As markets brace themselves for the negative effects of the decline in oil prices, Venezuela will probably be the first big domino to fall, notes Ricardo Hausmann, the director of Harvard University’s Center for International Development.
Domestically, the most likely scenario is an imminent economic collapse and a humanitarian crisis. Internationally, it will imply the largest and messiest emerging market sovereign default since the Argentine crisis of 2001. The situation is made worse by the inability of the political system, at present, to address the crisis, he writes for The Financial Times:
Why Venezuela? First, because while most other oil exporters used the boom to put some money aside, former president Hugo Chávez, who died in 2013, used it to quadruple the foreign debt. This allowed him to spend as if the average price of a barrel of oil was $197 in 2012, when in fact it was only $111. He also used it to maim the private sector through nationalisations and import controls. With the end of the boom, the country was put in a hopeless situation……
By contrast, the opposition, which now controls the National Assembly, is fighting to have its authority recognized by the other powers. It is in no position to lead an economic adjustment. Even the best and most stable government could not avoid a lousy performance in such circumstances. But in the middle of a political crisis, things are bound to get very messy indeed.
Venezuela will overhaul its labyrinthine currency controls in the coming days to jolt its economy, the country’s trade and investment minister said, The Wall Street Journal reports (HT:FPI – subscription required). Millions of pounds of provisions, stuffed into three-dozen 747 cargo planes, arrived here from countries around the world in recent months to service Venezuela’s crippled economy. But instead of food and medicine, the planes carried another resource that often runs scarce here: bills of Venezuela’s currency, the bolivar, it adds.
The fallout for Venezuela’s neighbors and the global economy will be substantial, Hausmann suggests:
To protect their economies from the coming mayhem, countries should start by exerting pressure to have IMF surveillance performed immediately, thus restoring their right (and that of Venezuelan civil society) to know what the current situation is.
It is probably too late to avoid a Venezuelan catastrophe altogether. But to reduce its length and intensity, the country needs to adopt a sound economic plan that can garner ample international financial support. This is unlikely to happen while Mr Maduro remains in power. But a transition will be facilitated by positive international signals of a willingness to support an alternative government that can formulate a credible path to recovery. RTWT
12 noon – February 5, 2016 The Women’s Foreign Policy Group holds a discussion on “Moving Forward? Venezuela’s Economic and Political Challenges.”
Discussants: Miriam Kornblith, director of the National Endowment for Democracy’s Latin American and Caribbean Program; Diana Villiers Negroponte, public policy scholar at the Wilson Center
Venue: Wilderness Society, 1615 M Street NW, Washington, D.C.
RSVP: 202-429-2692, firstname.lastname@example.org