Venezuela should be rich. But its government has destroyed its economy.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/21

Empty supermarket.... Chavez & Maduro destroyed Venezuelan economy...

The problem with socialism isn't that you eventually run out of other people's money. It's that you eventually run out of oil money.

Well, at least in Venezuela. It doesn't have an economy, you see, so much as a poorly-run oil exporting business that isn't enough to subsidize everything else. And that was true even when oil was over $100-a-barrel. So now that it's under $50-a-barrel, Venezuela's government has gone from defaulting on its own people, as former minister Ricardo Hausmann put it, in the form of rampant inflation and shortages, to really doing so, to the point that it might have to start defaulting on its debt, too.

It shouldn't be this way. Venezuela, after all, has the largest oil reserves in the world. It should be rich. But it isn't, and it's getting even poorer now, because of economic mismanagement on a world-historical scale. The problem is simple: Venezuela's government thinks it can have an economy by just pretending it does. That it can print as much money as it wants without stoking inflation by just saying it won't. And that it can end shortages just by kicking people out of line. It's a triumph of magical thinking that's not much of one when it turns grocery-shopping into a days-long ordeal that may or may not actually turn up things like food or toilet paper.

This reality has been a long time coming. Venezuela, you see, has the most oil reserves, but not the most oil production. That's, in part, because the Bolivarian regime, first under Chavez and now Maduro, has scared off foreign investment and bungled its state-owned oil company so much that production has fallen 25 percent since they took power in 1999. Even worse, oil exports have fallen by half. Why? Well, a lot of Venezuela's crude stays home, where it's subsidized to the you-can't-afford-not-to-fill-up price of 1.5 U.S cents per gallon. (Yes, really). Some gets sent to friendly governments, like Cuba's, in return for medical care. And another chunk goes to China as payment in kind for the $45 billion it's borrowed from them.

That doesn't leave enough oil money to pay their bills. Again, the Bolivarian regime is to blame. The trouble is that while it's tried to help the poor, which is commendable, it's also spent much more than it can afford, which is not. Indeed, Venezuela's government is running a 14 percent of gross domestic product deficit right now, a fiscal hole so big that there's only one way to fill it: the printing press. But that just traded one economic problem—too little money—for the opposite one. After all, paying people with newly-printed money only makes that money lose value, and prices go parabolic. It's no wonder then that Venezuela's inflation rate is officially 64 percent, is really something like 179 percent, and could get up to 1,000 percent, according to Bank of America, if Venezuela doesn't change its byzantine currency controls.

Venezuela's government, in other words, is playing whac-a-mole with economic reality. And its exchange-rate system is the hammer. It goes something like this. The Maduro regime wants to throttle the private sector, but spend money like it hasn't. Then it wants to print what it needs, but keep prices the same like it hasn't. And finally, it wants to keep its stores stocked, but, going back to step one, keep the private sector in check like it hasn't. This is where its currency system comes in. The government, you see, has set up a three-tiered exchange rate to try to control everything—prices, profits, and production—in the economy. The idea, if you want to call it that, is that it can keep prices low by pretending its currency is really stronger than it is. And then it can decide who gets to make money, and how much, by doling out dollars to importers at this artificially-low rate, provided they charge what the government says.

This might sound complicated, but it really isn't. Venezuela's government wants to wish away the inflation it's created, so it tells stores what prices they're allowed to sell at. These bureaucrat-approved prices, however, are too low to be profitable, which is why the government has to give companies subsidies to make them worthwhile. Now when these price controls work, the result is shortages, and when they don't, it's even worse ones. Think about it like this. Companies that don't get cheap dollars at the official exchange rate would lose money selling at the official prices, so they leave their stores empty. But the ones that are lucky, or connected, enough to get cheap dollars might prefer to sell them for a quick, and maybe bigger profit, in the black currency market than to use them for what they're supposed to. So, as I've put it before, it's not profitable for the unsubsidized companies to stock their shelves, and not profitable enough for the subsidized ones to do so, either.

And, remember, this was a problem even when Venezuela had dollars. Now it doesn't. Not when 95 percent of its exports come from oil, and its price has fallen by half. (It's actually a little worse than that, since Venezuela's crude is so heavy that it sells at a $5-a-barrel discount to the rest of the world's). Without as many petrodollars, Venezuela has had to cut back on imports so much that its shortages, which had already hit 30 percent of all goods before the central bank stopped keeping track last year, have gone from being a fact of life to the fact of life. Things are so bad that there isn't a bank run—who wants to save their worthless currency?—but rather, as Jonathan Wheatley puts it, a supermarket run. People have lined up for days to try to buy whatever they can, which isn't much, from grocery stores that are even more empty than usual. The government has been forced to send the military in to these supermarkets to maintain some semblance of order, before it came up with an innovative new strategy for shortening the lines: kicking people out of them. Now they're rationing spots in line, based on the last digit of people's national ID cards.

But just like Venezuela has defaulted on its most basic obligations to its people—like, say, laundry detergent—it might also default on its financial ones. It can't afford anything, not food, not diapers, and not bond payments, if oil stays around $50-a-barrel. Now, investors have assumed that they'd be able to seize Citgo, which is owned by Venezuela's state-owned oil company, as payment if the country ever defaulted on its debt. But now it looks like that's not true. That, together with falling oil prices, is why credit default swaps, basically debt insurance, on Venezuela's 5-year bonds have exploded the past few months. The fiscal situation is so dire that Citgo, which, remember, supposedly wouldn't count as a part of the Venezuelan state, is planning on taking out $2.5 billion in debt to give to its parent company, who would presumably pass it along to the government. This makes sense, as much as anything does in Venezuela, because Citgo has a higher credit rating than the government, so it can borrow, and if it defaults, it will just be as if the country sold it.

It's a man-made tragedy, and the men who made it won't fix it. Maduro, for his part, blames the shortages on the "parasitic" private sector, while the food minister doesn't get what the big deal is since he has to wait in line at soccer games.

So it turns out Lenin wasn't just right that the best way to destroy the capitalist system is to debauch the currency. It's also the best way, as Venezuela can tell you, to destroy the socialist one.

Matt O'Brien is a reporter for Wonkblog covering economic affairs. He was previously a senior associate editor at The Atlantic.

Why defend the rule of law in Honduras but not in Venezuela

The Washington Post, Editorial -
Friday, July 24, 2009

Why defend the rule of law in Honduras but not in Venezuela?

http://www.washingtonpost.com/wp-dyn/content/article/2009/07/23/AR2009072303003.html?nav=hcmoduletmv

LATIN AMERICAN diplomats remain preoccupied with the political crisisin Honduras, which has been teetering between a negotiated solutionthat would conditionally restore ousted President Manuel Zelaya tooffice and an escalation of conflict that would play into the hands ofanti-democratic forces around the region. While the drama drags on,those forces continue to advance in other countries, unremarked on bysome of the same governments that rushed to condemn Mr. Zelaya'souster. So it's worth reporting on a meeting that took place Tuesday at the Organization of American States headquarters in Washington between OAS Secretary General José Miguel Insulza and three elected Venezuelanleaders who, like Mr. Zelaya, have been deprived of their powers and threatened with criminal prosecution.

The three are Caracas Mayor Antonio Ledezma and the governors of twostates, Pablo Pérez of Zulia and César Pérez Vivas of Tachira. All three won election in November, along with several other opposition leaders. But since then, Venezuelan President Hugo Chávez has used decrees, a rubber-stamp parliament and a politically compromised legal system to strip the officials of control over key services and infrastructure.

Mr. Insulza, a Chilean socialist who has been flamboyant in his defense of Mr. Zelaya, listened to the Venezuelans' account. But the OAS leader insisted that there was nothing he could do about Mr.Chávez's actions, even under the Inter-American Democratic Charter, which was adopted by all 34 active OAS members in 2001. This month, Mr.Insulza helped spur the OAS to suspend Honduras on the grounds that it had violated the charter. But in the case of Mr. Chávez's stripping power from the governors and mayors, Mr. Insulza said, "I can't say whether it is bad or good." His authority, he said, is limited to"trying to establish bridges between the parties."

That is not how Mr. Insulza handled the case of Honduras, of course. Far from promoting dialogue, the secretary general refused to negotiate r even speak with the president elected by the Honduran National Congress to replace Mr. Zelaya. Instead he joined in a Venezuelan-orchestrated attempt to force Mr. Zelaya's return that, predictably, led to violence. Now, with an attempted mediation by Costa Rican President Oscar Arias stalled, Mr. Zelaya is again threatening to enter the country without an agreement. Don't expect the OAS chief to dissuade him.

Still, Mr. Insulza has a point. The weakness of the Democratic Charter is that it protects presidents from undemocratic assault but does not readily allow OAS intervention in cases where the executive himself is responsible for violating the constitutional order -- as Mr.Zelaya did before his ouster. The Honduras crisis provides an opportunity for the Obama administration to seek changes in those rules. If the administration is to depend on organizations such as the OAS to advance its policies in Latin America, it must push it to counter attacks on democracy whenever and wherever they occur.

Allies of Terrorism

Allies of Terrorism
Editorial Washington Post

The presidents of Venezuela and Ecuador are revealed as backers of the criminals who fight Colombia's democracy.
Wednesday, March 5, 2008

LAST SATURDAY, Colombia's armed forces struck a bold blow against the Revolutionary Armed Forces of Colombia (FARC), a group specializing in drug trafficking, abductions and massacres of civilians that has been designated a terrorist organization by the United States and Europe. Raúl Reyes, a top commander, and some 20 followers were killed in a bombing of their jungle camp in Ecuador, a mile or two from the Colombian border. The attack was comparable to those the United States has recently carried out against al-Qaeda in lawless areas of Pakistan, and it showed how Colombia's democratic government may be finally gaining the upper hand over the murderous gangs that have tormented the country for decades.

Now this remarkable success has been overshadowed by the extraordinary reaction of Venezuelan President Hugo Chávez, who has been revealed as an explicit supporter and possible financier of the FARC. Mr. Chávez openly mourned the death of Mr. Reyes and made a show of ordering Venezuelan troops to the border with Colombia while loudly warning that war was possible. He goaded his client, Ecuadorean President Rafael Correa -- whose initial response to the raid was subdued -- into mimicking his reaction. He then partially closed the border with Colombia, a step that will merely worsen the food shortages that have emptied Venezuelan supermarket shelves.

It turns out that both Mr. Chávez and Mr. Correa may have had something to hide. Senior Colombian officials say a laptop recovered at the FARC camp contained evidence that Mr. Chávez had recently given the group $300 million and had financial links with the terrorists dating to his own failed coup against a previous Venezuelan government in 1992. Colombia said Mr. Correa's government had been negotiating with Mr. Reyes about replacing Ecuadorean military officers who might object to his use of the country as a base. In other words, both Mr. Correa and Mr. Chávez were backing an armed movement with an established record of terrorism and drug trafficking against the democratically elected government of their neighbor. No wonder Colombian President álvaro Uribe felt compelled to order the cross-border raid; he knows that his neighbors are providing a haven for the terrorists.

There's little chance that this will lead to conventional war, despite the bluster of Mr. Chávez. The more interesting question is how average citizens in Venezuela and Ecuador will react. The FARC is despised across the region for its criminality and brutality; many Venezuelans have been shocked to learn of Mr. Chávez's alliance with the group. According to Mr. Chávez's former defense minister, Raúl Baduel, the Venezuelan military is troubled by the saber-rattling at Colombia. In his zeal to divert attention from a rapidly worsening domestic economic situation and his defeat in a recent referendum, Mr. Chávez is growing increasingly reckless. The principal danger, however, may be to his own country and government.