The Wreck of the Venezuelan Economy

Sustained by high oil prices and broad support amongst the country's poor, Venezuelan president Hugo Chavez has embarked on audacious plan to wreck the Venezuelan economy. From Bloomberg, via the IHT:

The Venezuelan economy, under the direction of President Hugo Chávez, is starting to unravel in the currency market.While Venezuela earns record proceeds from oil exports, consumers face shortages of meat, flour and cooking oil. Annual inflation has risen to 16 percent, the highest in Latin America, as Chávez tripled government spending in four years.

(Why, when so many party apparatchiks are cruising Caracas in Hummers, are there shortages of meat, flour and cooking oil? You guessed it: Price controls!)

Exxon Mobil and ConocoPhillips are pulling out after Chávez demanded that they cede control of joint venture projects. The bolivar has tumbled 30 percent this year to 4,850 per dollar on the black market, the only place it trades freely because of government controls on foreign exchange. That compares with the official rate of 2,150 per dollar set in 2005. Chávez may have to devalue the bolivar to reduce the gap and increase oil proceeds, which make up half the government's revenue.

"This has been the worst-managed oil boom in Venezuela's history," said Ricardo Hausmann, a former government planning minister who now teaches economics at Harvard University. "A devaluation is a foregone conclusion. The only question is when."

So what has the Jefe Maximo done to combat inflationary pressure? His government promised to lop off three zeros from the exchange rate and rechristen its currency the "bolívar fuerte"—the strong Bolivar. It is a move, the New York Times observed, that has "baffled economists." And don't forget the symbolic reintroduction of the 12 ½ bolivar coin.

And don't expect any of this nonsense to end anytime soon. On Sunday's edition of Alo Presidente, explaining the need to eliminate term limits, Chavez told viewers he "needed more time in the presidency to finish this" revolution. "We are only beginning. Maybe until 2020 or 2027."