Failure of Venezuela's command economy began before price of oil fell
“God will provide,”said Venezuelan President Nicolás Maduro in his State of the Union speech last Wednesday. Praying is one of the few options left for Maduro, after an unsuccessful international tour of the Middle East, where he lobbied the Saudis to cut oil production and raise the tumbling price of crude.The tendency of the socialist government to blame the US for its woes reflects a lack of understand of how the free market works in the US. They think the government is behind the increased production of US oil, but nothing could be further from the truth. The Obama administration has actually pursued a policy of artificial scarcity on the oil resources it controls, but the part it does not control is where the growth has been. If the US government were serious about destabilizing Venezuela, it would not have delayed the Keystone XL pipeline which would have provided enough Canadian oil to completely offset the imports from Venezuela. The biggest impediment to Venezuela prosperity has been its own government and its ridiculous command economy model.
During a 13-day tour he also visited Russia (twice), China and Portugal, all in a bid to drum up investments and credit. The president did not disclose how much he might have received; instead he spent much of his time framing his trip as an effort to form a bulwark with China, Russia and others against what he considers an American plan to dominate the world.
Before oil prices started to fall this past summer, the country’s inflation was already the highest in the world, at 63.6 percent, and the scarcity index for food and other basic goods remained between 20 to 30 percent. The Central Bank declared the country in recession before 2014 ended.
Maduro, ever since he came to power in April 2013, after president Hugo Chávez died of cancer, has used these grim numbers to portray himself as a victim of an “economic war,” waged both abroad and at home, against his government. He has not taken responsibility for Venezuela’s economic decline.With oil prices down 60 percent since June, fears have escalated in Venezuela, highly dependent on imports, and where everything from medicine, to car parts, to basic foods are becoming harder to find. “The saddest thing is that this is only the beginning,” said Mayra Bravo, after queuing for two hours outside a supermarket in eastern Caracas to buy diapers for her son. “We’re not seeing any type of changes or improvements, and what’s worse is that we’re getting used to this.”
Locals are not the only ones worried. The Venezuelan government has never missed a payment to foreign creditors, but Wall Street is concerned that a default is on the horizon if oil prices continue to fall. The country earns 96 percent of its export revenue from oil, but state owned Petróleos de Venezuela, or PDVSA, is not only bringing in far less money, but also producing less oil. More than 100,000 barrels a day are exported to Cuba and other Caribbean countries under government to government agreements, and 700,000 barrels, worth $12 billion annually, are used for internal consumption, practically at no cost for Venezuelans. Additionally, the country’s foreign reserves, totaling $21 billion, would only cover two years of bond payments, according to a recent Bloomberg report.