  3. a different chris

    > proving that economic failures outside of the mainstream are just as possible

    Is this just a basic problem with modernity – or a fundamental rule of life exposed by modernity? Nothing works forever, the modern world speeds the cycles up.

    >With local production collapsed

    Also, Venezuela’s problems, like so many similar countries, seem to be exacerbated overall by having oil. Sometimes it seems worse than importing it. We can make money from oil so why grow food? Oops.

    As an aside, I don’t know precisely how this relates to my modernity comment, but Saudi Arabia is a pretty backwards country politically, and they haven’t blown up yet, although I am pretty confident they will long before the oil itself runs out. Note of course, unlike Venezuela they couldn’t feed themselves if they tried.

    1. cat's paw

      Complexity is certainly fundamental to modernity and in the case of latin america nearly all political, economic, and juridical structures are tied inextricably to the history of colonialism–perhaps modernity’s greatest, most enduring, far-reaching and perfect parasitical structure–right up to the present moment.

      Almost everywhere you look you find a very small, entrenched minority elite–existing since the time conquistadores walked the earth– whose only job is to siphon off and concentrate as much wealth and power as possible from every sector of society possible and who answer only to the factions of transnational capital that loot the region with even greater intensity and much better strategy–backed up, of course, by the military, legal, economic, and covert muscle of God Bless America.

      SA is a completely different case. The obscene oil wealth SA controls has allowed that regime to maintain an uneasy alliance with the socially powerful Wahhabi and buy off the rest of the social order with immense, state-funded welfare programs.


    Much thanks for this. Hard to find good analysis of the Venezuela situation, as most tend to devolve into capitalism vs. socialism slapfights and polemics.

    1. PlutoniumKun

      The problem is though, that the Chavistas don’t seem to have been able to change the economy (not an easy thing to do of course, but they should have tried harder). Neither do they seem to have hedged against a drop in the price of oil, unlike the Mexican government. Its the curse of all resource economies of course – only (off the top of my head) the Russians seen to have had recent success in avoiding the pitfalls, and thats mainly by being a big exporter of arms.

      1. Martin Finnucane

        So: the Chavistas were not too communist, but not communist enough?

        The take away from this series so far seems to be that if a developing country is to successfully combat the neoliberal order, it must aggressively pursue an internal industrial and agricultural policy while at the same time destroying the political and propaganda power of its traditional elites, including by destroying the oligarchy-controlled media. Inevitably, the center will oppose these developments, requiring high vigilance against Maidan-style puppet revolts, false-flags (“Remember the Maine!”) and other CIA shenanigans. Additionally, national defense must be a priority, with the case studies of Libya and N Korea indicating that nuclear deterrence may be a necessity for national survival.

        All of this sounds very “when making omelettes”. And familiar.

      2. JohnnyGL

        You can’t use hedge contracts if major banks won’t do business with you. Uncle Sam has conveyed its disapproval of the Venezuelan ‘regime’ with numerous public statements and several rounds of targeted sanctions.

        Venezuela’s too small of a client to risk making Uncle Same mad. HSBC got roughed up for violating the Iran sanctions. It’s just not worth the risk for big banks to act as a counterparty.

        But yes, your point is valid, the resource curse can certainly be managed better than Venezuela has thus far. They haven’t improved on this front from the Caracazo days.

          1. JohnnyGL

            An investment bank’s contract is only as good as the central bank who backs them up. Russia’s Central Bank is trying to keep the country’s monetary head above water, they’re in no position to provide a back stop for other countries to lay off risk, especially in USD.

            Do you think Venezuela would find much value in a hedge contract based in Russian Roubles? Because that’s what a Russian Bank can credibly provide.

  5. JohnnyGL

    Where’s RabidGandhi?

    Here’s one more data-point for his argument yesterday about “all corruption, all the time” media-coup against anyone who dares to lean to the left of Atilla The Hun.

    I’m curious if Mexican politics have gotten anything like US politics where all smears/scandals, true or false, stop working like they stopped working against Trump.

    Why might smears be necessary? Lopez-Obrador’s party might win some victories.

    1. RabidGandhi

      Thanks for that Johnny. I generally don’t write much on Venezuela because there is way too much noise to signal in the media. For example in the OP we have citations from BBC and Reuters, both of whom have a track record of publishing incorrect/misleading articles on Venezuela. Then on the other side of the spectrum there is Telesur whose Venezuela coverage is frankly barfworthy, akin to CNN’s coverage of the US. Therefore, with scant reliable sources for even the most basic stats, I don’t write much because I really don’t know what the facts are on the ground.

      So kudos to Ignacio who’s braver than me!

      1. JohnnyGL

        Very much agree on Venezuela coverage. Signal to noise is brutal.

        I feel like deaths of journalists is a decent measure of “how bad are things?” – 50+ in the last 1.5 decades – 6 in the last 1.5 decades

        Where are the cries about freedom of the press in Mexico? I think I saw one in the LA Times recently, but that’s about it. Venezuela seems to take more heat on this front.

  6. John k

    Good discussion.
    Oil is a curse because it leads to looting and the belief among the rulers you cant mismanage the economy, while the workers think you don’t have to work, especially if you work in the inevitably over manned oil or gov sectors.

  7. Grumpy Engineer

    Venezuela has made a number of terrible economic errors over the past few years:

    [1] Failure to maintain their oil production equipment. Venezuelan oil production is falling, which exacerbates the problem of low oil prices for a double-whammy to the revenue stream.

    [2] Removing the 100-peso note from circulation. This was absolute stupidity based on an incredibly dumb theory: That criminal gangs were hoarding 100-peso notes to hurt the economy. Really?!? Who the hell hoards a currency that is experiencing hyperinflation? As a conspiracy theory, it’s completely non-credible.

    [3] Using oil dollars to provide subsidized imported goods to Venezuelan citizens. While this sounds nice on the surface, they undercut domestic suppliers and cause all sorts of businesses to fail. Their current food woes are a direct result, as most farmers were driven out of business years ago. [And price controls keep them from getting back into business.] Exchange rate stupidity made this even worse.

    A better approach would have been to use the oil dollars on equipment that would increase the production capabilities of their domestic businesses, or at least directly write checks to individual citizens so that they could freely choose between domestic and imported goods.

    [4] Nationalizing businesses that have failed to toe the party line with absolute perfection. This has discouraged both foreign and domestic business investment. Who want to the take the risk of opening a business if Maduro will freeze your prices or even flat-out seize it?

    [5] Gimmicky fixed exchange rates. This has encouraged all sorts of fraud, and potential foreign investors are pushed away even further.

    And when you toss in the numerous political errors (arresting political opponents, packing the courts, violently suppressing protests, etc.), it becomes even more apparent that Maduro and the Chavistas need to go. They’re causing the Venezuelan economy to implode from self-inflicted wounds, and the human suffering is tremendous.

    Norway is another country that has significant oil resources, and they’ve somehow managed it in a sane manner. Chavez and Maduro chose a different path.

    1. Gerard Pierce

      Two points:
      1) By the time oil became significant, Norway did not have the same kind of social problems as Venezuela did.
      2) Perhaps current Venezuelans could follow historical precedent and survive by going Viking. In he current world economy, it’s probably as good a plan as any.

  8. Kalen

    Thank for this insight but I think author’s interpretation of the situation in Valenzuela may be little bit off.

    First of all there was no “true” socialist revolution during Chavez years, all he did is to alleviate at least 70% of poor out of utter poverty and hence revitalized economy mostly based on massive oil exports during boom times, while in the same time left old feudal socio-economic system, with landed aristocracy and oligarchy mostly intact, although he tried and fought for it and ultimately failed. Some of the oligarchs were cooperating with Chavez’s government making billions for themselves while they were tolerated even valued.

    So what Chavez did was to provide massive welfare program for RICH, yes rich i.e. political, economic and financial aristocracy, through increasing purchasing power of the poor and working people instead of nationalizing the entire industry and use circulating capital for state investment.

    Hence there was no true socialist or even Bolivarian revolution but an attempt for it, no change from capitalist social relations into socialist social relations in Venezuela, not even an serious attempt, only creation what we would call a capitalism with a friendlier face toward poor and working class.

    What we see now in Venezuela under Mauro is exactly a crisis of this type of the middle of the road capitalism, where rich economic class is trying to wrestle democratically acquired power from, what I would call a party with social-democratic leanings, via extra-constitutional means of soft coup funded by Washington.

    I just add that lack of bathroom tissue and other basic necessities in stores is not because of socialism but because the government is trying desperately to maintain affordability ratio (part of their political platform) aimed not to hurt poor and hence the prices of necessities are very low and hence they are being overbought purely as a inflation protection measure. You can buy as much bathroom tissue as you ever wanted just 50 ft from the store for higher price of course.

    People are buying much more than they need to trade the items since money loose value. Have a similar inflation in the US and hold the prices affordable you will see the same effect of empty shelves, similar effect you may sometimes see even now in the US when items that price increased too much are often not ordered at all by store managers, or they are not even shipped to the store waiting for retail price to increase.

    I lived in the country in crisis for a long while and I know what is going on in Venezuela. It is not a collapse of economy, in fact the economy is overheated and produces much more than before but expressed in dollars seen as collapses. It is an attack of the Global banksters on Venezuela’s currency that makes import of industrial components much more expensive and hence pressure of basic prices that are artificially maintained at low levels.

    Just to end this thread, such panics were common in western Europe even as recently as in 1980-ties, where long lines were formed in front of stores that sold price controlled or subsidized items that ran out quickly since people wanted to make a buck by selling them at market prices elsewhere.

    Given the similar circumstances this same thing could easily happen in the US but nobody would attribute that to socialism.

    So while Chavez/Maduro made tons of mistakes and allowed for substantial fraud, the crisis has everything to do with US inspired regime change, the change of the regime who cares to much about poor and that’s their greatest crime.

    1. DDTea

      Not sure where in Western Europe this occurred in the 80s re your comment below.

      “Just to end this thread, such panics were common in western Europe even as recently as in 1980-ties, where long lines were formed in front of stores that sold price controlled or subsidized items that ran out quickly since people wanted to make a buck by selling them at market prices elsewhere.”

      Are you sure you’re not talking about eastern Europe?

      1. Kalen

        Among many cases in 1980-ties France introduced special tax/tariff of video-recording equipment from Korea/Japan. Massively French were going to Germany to buy them (causing empty shelves, Germans unable to purchases them) and sell them in France on black market hurting AV stores, they are many other cases of that of course realizing that European countries later coordinated such things.

        The eastern Europe was collapsing at that time so of course market instabilities were tremendous but mostly due to political structure collapse and massive lawlessness, organized crime and theft that ensued. I just wanted to illustrate a mechanism of empty shelves even in otherwise stable economies which I am not claiming Venezuela is.

  9. Ken

    Venezuela depends on oil field contractors for drilling expertise, and they don’t pay them regularly. Many have left the country.

    Venezuela has perhaps the world’s largest reserves of crude oil, but it is very heavy and low value (expensive to refine and lower yield of high value refined products). It must be cut with a solvent or light crude oil to be able to pump and ship it. Venezuela can’t afford to buy the light stock needed to be able to export their national resource.

    “Several ship owners, exasperated by payment delays, have sought court orders to have the oil on board the tankers impounded, according to three sources involved in some of the disputes and a court document seen by Reuters.

    “Russian shipping conglomerate Sovcomflot in October won a court order to seize a $20 million Venezuelan crude cargo from a Sovcomflot tanker as partial payment on a $30 million debt.”

    1. Guglielmo Tell

      PDVSA cancelled successfully over 2 billion in debt despite which Standard&Poor and Moody’s downgrade its (and Vzla’s) qualification in violation of their own rules. Payment delays are much owed to the banks refusing to deal Vzln transactions as part of POLITICAL pressure being exercised upon them. Julio Borges and his “opposition” gang – the one that set a Maternity Hospital in fire these days in Caracas – warned Deutsche Bank that it’s “risking its prestige by dealing with Bolivarian Govt” – and if THIS is said in public, be sure there are mafia threats behind the curtain. They call the whole world to block economic and financial operations with Bolivarian Govt so to make it collapse, so to ruin whatever the Revolution has built and also they are cooking up a military intervention into their own country in the OAS (“the US Dpt of Colonies”) so to beat their own 1989 genocide record (“Caracazo” – the REASON Chavez appeared in the first place). Once they took the Assembly over, the first law discussed was Amnisty to the terrorist (yes) Leopoldo Lopez, the next – privatisation of the Home Mission. They know it would multiplicate the inflation still several times over, but that’s exactly what they need: the RUIN of the enterprise of the takeover of the country by its own people. Now people accuse Maduro of being “too soft” – no less. So, if Maduro fails there won’t be “peace, prosperity and democracy”, but radicalization of the Revolution and Civil War if oligarchs want one (they do – with American and IMF support). And THIS is how the world works.

  10. Chauncey Gardiner

    Based upon my reading of the first two posts in this series and recalling past posts and comments by readers on the situation in Argentina, I think there are common threads between the root causes of Argentina’s and Brazil’s economic difficulties and Venezuela’s currently stark predicament, as well as shared pathways to recovery. While low global oil prices have affected Venezuela’s US dollar debt servicing capacity, I think Venezuela’s current economic difficulties were driven in part by domestic private sector and public sector US dollar-denominated debt incurred during a period of high Oil prices and a relatively weak US dollar. As in the case of Argentina and Brazil, for what purposes was that debt incurred?…

    I know little about Venezuela and the practical impediments to policy implementation, and have read the comments above. But setting those aside and focusing on policy pathways out, it seems to me that both the domestic market and other markets in Latin America and Africa provide long-term economic opportunities.

    Is a capital infusion available through supranational organizations and under what conditions?

    Can capital flight be contained through stringent capital controls and incentives given to employ capital domestically?

    Can domestic food production be increased and the nation’s food distribution system be improved?

    Would petroleum refining and production of petrochemicals improve Venezuela’s export mix and increase foreign exchange revenues.

    Can policies be implemented to increase domestic production of alternative goods for export such as textiles and apparel?

    Is there potential to increase domestic non-food crop production, such as cotton, maize and soybeans?

    Is there potential to produce and export other domestic resources besides petroleum, such as timber, iron ore and other minerals?

    My recollection is that Venezuela has a strong public education system. Does a basis exist for the formation of a domestic technology, communications and services sector that might also generate export revenues?

    Is there a global competitive cost advantage to domestic goods manufacturers from cheap hydro power or other sources?

    Just some thoughts in an effort to identify factors that might help frame solutions in a somewhat more optimistic vein given media reports of the precarious position of the people of Venezuela.

    1. Guglielmo Tell

      Check my weblink and follow from there.
      Also – PLENTY of information and analysis – IN ENGLISH.

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