VENEXITING BEYOND CHAOS

Inflation doesn’t exist in real life. ~ Luis Salas 

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.