By Ryan Braun | March 16, 2017
Venezuela is a country where the legitimate market is falling apart at the seams, a victim of poor economic policies and government reliance on oil revenues to bridge any budget gaps. The current Chief Justice of their Supreme Court is a former felon with a very dodgy history. Last year two nephews of the Vice President were arrested in the United States on drug smuggling charges. The National Electoral Council has been compromised by the sitting government, and the response when the opposition won control of the National Assembly was for the old Assembly to vote away their powers just before turning over control.
In 2000 Venezuela was ranked 71st in the world for corruption, just behind India and the same level as Bolivia and the Ivory Coast. In 2015 they had dropped all the way to 158th, and continued to get worse in 2016 they were now ranked 166th. The only countries they are ranked higher then are North Korea or nations that are currently war torn, like Syria, Iraq, and Libya. All this points to a very sudden collapse that has occurred in the last two decades, driven by ideology before reason. Venezuela has not gone to war, they have not experienced a several year civil war like the Middle East, and yet they can no longer feed their own people. They can’t even export their oil anymore, as their foreign exchange reserves are declining incredibly rapidly.
The Bolivarian Socialist dream has been a monumental failure that, while claiming to be for the lower class, has enabled zero compete bids for major projects and natural resources. It has engaged in straight up theft from its rivals within the country, when it nationalized and gave away all of the goods to whoever could take them from the Venezuelan equivalent of Best Buy. Police routinely ask for bribes to overlook crime, and the military spends more time acting as heavily armed law enforcement than as a self-defense force.
Venezuela today is a society ready to break, and it appears as if everyone knows it. The Maduro administration cares more for ensuring the military doesn’t turn on them, by giving them more and more authority, and blaming the United States than solving their problems. Venezuela needs to respect the rule of law, and perform immediate policy shifts. They need to get rid of the price ceilings on many basic goods, the policy that led to the infamous shortage of toilet paper, and relax their currency controls. Currently the inflation rate in Venezuela was 800% in 2016, and yet the government still refuses for free currency exchanges. This has helped further create a massive black market for US dollars in the country, as the official exchange rate drastically over values the Venezuelan bolivar. Getting rid of the price ceilings will make it viable once again for people to grow food in the country, as many farmers simply ceased doing so once the costs to produce were above the maximum they could charge. Relaxing currency controls will allow for food imports once again at prices that are actually accurate. Overall the government needs to immediately scale back the amount of intervention it is involved with in the economy, as the current controls give bad incentives in favor of government corruption and a massively out of control black market.
Ryan Braun is a 2nd Year MIA Student at GPS. His focus is on International Economics and Latin America. This summer, Ryan worked at the Cuba Desk of the U.S. Department of Commerce in Washington, DC.