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.”
This has prompted the government to seize the remaining food stocks in the country and parcel out the contents to the population. What else is it going to do? It has already printed all the money it can crank out so it is essentially looting whatever is left. CNBC says “Venezuelan troops occupied a Caracas warehouse complex used by local food giant Empresas Polar and Nestle to distribute food and beverages …. Workers said dozens of national guard and police took over the building on Wednesday evening. National Guard troops remained within the complex.”
Asked to explain the situation, the Venzuelan government has pointed the finger at the United States. “President Nicolas Maduro said the violence was premeditated and blamed the United States as being behind it.” Conspicuously absent from the list of those responsible are Hugo Chavez and his socialist “Bolivarian” policies.
The International Crisis Group foresees an eventual collapse. “To forestall the severe consequences of a humanitarian crisis in Venezuela” it urges the regime to admit its errors and begs the opposition not to exploit the situation for political advantage. It calls upon “the broader international community”.
- [to] abandon their reluctance to act, and explicitly press for restoration of the rule of law and of institutional checks and balances, beginning with close oversight of the December parliamentary elections.
- They should also help alleviate the social costs of the current crisis by offering food and medical aid and helping Venezuela cope with and control existing epidemics and prevent future ones.
The advice amounts to forgiving the guilty, restraining the innocent and billing whoever has any money. This is the universal solution to all political ills. But as to causes of the plague, there is still some controversy over why things went so wrong in the Caribbean country. The British public TV Channel 4 reports that things started off well but suddenly things took a turn for the worse.