The petro-party is over for Venezuela. The illusion of a never-ending bonanza has come to an abrupt end and we, as a society, have crashed into the harsh reality that Venezuela is not a world, or even regional, power. Chavismo has left us in unmanageable debt, and with a country that has managed to emerge weaker after the go-go boom years of historically high oil prices.
A year ago, Asdrúsbal Oliveros and Gabriel Villamizar, two prominent Venezuelan economists, estimated Venezuela had amassed more than $249 billion worth of debt by the end of 2014—and, with the crash of the economy since, it’s unlikely to have shrunk. What’s worse is that the destruction wrought by 17 years of chavismo will make it nearly impossible to pay off the debt under the current conditions. The economic policies of the government under Hugo Chávez and Nicolás Maduro have only deepened our 1970s rentier economy. Our dependency on oil has worsened; other sectors have contracted or withered altogether; the country has become dependent on imports for even basic goods; wasteful public spending keeps much of the country afloat; and all the while the elites become disgustingly wealthy. Think of it as the 1970s on steroids—but unfortunately without the disco.
Nothing draws the parallel better than a quote from a 1989 article written by Víctor Álvarez, a future economy minister in the Chávez administration, criticizing the economic heritage left by Jaime Lusinchi’s administration (1984-89). In a broadside (largely correct) of the Lusinchi legacy, Álvarez cited the “weakness of the domestic productive sector,” the “persistence of inflation,” the “increasing balance of payments deficits,” “the unrelenting decline of the bolívar compared to the dollar,” and the “fiscal deficit” as the main problems defining the Venezuelan economy. Hmmmm. Sound familiar?
In truth, the country is like a dog chasing its own tail, spinning around in circles and not getting anywhere no matter how fast it goes. These oil-fed boom-bust cycles characterize the national reality. During difficult times in the international oil markets, there is a reboot of the voices that call for the strengthening of the domestic production sector, such as electricity, aluminum, iron and steel, and agriculture and livestock industry. It’s something everyone agrees on, but it is never achieved. When the country is high—for example between 1999 and 2014 when the government received $960 billion in oil revenue—the government and people rely on the state’s generosity. And when it slows, elites chase a new oil boom to overcome the crisis that generated the previous boom. In this sad cycle, Venezuela will never achieve social justice.
But like any drunk after a tough bout with the bottle, breaking the cycle requires breaking some deep-seated habits. And like any recovery program, this will require support and change from everyone.
First, the Venezuelan middle class needs to forget how the state subsidized cheap trips abroad for them through its ridiculously high exchange rates. The poor that have benefitted from the state’s generous mission programs will need to recognize that the public profligacy that funded them has also created the inflationary cycle that eats away at their benefits. The same applies to the working class. Even with a job, with the International Monetary Fund estimating inflation hitting more than 720 percent this year and 2,200 percent in 2017, a working wage will mean nothing without a responsible government with a responsible fiscal policy.
The country is bankrupt. Venezuelans are now regularly humiliated by the news. Recently, reports revealed that the government owes $3.7 million to international airlines without any short-term prospects of paying them. And since January, the Venezuelan government has not paid pensioned citizens residing abroad, mainly in Spain.
The country went bankrupt in the midst of the greatest oil boom we have ever known. Those who ruled and indebted the nation with oil prices above $100 will hardly be able to successfully lead the country towards recovery with oil priced at around $30. Simple arithmetic.