OPINION:
Reality is writing a harsh chapter in the long and tortured history of Venezuela. What happens there is not just the occasional outside intervention to keep the peace. International companies, and not just American companies, are getting clobbered by the hapless manipulation of currency by a government rapidly moving toward chaos. Goodyear Tire & Rubber reported a $646 million loss against fourth-quarter earnings, mostly the result of the collapse of the Venezuelan bolivar.
Venezuela is expected to make the $1.5 billion in debt payment due later this month, but after that prospects for the economy grow murky. With oil prices a third of what they were just a few months ago, rocking along at that level for a while, the nation waits in hopes of worldwide economic improvement based on world consumption of oil. If Venezuela defaults on its $120 billion in government and state oil company loans by overseas investors over the past decade, it would likely contribute to a new world financial crisis.
Saudi Arabia’s pumping from its low-cost Gulf reserves has dented American shale technologies, contributing to lower worldwide energy prices. But new technology there has mitigated the blow. Iran is about to enter the market after President Obama’s nuclear deal with the mullahs in Tehran, including the lifting of sanctions, and it’s not at all clear what that effect will have on the world oil market. It probably won’t reassure anyone.
Thirty-two million Venezuelans are already taking the effects of uncertainty on the chin. The pressing headache at the moment is the government’s trimming electricity to 100 shopping malls, which have been sanctuaries for Venezuelans fleeing discomfort and violence. In this latest crisis, the weather phenomenon called El Nino has caused a drought and set off shortages of electricity generated by hydroelectric plants. All this in a country with some of the world’s largest reserves of fossil fuels
Venezuela has suffered brownouts for decades. One cause is that electricity is free, the gift of the runaway socialist regime, leading to remarkable waste. Unlike other oil producing nations, in the good times Venezuela did not set up a rainy day fund and has now had to dig into its currency reserves.
The electricity crisis is only the latest of the ideological perversions inherited by President Maduro and his government from his predecessor, the charismatic and corrupt Hugo Chavez. Mr. Chavez ran a regime of bread and circuses, a little bread and a lot of circus, destroying among other things the efficiency of the oil-production industry, which he nationalized and predictably ruined.
After decades of mismanagement, Venezuela has been one of the nations hit hardest by the collapse of big oil, which accounts for 95 percent of the nation’s revenue. Venezuela has four exchange rates: three official ones and the black market rate. This invites chaos.
Before Mr. Chavez took the Caribbean country down the road toward state capitalism, Venezuela prospered. For many years after World War II it was one of the richest nations in the region, with a vibrant economy buoyed by oil exports, much of it dispatched to refineries in Texas.
If Venezuela defaults in the months just ahead, its debt failure would ripple through emerging-market economies elsewhere. Many nations borrowed heavily when commodity prices were soaring. China has provided Venezuela with a steady source of financing in exchange for oil, but as the Chinese economy sputters and slows and it tries to staunch a hemorrhage of capital, the government in Beijing is reluctant to lend more.
Venezuela’s story, by and large, is repeated by other oil-producing countries scrambling for loans. Nigeria and Angola are already seeking help from international institutions to plug their deficits. The U.S. Treasury appears to be listening, though cringing with concern if not fear. The world is waiting for something from Barack Obama.
Please read our comment policy before commenting.