Friday, February 12, 2016

21st Century Socialism - How to go from 44% of Households Living in Poverty in 1998 to 73% in 2015 (and Rising!)

from RCW
Venezuelan President Nicolas Maduro has become known for the ludicrous assertions uttered during his broadcasted speeches. During the 2013 presidential campaign (which he won by a thin margin and under a strong suspicion of rigging), Maduro stated that the late leader of "21st Century socialism," his mentor Hugo Chavez, appeared to him incarnated in the body of a bird. He subsequently declared that every time he looks at the mountains surrounding Caracas, he sees Chavez in one of them.

Add to this the fact that Maduro once said that he did not doubt "a millimeter of a second" whether he should join Chavez's socialist movement, and everyone can understand why Venezuelans often find good reason to mock their president whenever he takes to a microphone.

It must be said that Chavez's heir-designate is not the only one, among his party fellows, to excel in the realm of incongruity. The newly appointed economy minister, Luis Salas, contended, despite the country's skyrocketing inflation rate, that inflation actually does not exist. Venezuela's attorney general, Luisa Ortega Diaz, for her part, read a speech at the National Assembly (the country's Parliament) in which she solemnly referred to France's 19th century writer Victor Hugo as a "Nicaraguan poet." As regards former Vice President Jorge Arreaza, he declared that Chavez's miracles are so evident that they do not need confirmation by the Vatican.

There is one domain, however, in which President Maduro's dumbness has no match. That realm is the economy.

Smothering price controls, unrealistic official exchange rates, lavish money printing, and criminalization of the entrepreneurial class, all characteristics inherited from Hugo Chavez, have continued to be applied with frantic fervor by Nicolas Maduro. Little wonder that Venezuela's economy is on the verge of collapse.

Research undertaken by three renowned academic institutions of that country indicates that 73 percent of households were living under the poverty threshold in 2015, up from 44 percent in 1998, when Hugo Chavez assumed power.

Venezuela has been at the top (or the bottom) of Bloomberg's misery index for two consecutive years, 2014 and 2015. The situation is bound to get worse, as the International Monetary Fund forecasts an 8 percent drop of gross domestic product in 2016, after two consecutive years of decline (4 percent and 10 percent in 2014 and 2015, respectively).

Venezuelan inflation, the world's highest, reached 275 percent in 2015 and is expected to rise to 720 percent in 2016, according to the IMF.

Little wonder that Chavismo received a thrashing at last December's parliamentary elections, with the opposition gaining an overwhelming majority of seats in the National Assembly.

After that defeat, Maduro had to admit what he had stubbornly denied until then, namely that Venezuela is facing "a crisis of great proportions."

The problem is how to overcome that crisis. President Maduro refuses to move away from the anti-market policies that have sunk Venezuela's economy. Instead, he blames the entrepreneurial class (the "damned bourgeoisie") for the economic disaster and keeps taking inconsequential initiatives that would have no positive impact on the country's predicament.

Thus, Venezuela's oil minister, Eulogio del Pino, recently went to Russia and the Middle East to try to secure a "coordinated action" by oil producers aimed at restricting production and thereby raising the historically depressed price of that commodity, which accounts for 96 percent of Venezuela's total exports.

To think that the time is appropriate for a diplomatic move of this kind shows a poor grasp of the interests at stake among leading oil producers.

Indeed, now that economic sanctions against Iran have been lifted, Tehran is doing its utmost to expand, rather than curtail, its sales on world markets. The same applies to Russia, which needs as much foreign exchange as possible to fight recession and fund its military adventures in Syria and Ukraine. As regards Saudi Arabia, the key oil exporter, it will naturally be unwilling to cut its production so long as Riyadh senses that such a move would enable its geopolitical rivals Iran and Russia to nibble away at market share.

The most that Maduro can obtain under the present circumstances would be some polite reactions from oil-producing partners and, eventually, a window-dressing agreement condemned to remain dead letter.

Let us assume, however, that oil-producing countries do accept to cut their production levels, and that oil prices take an upward ride.

Such a price increase would enable shale oil producers in the United States, a major oil producer, to resume the exploitation of fields that are not profitable enough to compete amid depressed oil prices.

The expansion of shale oil production would in turn increase the overall supply of oil and, accordingly, would act as a brake to any price rise of this commodity.

Aware of the gloomy oil market outlook for the months and even years ahead, and ready as usual to make flamboyant announcements, Maduro recently asserted that the time has come for Venezuela to move away from its century-old "oil rentier economic model" (i.e. Venezuela's dependence on oil exports).

Never mind that Maduro's mentor, Hugo Chavez, boosted Venezuela's dependence on oil more than anyone else before him had done. Indeed, Chavez's expropriations, price controls, and other hostile measures against the entrepreneurial class brought about the destruction of the non-oil sector of Venezuela's economy.

In fact, Chavez himself used the expression "oil socialism" to characterize the system he had put in place.

The comical elements in Maduro's new narrative did not wait too long to burst on the scene. To depart from the "oil rentier model," and in particular to overcome food shortages, Maduro has put forward what is becoming the new flagship measure of his government: the promotion of "urban smallholdings."

To encourage his fellow citizens to follow through, he said that his wife and he were already breeding 50 egg-laying chickens in the presidential house.

Hugo Chavez had promised to transform his country into a leading power in world affairs, in petrochemical production, and in the military and aerospace domains. Now, Maduro has nothing to offer but to ask Venezuelans to grow chickens and plant beans in their courtyards. This is quite a comedown for a 21st century socialism that had dreamed of outperforming capitalism.

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