Tuesday, October 07, 2008

The crisis has taken up residence

I have lived the start of the crisis while I was traveling and paid little attention to it. First, there was nothing I could do about. Second, who knows when I will be able to indulge myself in leisure travel again. And third I know that Venezuela will be hit particularly hard, so why worry in advance? Thus my surprise returning to see that irresponsible of Chavez saying that we are safe, "blindado" is the word he used, an expression that can be added as of now to the catalogue of famous last words.

Anyway, I will not bore further the readers of this blog with my own version of the coming Venezuelan crisis since the editorial of Veneconomy says it all clear and loud. As such it is worth reposting here in its integrity:

The crisis that originated in the north has not only become entrenched in the United States, but has also extended worldwide.

A brief explanation of the origin of this crisis would be that successive US governments allowed the economy to be sustained for too long on consumption and not on investment that generates productive capacity. So, in order to promote consumption, policies based on excessively low interest rates, surplus liquidity, and a lack of supervision and transparency were promoted, and, above all, excesses were permitted in the financial system.

The present crisis in the United States is so deep-rooted that the rescue package approved last week by Congress will only suffice to avoid a collapse of the financial system, but not the recession that is in the making in the United States, Europe, Latin America, and the rest of the world.

Spokespersons of the Venezuelan Government -starting with the President himself- cut sorry figures when they insist on denying the obvious and are not only bent on making political hay out of the crisis to further their obsolete political project but extol their financial “strategies,” saying that they are preventing the country from being affected by the crisis. That is a cock-and-bull story.

The fact is that, in Venezuela, Hugo Chávez has implemented the same wrong-headed policy based on consumption and not on investment in production that was implemented in the north, including low interest rates, excess liquidity, and a lack of supervision and transparency in the handling of public and private funds. In short, the local model is the same as the model used in the north. The only difference is that the means of support of Venezuela’s model is the price of oil. And now the times of high prices have come to an end.

According to unofficial data, on Friday, October 3, the price of Venezuelan oil had dropped to $83/bbl; and according to a Merrill Lynch report, the price of WTI will fall to $50/bbl by mid-2009, which means that the price of Venezuelan barrel would be around $40. Even with the barrel of oil at $80, the Chávez administration would no longer be able to continue with its oil-diplomacy and its system of handouts via the “missions” or social programs, and it would also find it uphill work to maintain its astronomical level of public spending.

Faced with this situation, the government has two alternatives: either to maintain spending at current levels, which would lead to hyperinflation, or cut back spending and unleash a sudden contraction of the economy, both of which would lead inevitably to an unprecedented economic crisis in Venezuela.

At the risk of adding insult to injury, VenEconomy insists that, if, in this past decade, the government had respected the rule of law, promoted investment, encouraged production, and generated productive employment, today, the country would be in a position to cope with this world recession.

So, instead of boasting about successes that are no more than mirages, the Chávez administration should be designing corrective measures to mitigate the crisis, which is already hitting Venezuelans.

-The end-


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