Venezuela has undergone an implosion unprecedented in the history of the Western Hemisphere. In fact, the economic collapse that has shaken Venezuela is worse than the “Great Depression” the US suffered back in the 1930s after loosing over half of its real GDP since 2014. Accordingly, with economic output standing at just under $ 100 billion in 2018 from around $ 400 billion in 2013, the country is experiencing shortages of food and medicine, hyperinflation reaching over one million percent last year, proliferation of extreme poverty, rampant crime with the city of Caracas currently being the murder and kidnapping capital of the world and widespread corruption throughout the incumbent and illegitimate government. The latter includes alleged drug trafficking at the hands of some prominent cabinet members. This chaotic scenario has led to a record level of social unrest, massive emigration from the country, sharp capital flight and discontent among the citizenry. Moreover, to make a long story short, if you go back to the article I wrote here in 2013 under the category of (Current Events) predicting the tragedy unfolding today in Venezuela, the humanitarian crisis this nation is experiencing is due to mismanagement by an incompetent and crook political regime. From currency and price controls to nationalizations and expropriations, the market economy has been destroyed losing both productivity and competitiveness in key sectors of the economy such as agriculture, food processing, pharmaceutical, personal hygiene, paper goods and even the state-owned oil industry. As a result, from producing over 3 million barrels of oil a day when Hugo Chávez first took over as President to just 1 million barrels a day now or barely a third of its previous output in 1999 at the state-owned company Petróleos de Venezuela S.A., better known by its abbreviation as PDVSA, according to industry sources, the Venezuelan economy has been severely injured by four main factors. These factors are the steep drop of crude prices per barrel, declining oil production from heavy under-investment at PDVSA, increasing overdependence on crude oil including its refined products and government ineptness in the form of mismanagement through counterproductive populist public policies, excessive quantitative easing and unfavorable state controls over the business apparatus.
Furthermore, although media coverage of this tragedy is strong, the notoriety this case has relies on the fact that the sad scenario surrounding Venezuela today is strictly caused from within by a criminal dictatorship according to the governments of most foreign nations including the US. In fact, Venezuela sits on 300 billion barrels of proven oil reserves capturing a share of close to one fifth of the world total and accordingly, this gives the Latin American nation tremendous clout and leverage that could be put to better use by a democratic government over time reversing the damage that was deliberately inflicted upon the country by a powerful gang of thugs. Consequently, the damage and irony are crystal clear, from 1999 to 2014 during a 15-year period under “Chavismo”, $ 879 billion worth of hard currency entered the government coffers from juicy oil exports according to published data from the Venezuelan Central Bank. Out of this total, around $ 300 billion were spent on welfare programs consisting of subsidized food, health care and housing in the form of “Bolivarian Missions” producing paltry returns. Another $ 100 to $ 150 billion were spent on nationalizations, expropriations, wasted on briberies or otherwise embezzled at the hands of the government without producing any returns whatsoever. Enterprises held by the government nowadays once belonging to the private sector are all bankrupted. In similar fashion, $ 50 billion alone was invested in the state-owned electricity grid supposedly to upgrade aging infrastructure but without enhancing the system. On the contrary, the country has begun to experience blackouts with a tremendous frequency never seen before. Altogether, at least half the resources from the oil gush were lavishly misused because the money is gone and today Venezuela has barely an estimated $ 90 billion of household net worth from a peak of close to half a trillion dollars in 2007 according to the Credit Suisse Group A.G. Likewise, on top of it all adding insult to injury, the total debt the government has is $ 150 billion. Out of this total, the public debt owed by the treasury stands at $ 90 billion from just $ 15 billion of public debt when Hugo Chávez first took over as President in 1999. By the same token, the state-owned oil producer PDVSA is also heavily indebted today holding $ 30 billion of debt after having pledged as collateral strategic oil fields in the Orinoco Belt and the entire shareholding in its Citgo Petroleum Corporation wholly-owned subsidiary established here after operating in several American states. Moreover, the main creditors of the company are Chinese entities and the Russian state-controlled multinational known as PJSC Rosneft Company holding claims against Citgo while putting it at risk which is something hazardous to American interests. Similarly, Forex reserves including gold holdings held on account by the Venezuelan Central Bank are down to $ 8 billion now after having reached a peak of $ 42 billion back in 2008. The depletion of the latter is partly the result of intragovernmental transfers constituting a direct non-reimbursable monetization of debt in order to make good on bond commitments by the treasury. Therefore, the government of Chavez’s designated successor and current usurper to the Venezuelan Presidency Nicolás Maduro has a mere $ 8 billion of breathing room to maneuver before entering an aggressive restructuring of its finances having reached a selective default sovereign credit rating by Standard & Poor’s in 2017 while facing an outright default now according Moody’s Investors Service after taking into consideration the public debt alone. Accordingly, the heavy weight the public debt has represents a shattering disappointment after reaching almost 100% of GDP in 2018.
To conclude, the house of cards has crumbled. Venezuela is suffering enormously from an acute and magnified case of “Dutch Disease”. In fact, the country has dysfunctionalities in most vital aspects. As a consequence, the one prescribed solution to this humanitarian crisis, inhibiting the wellbeing of the nation, I personally favor the most is the one renowned Venezuelan economist Ricardo Hausmann advocates. The prescribed solution consists of a military intervention led by American forces to restore the constitutional order or rule of law unseating a criminal dictatorship along with an emergency bailout from the International Monetary Fund or IMF in order to jump-start the economy. Moreover, although a military intervention is a violent and dangerous maneuver of last resort, the despair and implications this crisis is presently unleashing requires such a maneuver because Nicolás Maduro and his cronies are stubbornly reluctant to accept defeat preventing a healthy exit to the chaotic scenario happening today in Venezuela and without precedence among oil exporting sovereign-states. Likewise, since the Venezuelan economy is in ruins, not to mention the elevated indebtedness of the government, a rescue package of fresh loans along with austerity measures to roll over a large amount worth of existing defaulted sovereign bonds at lower interest rates while obtaining more favorable terms including the lifting of sanctions as well as the likelihood of a grace period to the debtor nation from an experienced savior like IMF is the best way to safely proceed in this instance.