The Bolivarian Republic of Venezuela has been making headlines for
all the wrong reasons. Under the nation’s socialist dictator, Nicholas Maduro, Venezuela
has suffered from epic socio-economic mismanagement, stratospheric inflation
and colossal emigration.
Mr. Maduro, a former bus-driver, callously
blocked needed food aid from entering his ailing, corrupt petroleum state
several weeks ago. His thoroughly misguided, cruel policies have caused 3.4
million Venezuelans – more than 10% of its population – to Venexit across its
borders into several neighboring nations including Columbia, Brazil and
Trinidad and Tobago. Among other things, President Maduro has given socialism
(admittedly, an extreme and horribly-implemented variety) a very bad name.
Last month Juan Guaido, an opposition leader, proclaimed
himself the rightful president of Venezuela because of widespread election
“irregularities” that resulted in Mr. Maduro’s victory last year. Mr. Guaido
has received the support of the US and 50 other nations that have recognized
him as the president, not Mr. Maduro. For the last week Mr. Guaido has
travelled through South America to shore up his broad but thin international
backing. He apparently re-entered his homeland today, but fears of being arrested
by Mr. Maduro’s forces continue. No matter how this key political issue may be
resolved, Venezuelans endure their suffering every day.
I here examine the on-going, dark
humanitarian tragedy of Venezuela and compare its horrific predicament to a
much lower-profile, far brighter South American nation, the Oriental Republic of Uruguay. Yup,
that’s Uruguay’s official name.
In addition to being an interesting
place, Uruguay is an etymologically remarkable word because it is one of the
few that has three u’s in the span of seven letters, with no q’s to boot.
Another even shorter three-u word is geographically related. Urubu is a black
vulture that inhabits Uruguay, and also is the name of not one, but two rivers
in Brazil, Uruguay’s northeastern neighbor.
Unlike Venezuela, for the last 35
years Uruguay has been a well-functioning constitutional democracy. Its government
has been the most progressive of any in South America: abortion was legalized
in 2012, followed by same-sex marriage and cannabis in 2013. Uruguayan athletes
have won 10 Olympic medals,
including two gold medals for soccer, long ago. Venezuelan athletes have won 15
Olympic medals, including two gold medals, one in fencing and one in boxing.
Moving to the un-medaled dark side, Venezuela holds the ignominious
title of the world’s most miserable country for the past three years, according
to the Hanke
Misery Index. Currently, Venezuela “beat” Syria, the 2nd most miserable
country, by a hands-down factor of 10x, principally because of the government’s
multi-faceted socio-economic malfeasance.
The table below compares Venezuela
and Uruguay by 13 economic, geographic, health and other factors.
Comparison of Venezuela and Uruguay
Factor\Nation
|
Venezuela
|
Uruguay
|
Motto
|
Dios y Federación [God & Federation]
|
Libertad o Muerte,
[Liberty or Death]
|
National drink
|
Chica
|
Mate
|
Olympic medals
|
15
|
10
|
GDP (PPP)
|
$381.6 billion (47)
|
$78.2 billion (96)
|
GDP real growth
|
-14% (222)
|
2.7% (127)
|
GDP/capita (PPP)
|
$12,500 (126)
|
$22,400 (85)
|
Inflation – 2017
|
1087.5% (226)
|
6.2% (189)
|
Population
|
31.7 million (43)
|
3.7 million (133)
|
Geographic size
|
353,841 sq. miles
|
68,037 sq. miles
|
Median age
|
28.7 years (96)
|
35.1 years (146)
|
Infant mortality
|
11.9 deaths/103 births (107)
|
8.1 deaths/103 births (73)
|
Maternal mortality
|
95 deaths/103 births (73)
|
15 deaths/103 births (137)
|
Life expectancy at birth
|
76.2 years (93)
|
77.6 years (69)
|
Petroleum reserves
|
298.4 billion barrels (1)
|
Nada
|
Figures in
parentheses indicate national rank by factor. Source: CIA World Factbook.
|
||
First off,
Uruguay’s motto, “Libertad o Muerte,” sounds a lot like a vocal cousin of
Patrick Henry landed long ago somewhere in Uruguay. My, how haunting public phrases
can hop across vast distances. And now that you know mate is its national
drink, enthusiasts can set their sights on visiting charming Montevideo,
Uruguay’s capital, for a cup or two. Mate is a tea-like beverage made from an
infusion of dried leaves of yerba mate plant. Venezuela’s drink of choice, chica,
is a fermented beverage also popular in Andean countries. It’s made with boiled
rice, milk and sugar. If you’re into chica, I recommend you drink it beyond
Venezuela.
Venezuela’s population is eight
times larger than Uruguay’s and its territory is more than five times greater. Venezuela
is 30% bigger than the state of Texas, the second largest US state. Uruguay,
the second-smallest South American nation, is close to the size of Missouri. Like
their disparity in physical size, the two nation’s median age is quite distinct;
Venezuela’s is more than 6 years younger than Uruguay’s.
Comparing health-related factors, Uruguay’s
healthcare system is shown to be superior. However, Venezuela’s and Uruguay’s
life expectancy is remarkably similar, within two years of each other. But this
small difference accounts for a much greater difference in the two nations’
international rankings. Uruguay’s life expectancy is ranked 69th lowest,
Venezuela’s is 93rd. Infant and maternal mortality rates are not at all
comparable. Uruguay’s maternal mortality is only 16% of Venezuela’s. Although
Venezuela’s infant mortality rate is less than four deaths higher than Uruguay’s
rate, that increase accounts for its ranking 34 nations worse than Uruguay.
The most striking differences
between these two countries are found in the economic arena. Venezuela’s GDP,
adjusted for purchasing power parity
(PPP), is almost five times larger than Uruguay’s. It has been steadily
declining during the recent past due to its misconceived economic policies;
last year Venezuela’s real GDP declined by a significant 14%. Uruguay’s real
GDP increased by 2.7%. Uruguay’s GDP/capita (PPP) was $22,400, 85% higher than
Venezuela’s. Overall, the average Uruguayan citizen is far better off than
his/her Venezuelan counterpart.
These macroeconomic dissimilarities
rest on Venezuela’s mammoth inflation. For the past four years, Venezuela’s
hyperinflation has crushed its citizens and its economy. In 2017 it was 1087.5%;
the world’s largest, and a zillion times larger than Uruguay’s 6.2% inflation.
I exaggerate, it was 175x higher. It’s impossible now to directly estimate Venezuela’s
yearly inflation because the government stopped publishing reliable data after
2014. Knowledgeable economists believe Venezuela’s 2018 annual inflation was
1,370,000%, which is equivalent to prices rising 3.5% each and every day. This year, prognosticators expect inflation to
reach a staggering 10,000,000%.
An historical aside regarding
super hyperinflations: Even Venezuela’s astonishing price increases pale in
comparison to the “winning” national inflation rate in my Hyperinflation Hall
of Fame. That was the 9.63 x 1026 annual inflation rate which plagued
Hungary beginning in June 1945. FYI, the highest yearly inflation in US history
occurred in 1779, 192%, caused principally by the costs of the Revolutionary
War.
How has such a ghastly macroeconomic
situation happened in Venezuela? In part by initiating appalling,
ideologically-driven policies, in part by rampant corruption, in part by
endlessly printing Bolivars and finally by having folks like Luis Salas
appointed as Venezuelan Vice President for the Economy. In January 2016, when
inflation was only 254.4%, Luis
denied the very possibility of inflation, stating, “Inflation doesn’t exist in
real life.” Every breathing resident of Venezuela disagreed. Luis retired for “family
reasons” after less than five weeks on the job. Apparently even Nickolas Maduro
couldn’t hack Luis’ incompetence and otherworldly disavowal of reality, and
that’s saying something.
Venezuela’s prolonged, colossal inflation
has necessitated a series of five significant devaluations of the Bolivar,
starting after former President Hugo Chavez imposed strict currency controls in
2003. During several of these severe devaluations the official Venezuelan
currency also changed. Since August 2018 the official currency of Venezuela has
been the Bolivar soberano (VES).
The market exchange rate of a US dollar and the VES is zero for all intents
and purposes. Even the government’s official exchange rate for VES to dollars –
1 VES = $0.00030 (3-hundredths of one cent) – has no claim on fiscal reality. That’s
right, it’s worthless with respect to the dollar, and thus with the
international financial community.
In desperation last year the government launched the Venezuelan petro, its
own cryptocurrency, to supplement the plummeting Bolivar. The petro’s value was
based on Venezuela’s oil reserves. Within six months the forlorn petro did
not appear to be functioning as a currency. The petro’s well was dry, what a
surprise.
Venezuela’s external debt has blossomed to $200 billion. These issues create
huge problems for its petroleum-based economy. That’s because the world’s oil
is priced in dollars, something the government cannot easily or economically obtain.
Using the Mar. 3 price of West Texas Intermediate (WTI) crude, a barrel of
Venezuelan oil costs 184,556 VES.
The practical worthlessness of the VES, together with the stringent
economic sanctions the US has imposed and international credit-reporting
agencies declaring Venezuela in default with its debt payments, means the
country cannot effectively export petroleum to the US or other western nations.
Consequently, Venezuela has been running out of money to pay for
everything from medicine and machinery to food and clothing. Its official
foreign (cash) reserves have been depleted; they are less than one-half what they were four years ago. Last week, the government apparently
removed eight tons of gold from the Venezuelan Central Bank to sell abroad to
raise badly needed cash.
In the good ol’ days prior to Venezuela’s hyperinflation, petroleum
accounted for 95% of its exports, now it’s over 98%. Venezuela nationalized its
petroleum industry in 1975. Petróleos de Venezuela, S.A. (PDVSA), the
state-owned energy company, has been used as a partisan tool of the government.
It overflows with political and military appointees rather than experienced engineers.
Venezuela’s petroleum exports have steadily declined. Last year oil production
of 1.24 million barrels a day was one-third of what it was three decades ago
and the lowest since 1990, before Hugo Chavez launched his socialist
revolution. Despite having the planet’s largest petroleum reserves, for the
first time it imported oil to serve its needs in 2018.
Forced by its Oscar-worthy economic
bungling, Venezuela is exporting its oil to China, which unsurprisingly has exercised
its significant leverage in negotiating agreements with Venezuela. For
Venezuela, it’s China’s way or the highway. Over the last decade China has provided
Venezuela $65 billion in tied loans, cash and investment. Venezuela owes China more
than $20 billion. These trade/finance agreements are similar to those that
China has made with other nations like Sri Lanka. Such accords have been referred
to as debt-trap
diplomacy.
Who has suffered most from the Venezuelan
catastrophe? It’s certainly not Mr. Maduro or his military cronies. It’s Venezuelan
citizens, whose 1.8 billion VES per month minimum wage cannot buy food, medicines,
clothing, or much of anything else in empty-shelved stores. Venezuelans’ daily plight
is an entire world apart from tranquilo Uruguayans. That’s why they’re Venexiting
across the border.
