One of the many distressing aspects of the current pontificate is the strong attachment that Pope Francis has to economic nostrums that invariably end in the State largely controlling the economy for the “good of the poor”. How such ideas have played out disastrously time and again in human history should be obvious to any sentient being. The latest case study is Venezuela. Richard Fernandez gives us the bad, albeit unsurprising, news:
Pop quiz. Suppose a whole country decides to live off an imaginary inexhaustible stash promised by its president. One day it runs out of other people’s money and begins to starve. Hospitals start to close. Even the beer runs out. What do you do? What do you do?
According to the International Crisis Group that is the problem the world faces in Venezuela. “Some economists predict a sudden collapse in food consumption and widespread hunger, and public health specialists already say that some surveys are showing chronic malnutrition.” If the Colossus of the North doesn’t save it, then all hell with break loose. Can’t let that happen can you?
Aside from purely humanitarian concerns, Venezuela’s neighbours and the wider international community have pragmatic reasons for acting. If a solid institutional and social welfare framework can be restored through a negotiated settlement, and economic measures taken to deal with inflation and scarcity, a humanitarian crisis can be averted. If not, the collapse of the health and welfare infrastructure is likely to make political conflict harder to manage and could lead to a further erosion of democracy and an increasing likelihood of violence.
This in turn would have an impact beyond Venezuela’s borders. Potential risks include large-scale migration, the spread of disease and a wider foothold for organised crime. Without a change of economic policy, the country is heading for a chaotic foreign debt default, probably in 2016. An unstable Venezuela unable to meet its international commitments could destabilise other countries in the region, particularly Caribbean nations that have come to rely on subsidised energy from Caracas. It would also have a direct impact in Colombia, along a border already under multiple threats.
Venezuela should have been rich what with being the “12th largest oil producer in the world … and a beneficiary of the most sustained oil price boom in history”. Instead it is flat broke. It’s currency, the Bolivar is worth 1% of its official rate on the black market and 1/1000th of what it was before Hugo Chavez assumed power.
The country may be on the verge of hyperinflation. Most economists reckon that the inflation rate is already 120% a year (the central bank stopped publishing price data, so no one is sure). Some expect it to reach 200% by the end of 2015.
The Bolivar has essentially stopped working as legal tender and now everything is doled out by the state in an effort to make things “affordable”. “The government uses a labyrinthine system of price and exchange controls to shield Venezuelans from soaring prices. But these make matters worse. Price ceilings have devastated local production; factories are operating at half-capacity and more than two-thirds of food is imported. Affordable goods are in short supply.”
The result has been food riots. Desperate gangs of looters are roaming the streets, forcing the remaining businesses to shut down. “One person was killed and dozens were detained following looting of supermarkets in Venezuela’s southeastern city of Ciudad Guayana on Friday morning, according to Venezuelan authorities. Shoppers seeking scarce consumer staples including milk, rice and flour broke into a supermarket warehouse on Friday morning, leading businesses in the area to shut their doors.”