DEE WILSON CONSULTING

Things are Never So Bad That They Can't Get Worse: Inside the Collapse of Venezuela

William Neuman, 2022

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Things Are Never So Bad That They Can't Get Worse: Inside the Collapse of Venezuela by William Neuman exposes how a country can be bankrupted and virtually destroyed in a couple of decades by corrupt incompetent leaders, whatever their political ideology. Neuman comments: "There is an old joke that says that capitalism is the exploitation of man by man and socialism is its opposite." In Venezuela, "Chavismo" ( strongman politics), corrupt leaders, organized crime and left wing ideologues joined forces in a way that destroyed both the economy and social institutions, and U.S. sanctions made the whole situation worse. 

 

Neuman states the following:

 

• "From 2013-through 2019, according to an estimate by the International Monetary Fund, nearly two thirds of all economic activity disappeared." During the U.S. Great Depression, the economy shrank by 27% from 1929-33. 

• In 2018, the Venezuelan Central Bank which had stopped publishing economic data for several years "revealed that inflation in 2018 was more than 130,000 percent. ... If you had bolivars you had to spend them today because they would be worth less tomorrow. By contrast, next door, in Columbia, the annual inflation rate in 2018-19 was about 3 percent." 

• At the same time, the value of the bolivar evaporated against the dollar. ... in 2012 one bolivar was worth 23 U.S. cents. .. in 2021, that same bolivar would be worth about one four- billionth of a cent, or $0.0000000000025." 

• "The United Nations in 2020 estimated that more than 5 million Venezuelans had left the country since the crisis began, .. one-sixth of the pre-crisis population."    
   

Neuman asks: "How did the nation with the biggest estimated oil reserves in the world turn into a disintegrating country where millions of people were going hungry and one in six residents had fled?  The short answer is that Venezuela ran out of money."   Oil prices increased from about $8 dollars a barrel to more than a hundred dollars a barrel in 2012 at which point the price of oil began to drop. Oil revenue fell from $93 billion in 2012 to 26 billion in 2016. However, during the boom years, the Venezuelan government saved nothing. When Chavez died in 2013, the country's rainy day fund had $3 million dollars. What happened to Venezuela's oil wealth? Some went to subsidize cheap gas for consumers, some was spent on services for the poor, some went to showy empty PR stunts, but most was drained off and stolen through government regulation of imports. One of the best part's of Neuman's book is his explanation of how to bankrupt a country through manipulation of the foreign exchange rate.  The Chavez government "created a fixed exchange rate and a government agency .. CADIVI, to decide who got dollars and to what purpose." The government's stated goal was to make sure that imported consumer products would be available to all citizens at reasonable prices.  "But there was a hitch. The gap that opened between the official exchange rate and the black- market rate created an opportunity to make money." Neuman explains: 

 

 "In January 2012, the official exchange rate was 4.3 bolivars to the dollar ... (but) the black market rate was twice that - 8.6 bolivars to the dollar. That meant if you could gain access to dollars at the official rate and sell them at the black market rate, you could double your money." The government would sell importers dollars at a cheap exchange rate; the importers could then sell their products at a fair market value and make a sizeable profit. However, "not all (import) applications were approved. So you might want to have a friend or cousin in the government who could grease the wheels for you and you might want to pay bribes to this friend or cousin or their friends." But why buy products that cost dollars when it's possible to use phony invoices and sell the dollars saved to other businessmen at black market rates? Why let commerce get in the way of profit taking? "The process of buying cheap dollars from the government and then over- invoicing the imported merchandise became a way of doing business in Venezuela.  There was a joke that, in Venezuela, the honest businessman over- invoices by 50 percent and the corrupt businessman over- invoices by 100 percent. The more you exaggerated the value of your shipment, the more you stood to profit. The incentives and opportunities for corruption were enormous for both importers and government officials."  ... By the end of 2013 the black market dollar was worth ten times the official rate." (pp. 116-17)

 

According to Neuman, this corrupt system became so extreme sometimes "... importers didn't bother to bring in anything at all, or they shipped containers full of scrap metal (or) they abandoned containers of merchandise on the docks." 

As the price of oil dropped and oil revenues shrank, the Madura government instituted price controls which led to a large increase in food prices as speculators bought goods cheap at the price set by the government and then sold 

food staples at inflated black market prices. Cheap food prices acted as a disincentive to producers. End result: "In early 2014, the minimum monthly wage calculated at the official exchange rate was about $500. At the black market rate - which was more indicative of prices .. - it was about $50. By mid 2015, .. the minimum wage was about $1200 when calculated at the official exchange rate and about $11 when calculated with the black market rate. .. a month's worth of food for a family of five cost more than six times the monthly minimum wage." 

 

Neuman is highly critical of the politics the Trump administration played with Venezuela. By 2019, Neuman writes, a country supposedly dedicated to socialist ideology was "a state reduced to the absolute minimum." 

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There were almost no services, no fire trucks, no ambulances. Public hospitals and clinics barely functioned. Poor people still received some benefit payments, but they were worth so little that they could hardly be called support. 

People were on their own, left to fend for themselves, free to exercise personal responsibility. Residents filled the potholes on the streets, carted off their own garbage, hired private security guards to protect their neighborhoods. Government run factories, farms and stores were shut down. .. despite socialist rhetoric the government had privately been increasing the ways the private sector could participate in the oil industry and other areas that were previously reserved for the state. In the gold mines, the government had outsourced most state functions to the sindicatos ( i.e., criminal organizations). In effect, government services were privatized, by necessity. 

 

Neuman has scathing things to say regarding the parallel government of Juan Guaido and his pretend overthrow of the Maduro government which substituted imaginative wishful thinking for planning.  The Trump Administration used Venezuelan foreign policy to increase its inroads with Latino voters in Florida, a highly successful political strategy in 2020. However,  U.S. sanctions have increased the suffering of the Venezuelan people without bringing down the government, an old story in U.S. foreign policy. 

 

How does a country rebound from a catastrophe caused by public policy, governmental incompetence and widespread corruption in all sectors? Unfortunately, Neuman does not suggest a way out, and the title of his book suggests the most likely next step.       

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-- Dee Wilson

 

deewilson13@aol.com