Another chapter in the long and tortured history of Venezuela is being written.
But this time, given the new digital world of communication and interdependence, what happens there is not just a spectacle for occasional American Marine intervention to keep the peace. Not only are U.S. firms being clobbered in a hapless manipulation of currency by government now rapidly going toward chaos. [Goodyear Tire & Rubber reported a $646 million loss against fourth-quarter earnings, mostly the result of the collapse of the Venezuelan Bolivar.]
Most observers expect the Venezuelans will meet the $1.5 billion in debt payment due later this month But after that, the picture gets murky. With oil prices a third of what they were just a few months ago, and apparently to rock along the bottom for some time, the will await a worldwide economic upturn and increasing world consumption. All out Saudi pumping of its super low-cost Gulf reserves has made a dent in the new American shale technologies playing a big role in the lower world wide energy prices. But new technology there has mitigated the blow. And now Iranian [and additional Iraqi oil] is about to enter the market as Pres. Obama’s deal on nuclear weapons with Tehran lifts sanctions, especially for the Europeans and the Chinese.
A Venezuelan default on its $120 billion in government and state oil company loans from overseas investors during the past decade.would go a long way toward creating a new world financial crisis.
Meanwhile, Veneuela’s 32 millions are taking it on the chin. The latest is government trimming electricity to a 100 malls which have been sanctuaries for escaping the growing discomfort and violence in the tropical country. In this latest crisis to hit the country, El Nino has caused a drought and shortages from hydro plants. This, of course, is taking place in a county with some of the largest reserves of fossil fuels in the world, The fact is that Venezeuela has suffered brownouts for decades. One of the reasons is that electricity is virtually free in the country leading to incredible waste. Meanwhile, unlike other oil producers, in the good times Venezuela did not set up a rainy day fund and has now had to dig into its vurrency reserves.
The electricity crisis is only the latest in a bundle of incompetencies and ideological perversions inherited by the Maduro government from its predecessor, the charismatic Hugo Chavez. Chavez ran a regime o bread and circuses, destroying among other things the efficiency of its oil industry which he nationalized. Now the country’s economy after decades of mismanagement has been one of the worst hit worldwide by oil price fall, accounting 95 per cent of the country’s trade revenue. At the moment, Caracas has four exchange rates: three official ones and the black market which has been trading at some 1016 a dollar against official rates a quarter of less of that..
Before Chavez took the Caribbean country of 32 millions down the road toward state capitalism, it for many years after the second world war one of the richest in the region, with a vibrant economy buoyed by oil exports, much of this heavy oil to Texas refineries.
But were it to default in the months ahead, its debt failure would ripple through emerging-market economies, many of which borrowed heavily when commodity prices were soaring. China had provided Venezuela with a steady source of financing in exchange for oil but as its economy slows and it tries to staunch a hemorrhage of capital outflow, Beijing is reluctant to lend more.
Venezuela’s story, by and large, is being repeated in the oil-dependent countries scrambling for funding. Nigeria and Angola are already seeking help from international institutions to plug their deficits.
For the moment, the U.S. Treasury appears to be listening and cringing. But here too the world is waiting for an Obama initiative.