Tag: Venezuela

Venezuela Reaches the Final Stage of Socialism: No Toilet Paper

In 1990 I went to a Cato Institute conference in what was then still the Soviet Union. We were told to bring our own toilet paper, which was in fact useful advice. Now, after only 16 years of Chavista rule, Venezuela has demonstrated that “Socialism of the 21st Century” is pretty much like socialism in the 20th century. Fusion reports:

Venezuela’s product shortages have become so severe that some hotels in that country are asking guests to bring their own toilet paper and soap, a local tourism industry spokesman said on Wednesday….

“It’s an extreme situation,” says Xinia Camacho, owner of a 20-room boutique hotel in the foothills of the Sierra Nevada national park. “For over a year we haven’t had toilet paper, soap, any kind of milk, coffee or sugar. So we have to tell our guests to come prepared.”…

Montilla says bigger hotels can circumvent product shortages by buying toilet paper and other basic supplies from black market smugglers who charge up to 6-times the regular price. But smaller, family-run hotels can’t always afford to pay such steep prices, which means that sometimes they have to make do without.

Camacho says she refuses to buy toilet paper from the black market on principle.

“In the black market you have to pay 110 bolivares [$0.50] for a roll of toilet paper that usually costs 17 bolivares [$ 0.08] in the supermarket,” Camacho told Fusion. “We don’t want to participate in the corruption of the black market, and I don’t have four hours a day to line up for toilet paper” at a supermarket….

Recently, Venezuelan officials have been stopping people from transporting essential goods across the country in an effort to stem the flow of contraband. So now Camacho’s guests could potentially have their toilet paper confiscated before they even make it to the hotel.

Shortages, queues, black markets, and official theft. And blaming the CIA. Yes, Venezuela has truly achieved socialism.

But what I never understood is this: Why toilet paper? How hard is it to make toilet paper? I can understand a socialist economy having trouble producing decent cars or computers. But toilet paper? And soap? And matches?

Sure, it’s been said that if you tried communism in the Sahara, you’d get a shortage of sand. Still, a shortage of paper seems like a real achievement.

Ukraine: The World’s Second-Highest Inflation

Venezuela has the dubious honor of registering the world’s highest inflation rate. According to my estimate, the annual implied inflation rate in Venezuela is 252%.

The only other country in which this rate is in triple digits is Ukraine, where the inflation rate is 111%. The only encouraging thing to say about Ukraine’s shocking figure is that it’s an improvement over my February 24th estimate of 272%—an estimate that attracted considerable attention because Matt O’Brien of the Washington Post understood my calculations and reported on them in the Post’s “Wonk blog.”

As a bailout has started to take shape in Ukraine, the dreadful inflation picture has “improved.” Since February 24th, the hryvnia has strengthened on the black market from 33.78 per U.S. dollar to 26.1 per U.S. dollar. That’s almost a 30% appreciation (see the accompanying chart). 

Washington Should Stop Equating Ugly Regimes and Security Threats

President Obama raised eyebrows last week when he issued an executive order declaring Venezuela to be a threat to national security.  It would be pertinent to ask just how that deeply divided, nearly bankrupt country could menace the security of the global superpower.  Venezuela has no long-range ballistic missiles or bombers, much less nuclear weapons.  It does not have a large, well-equipped army.  The Venezuelan navy is both small and antiquated.  Although rumors continue to circulate that the leftist government of President Nicolás Maduro flirts with terrorist organizations in neighboring Colombia and elsewhere, those reports remain little more than rumors.

Most telling, Obama’s executive order did not cite evidence that Venezuela actually posed a threat to the security and well-being of the United States.  Instead, it focused on the Maduro regime’s ill-treatment of the Venezuelan people.  The executive order is a textbook example of an overly broad definition of national security.  The White House emphasized that the order imposed sanctions on officials who undermined democratic processes or institutions, abused human rights, were involved in prohibiting or penalizing freedom of expression, or were guilty of corruption.  White House spokesman Josh Earnest declared that the United States now had the tools to block the financial assets of Venezuelan officials “past and present” who dare “violate the human rights of Venezuelan citizens and engage in acts of public corruption.”

Those are all tragic aspects of that country’s dysfunctional political system.  There is little question that Venezuela’s government is horrifyingly corrupt and autocratic.  Cato’s Juan Carlos Hidalgo has ably described the many abuses committed by both Maduro and his predecessor and mentor Hugo Chávez..  It may well take Venezuela a generation or more to recover from the socialist idiocies of those two rulers.  But as I point out in the pages of the National Interest Online,  just because a regime is repugnant does not make it a credible security threat to the United States.

Obama’s executive order is ominous because it signals a return to the overuse of national security justifications that was so common in previous administrations.  It should be recalled that U.S. officials asserted, apparently while maintaining straight faces, that such small, weak adversaries as North Vietnam, Serbia, Iraq, and Cuba posed dire national security threats.  The ensuing policies produced frustrating, counterproductive results.  Indeed, in the cases of Vietnam and Iraq, the outcomes of such a promiscuous invocation of U.S. security needs were disastrous wars that squandered hundreds of billions of tax dollars and snuffed out the lives of thousands of American military personnel.  One might hope that policymakers had learned from those bruising experiences and would avoid such folly in the future.

It is imperative to adopt a more rigorous standard about what does and does not constitute a threat to national security.  A foreign regime’s domestic behavior, however reprehensible, does not per se pose a menace to America.  The actions of Maduro and his henchmen fall into that category.  Venezuela’s government is riddled with corruption and behaves in a disturbingly repressive fashion toward political opponents.  But that makes Venezuela an obnoxious neighbor, not a security threat to the United States.  

Measuring Misery in Latin America 2014: More Dollarization, Please

In my misery index, I calculate a ranking for all countries where suitable data exist. My misery index — a simple sum of inflation, lending rates, and unemployment rates, minus year-on-year per capita GDP growth — is used to construct a ranking for 108 countries. The table below is a sub-index of all Latin American countries presented in the world misery index.

A higher score in the misery index means that the country, and its constituents, are more miserable. Indeed, this is a table where you do not want to be first.

Venezuela and Argentina, armed with aggressive socialist policies, end up the most miserable in the region. On the other hand, Panama, El Salvador, and Ecuador score the best on the misery index for Latin America. Panama, with roughly one tenth the misery index score of Venezuela, has used the USD as legal tender since 1904. Ecuador and El Salvador are also both dollarized (Ecuador since 2000 and El Salvador since 2001) – they use the greenback, and it is clear that the embrace of the USD trumps all other economic policies.

The lesson to be learned is clear: the tactics which socialist governments like Venezuela and Argentina employ yield miserable results, whereas dollarization is associated with less misery.

Oil Price Blues (Read: Dangers) for Some

As the price of crude oil continues its downward tumble towards $80 per barrel, I am reminded of a similar scenario from near the end of the Cold War in the 1980s. When Saudi Arabia announced in 1985 that protecting oil prices was no longer its main priority, oil production surged and prices fell off a cliff, briefly plunging below $10 per barrel, as I had correctly predicted.

Lower prices delivered a fatal blow to the Soviet economy, which ended up seeing $20 billion per year in oil revenues evaporate. The resulting fiscal shortfalls proved to be a dagger in the heart of the U.S.S.R.

On October 1st of this year, Saudi Arabia’s national oil company announced that it had abandoned a policy of price protection and would start to focus on protecting its market share. Combined with falling global demand and rising supplies elsewhere, oil prices have fallen accordingly. This has put a squeeze on eight of the world’s top oil producers. States like Iran, Venezuela, and Iraq can only balance their current budgets at oil prices ranging from $110 to $135 per barrel (so-called break-even prices).

If oil prices stay below $90 per barrel for any length of time, we will witness massive fiscal squeezes and regime changes in one or more of the following countries: Iran, Bahrain, Ecuador, Venezuela, Algeria, Nigeria, Iraq, or Libya. It will be a movie we have seen before.

Falling Oil Prices Put Producers Between a Rock and a Hard Place

Over the last few months, the price of Brent crude oil lost over 20% of its value, dropping below $90 just yesterday and hitting its lowest level in over two years. In consequence, oil producers will no longer be able to rely on oil revenues to pay their bills. The fiscal break-even price – a metric that determines the price per barrel of oil required for a nation to balance its budget at current levels of production – puts the problem into perspective.

Using data from Bloomberg and Deutsche Bank, I prepared a chart showing the break-even prices for the world’s major oil producers and the price on Brent crude. Over the past six months, Brent crude fell far below the break-even price for eleven of the top oil producers in the world; Iran, Venezuela, Nigeria, and even Saudi Arabia can no longer finance their governments’ largess through oil revenues.

The combination of oil markets flying into a perfect storm and excessive government spending puts most of the world’s oil producers between a rock and a hard place, where they will stay for some time.

#WhyLiberty: Venezuela

Thousands of Venezuelans regularly protest Nicolás Maduro’s government. Juan Carlos Hidalgo, a Policy Analyst on Latin America at the Center for Global Liberty and Prosperity at the Cato Institute, recalls witnessing the struggle for freedom in Caracas.

“Why Liberty” is a short series of personal stories emphasizing the value of liberty. Feel free to make your own video telling your story using #WhyLiberty. And, of course, subscribe to us on YouTube.

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