Friday, June 26, 2015

Recovering Venezuela is going to be more difficult than what most people think

There are reckless souls in the opposition that claim that a mere change in the National Assembly and a couple of years of decent public administration are enough to turn around the Venezuelan Economic crisis.

I think such talk is simply reckless even if its intentions are merely electoral. At this point stirring false hopes is a deadly undertaking for whichever side. At least chavismo being in full denial mode is pretending that there are only minor problems that are the fault of foreign interests, period. It does not help them much but it cannot hurt them much either compared to its other problems.

Maybe two-three years ago we could have still entertained the thought that a Venezuelan recovery was not too difficult a task. But the damage done to the economic fabric and the collapse of oil prices which are not going to recover in the foreseeable future to a necessary 100 per barrel have made this impossible. A Venezuelan recovery is now going to be a Greek tragedy where even raising sales taxes on tourism activities cannot help a bit.

This blog has covered in details from ground zero where its editor lives how the damage to the productive sector has been perpetrated, from destroying contractual relationships between employer and employee, to a collapsed infrastructure. It is my conviction that even if all economic repressive controls were lifted tomorrow the economy will not be able to regain a sustained growth for at least a couple of years. And a weak one at that. And with significant protectionist measures for at least half a decade, or at least until we produce enough food for 80% of our balance needs.

I am not going into this again today, I will merely mention two powerful articles published today that spell disaster for Venezuela even though it was not necessarily the intention of the journalists writing them. But when you are a foreign correspondent you may not necessarily realize the implications of what you write when you try to stick to facts.

The first one is a piece from Reuters written by Alexandra Ulmer: Pirates and hold-ups: crime strikes Venezuela's oil industry. Ms. Ulmer details here how crime has put under siege Venezuelan oil industry, be it state or privately managed. The extent of robbery of supplies for scrap facilities to robbery of employees inside facilities in spite of the presence of guards is seriously affecting the potential of the industry. What's terrible about it is that oil industry is our only source of income today and apparently the regime is unable to protect it. Or worse, I suspect, unwilling to do so for reasons that I better do not think about. Whatever it is, the money quote will say it better:

in Monagas state, around 26,000 potential barrels were lost in March during a shutdown after state oil company employees and contractors stole copper cables and caused a tank to overflow {my emphasis} 

The other piece comes from The Economist: Learning the lessons of stagnation. Per se it is not about Venezuela. In fact, Venezuela is barely mentioned, it doesn't count anymore in LatAm economy. The article tries to explain how countries are dealing with the end of the commodities boom that fueled Latin America economic growth of the preceding decade. Thus there is an extensive list of do and don't according to the different economies fails and wins, ranking from care to the infrastructure to maintaining sound fiscal policies. It is a very interesting summary with interesting graphs (where Venezuela figures as the worst, of course). But the reason why it is so damning for Venezuela is that almost EVERY mistake made by X or Y country has ALSO been made by Venezuela. By ourselves we are a conpendium of all that is wrong in Latin America failure to rise to the modern world. Or as I have written, chavismo is a reactionary movement that has made Venezuela go back in past.

The money quote: To return to faster growth, Latin America must address its chronic structural weaknesses. Put simply, it exports, saves and invests too little, its economies are not diversified enough and too many of its firms and workers are unproductive. Needless to remind the wise reader that Venezuela exports only one thing, and badly now, saves nothing and cannot invest anymore. And productivity is now nil. It is not a matter of "too little", it is a matter of we cannot anymore.

Read both articles and then when any opposition Pangloss comes your way, you will know better.


  1. Boludo Tejano5:11 AM

    in Monagas state, around 26,000 potential barrels were lost in March during a shutdown after state oil company employees and contractors stole copper cables and caused a tank to overflow {my emphasis}

    Starting to sound like Nigeria, where stealing oil from pipelines is a chronic problem.

  2. Dr. Faustus6:28 AM

    Here's what really scares me about that Reuters article. If one day soon the opposition does achieve power, the vulnerability of PDVSA will quickly become apparent to the Chavista's With their encouragement, the theft levels will increase 10 fold. It will go from bad, to much, much worse. The current, decrepit state of the oil refineries and infrastructure may never recover after such a shock, and yet the ENTIRE country would be dependent on PDVSA oil revenue for its survival. Frightening.

    1. I worked in Venezuela and I think the theft can be handled. But it takes close cooperation with the national guard, a very sophisticated security department, and very good relations with the local community.

  3. Charly3:46 PM

    What drew my attention in the article is: "They point to the danger that sociology graduates will drive taxis—unless governments try to stimulate the demand for, as well as the supply of, better-qualified workers." This is a point Andres Oppenheimer is hammering over and over again. LatAm students prefer to choose diplomas leading to dead-end careers like the case he mentioned of 29,000 sociology students vs 8,000 in engineering in some universities in the Buenos Aires region.

    Venezuela problems through go far beyond that and it would be an error to lump this country with the rest of LatAm. I just completed reading two books, the first "Chavistas en el imperio" by Campo Ocando, the second "Bumeran Chavez" by Emili Blasco, Washington ABC correspondent. May be the time as come to ponder: "Is this a rogue state?". Making this connection is the fear of JVR, the only one mentioning this regularly in his Monday regular "El espejo", accusing the local+regional+international critics of the regime of trying to picture the country as "un estado forajido".

  4. The investment dollars from big oil coming in on a free market will generate enough money to secure oil development. Big oil will pay for security and with an honest gov't a authority (police and military) security can be achieved quickly. The biggest issue right now is that the military and police are involved heavily in the crime.
    The biggest issue for recovery in Venezuela are the people. Many of the good ones have left and the lazy, demand entitlement ones are left. Getting productivity from these people will be near impossible. Need new gov't that is not corrupt and wants the best for the country and for oil to recover to have any hope of attracting the people needed. All of these are unlikely any time soon.

  5. The "recovery" will of course take a lot longer than politicians say or many dream of. It's not just the Economic fabric that's destroyed. It's the social, social, institutional fabric that's also profoundly corrupted by the Castro-Chavista cancer. Cuanto hay 'pa eso, bribes, theft, special favors, instead of hard work, productivity, meritocracy.

    But recovery to what? I'd say, by looking at the MUD and the popular ignorance levels, to the Adecos/Copeyanos era, also deeply flawed and corrupted Cleptocracia of sorts. Just not as bad as this Kleptodictatorship. You cannot say that to the pueblo.. the truth, that if they vote for you, in 40 years, things might be better, about as they were in the 80's...

    "At this point stirring false hopes is a deadly undertaking for whichever side. "

    That's where I digress. Facing a massive propaganda chavismo machine, bribes, threats, brain-washing, the opposition has to lie too. Or at least omit the truth and avoid the topic. You see, this is the pueblo criollo you talking to, asking for votes, not exactly Norway's educated and skeptical electorate.

  6. Anonymous1:31 PM

  7. Thanks for the informative article.


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