Article published by José Alberto León Alonso in the July issue of La Gaveta Económica.
Principles of economics. That's the book. This is a textbook crisis in economics. Supply and demand. Or how the arbitrary setting by a Government of the price of basic goods generates shortages and shortages. Increase in monetary supply and exchange and price controls have led to a spiral that took inflation to 1,700,000% in 2018, the highest in the world, and one of the highest in history. Venezuela has been limiting prices for some basic products for years to try (with no success) to control it. On numerous occasions, these maximum prices have been below production costs and market costs, in such a way that the legal impossibility of passing on the higher supply costs to the end customer, under the risk of intervention by the establishment, turns selling into losing money, which leads to shortages in stores. At the same time, consumer demand skyrockets because their prices are very affordable due to the low regulated prices. Supply and demand do not meet, so price-regulated products are intermittently subjected to hoarding, shortages or rationing because their price is not market price.
Venezuela is an economy that exports a single product, oil, and that has been progressively liquidating its industrial infrastructure and placing its most important productive activities under the absolute control of the government. As long as the price of crude oil rose, everything went well. In the 14 years that Hugo Chávez was in power (1999-2013), oil multiplied its price tenfold, going from 10 to 100 dollars a barrel, and its currency, the bolivar, depreciated more than 90%. Since oil is traded in dollars, the State's income in bolivars for each barrel of oil exported multiplied by a hundred during his mandate. This immense amount of money allowed the Chávez Government to skyrocket public spending, reduce poverty and unemployment, win elections and keep afloat an increasingly inefficient economy, in which exchange and price controls caused all kinds of distortions, scaring away foreign investment and hitting local industry. The truth is that in those fifteen years the Venezuelan Government had the greatest resources ever obtained and, nevertheless, it turned the Venezuelan economy into a wasteland with structural problems of inflation, shortages, deindustrialization and controls of all kinds.
With the price of a barrel of oil currently around 55-60 dollars a barrel, the entire framework of subsidies of the Chavista regime has collapsed and the arbitrary fixing of the price of basic goods generates shortages and shortages, which now affect all types of items. Maintaining a subsidized economy has led to public deficits and chronic GDP declines. Abandoned as a pariah in the global productive system, it has lost 60% of its GDP between 2013 and 2018 and extreme poverty reaches 80% of the population.
And in this way, Venezuela is one step away from going bankrupt…again. It will be the seventh bankruptcy since 1950, a world record. And we will not see a controlled and orderly bankruptcy, no. We will witness a disorderly bankruptcy in the style of Argentina in 2001, and of a similar dimension. The country is facing appalling and disastrous economic management in the midst of a very serious political and institutional crisis, which is already degenerating into a civil confrontation. A complete disaster. Maduro has declared a state of economic emergency for years, but for Venezuela it is simply too late. The country is collapsing and we can only bet if it will collapse completely in a matter of days, weeks or months, since it is impossible to maintain an economy in a state of brain death any longer. The Venezuelan authorities (these or others) will end up asking sooner rather than later for the intervention of the International Monetary Fund to receive the funds that no one in their right mind would lend them, but which are essential to put the country's finances in order. This will mark the end of the Bolivarian regime, but there will be no way to catch a ruined country. He will have to eliminate a good part of the economy subsidized by Chavismo, which will create the conditions for another man of the populist people to emerge again, since he will have an external scapegoat to blame for all the evils. Evils that they have generated alone with their incompetent economic management. And start again in search of the eighth bankruptcy.
