Let's Watch Venezuela Destroy Itself

Venezuela, a country blessed by vast oil reserves, seems to have an uncanny knack for killing businesses.

At least three airlines have grounded flights to and from Venezuela so far this year, in part because the nation's government owed the carriers $3.3 billion in foreign exchange they need to pay operating costs. The government suggested it could pay them with government bonds and cheap fuel, but precious little cash. This should do wonders for getting planes flying again.

Carmakers are also in trouble. Toyota Motor Corp. is halting production in Venezuela, while Ford Motor Co. is reducing output. A mere 722 vehicles were sold in a country of almost 29 million people last month. Trade group Cavenez reckons this amounts to an 87 percent drop in sales in one year.

Ford’s chief financial officer, Robert Shanks, understated the problem when he told Bloomberg last week that “price controls and a very limited and uneven supply of foreign currency to support production, have affected output adversely.” So adversely that Chrysler, Ford and General Motors produced no vehicles in Venezuela last month.

Business isn't much better for newspapers. In the last six months 12 papers have shut and more than a dozen might cease publication if the government doesn’t sell the newspapers enough foreign exchange to pay for imported paper. Things are so bad that newspaper VEA, a government mouthpiece, may soon go out of print. The hashtag #SinPapelNoHayPeriodico (WithoutPaperThereAreNoNewspapers) has become a rallying cry on Twitter among Venezuelans. It was telling that on Tuesday, hundreds of unionized newspaper workers -- including government supporters -- took to the streets to demand paper imports while chanting: “Say the truth, the country is broke.”

The next day, as many as 50,000 demonstrators marched in Caracas, angry at living in a country rich in natural resources where product shortages are the norm. Three people were killed during the protests.

The protesters have a point. The central bank’s foreign exchange reserves fell to a 10-year low last month. And Venezuelans eager to safeguard their money from annual inflation of 56 percent are evading capital controls to transfer as many dollars as they can overseas. President Nicolas Maduro likes to think of this as “an economic war,” but for people who earn a pay check locally, capital flight is basic common sense.

Maduro hit the panic button last month when he eliminated Cadivi, the foreign-currency administration office. But this only increased demand for dollars. A greenback in the black market now goes for 84.2 bolivars, or 13 times the official rate.

The main problem is corruption and mismanagement of the nation's oil revenue. Rafael Ramirez, Venezuela’s energy czar and vice president for the economy, got to the heart of the foreign exchange dilemma in a recent televised interview: “What was happening was that we saw how many dollars we had, but their utilization had no planning.” Ramirez said, “at least 30 percent of the dollars disbursed” by the government “were diverted from their original purpose.”

Ramirez’s comments caused so much turmoil that El Nacional newspaper columnist Alberto Barrera Tyszka rightly described them in his Sunday column as “probably the most shameless confession the government has made in recent times.”

The government’s rhetoric suggests that no one in the Maduro administration understands the difference between creating value and destroying it. At best, Venezuela's leftist leaders and backers simply say the government needs to be more efficient. Jordan Rodriguez, a reporter for the leftist television station TeleSUR, supported Maduro’s vow to nationalize more companies in a Monday column in the Correo del Orinoco newspaper: “Let’s do so, but taking into consideration that the only valid argument will be to be efficient.” After 15 years in power it should be clear that efficiency isn't in this government’s DNA.

Venezuela’s government has tried and been unable to replicate what companies do for the economy. Venirauto, Venezuela’s joint venture with Iran to make cars, assembled no more than 3,595 vehicles in 2012, or less than 10 cars a day. That was a 14 percent drop from 2011, according to the latest data.

The natural response by Venezuela’s government to the failure of state planning is to demand more from private- sector pockets. When Polar, the country’s largest food producer, said last month that production could suffer if the government fails to sell the company the $463 million in foreign exchange it needs to pay its overseas raw material suppliers, the state-owned AVN news agency suggested that Polar’s owner, Lorenzo Mendoza, personally assume his company’s debts. Mendoza “controls a personal fortune that amounts to $4 billion, according to Forbes,” the AVN article said.

When economic troubles mount, Venezuela’s government holds summits to discuss problems that are never really addressed. Last week’s “Maximum Socialist Efficiency” seminar for 120 state-owned enterprises, is one example. Ramirez, who gave the opening address, said on a Twitter post: “We must concentrate the productive forces of the State,” to achieve “the sustainable growth of the country.”

With the highest inflation on earth, rampant violence, declining oil output and a hobbled private sector, Venezuela seems instead to be on a sustainable path to economic ruin.

Raul Gallegos is the Latin American correspondent for the World View blog.

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