We need to talk more about Venezuela, por Matt Kilcoyne – Adam Smith Institute

Fuente Web

On Sunday, Venezuela will go to the polls to vote for representatives to a council that will start rewriting the country’s constitution. After four months of street protests, 100 people are thought to have been killed by the Maduro regime and there are serious questions being asked in Washington about the potential of a civil war breaking out.  

But how we did we get here and why does it matter that yet another socialist regime has reached its inevitable conclusion of abject failure?

In short, it matters because Venezuela has been held up as a paradigm of what could be possible for socialism by the West’s leading leftist commentators.

As Kristian Niemietz at the IEA has catalogued the current leadership of the Labour Party in this country, as well as their supporters in the media, used to tout Venezuela as an inspiration to their cause. Only yesterday the Daily Mail revealed that Jeremy Corbyn praised Hugo Chavez and criticised the European Union as being a ‘barrier to building socialism and fighting capitalism’ in a phone call to Venezuelan President Nicolas Maduro back in 2014. Owen Jones, George Monbiot, the Labour MP Richard Burgon and Corbyn’s director of communications Seumas Milne have all put pieces out in support of Chavez, Maduro and the Bolivarian socialist revolution - they’re strangely silent on the topic at the moment.

The policies that Venezuela has adopted - which the Labour Party’s leader used to praise and which have been argued for by their supporters - have left Venezuela in ruin.

Policies such as pegging the currency at levels staggeringly divergent from its real value,  financing large increases in public spending through printing money, strong state subsidy and price controls of basic goods, rent controls, and a string of nationalisations have all taken their toll. For a while a high oil price was enough to paper over the cracks but eventually you have to face up to economic reality. Debt repayments started adding up, a persistent public sector deficit and commitments to spending programmes its political leaders don’t want to sacrifice have led to scenes akin to those seen at the end of the Soviet Union, with money printing causing high inflation.

Yesterday the inflation rate in Venezuela reached a record high annual rate of 844.22%.Our own inflation rate was at 2.6% last month.

Fuente: Adam Smith Institute

With the rate back up that high Venezuela’s inflation became the 57th verified episode of hyperinflation (it has been added to the official Hanke-Krus World Hyperinflation Table). You have to have inflation of over 50% for a period greater than 30 days to be included - fortunately that’s rare but as we can see in Venezuela it’s not rare enough. 

The value of the Bolivar (the currency of Venezuela) has collapsed. On the black market one US Dollar can get you 7,691 Bolivars. There are two official rates, which are strictly controlled by central authorities. The DIPRO rate is currently 10 Bolivars to the dollar, with the DICOM rate recently devalued to just over 2,000 Bolivars to every US Dollar. DIPRO is used for imports of goods like food and medication, social security pensions for Venezuelans abroad, imports for sports and culture and payments to Venezuelan students abroad. DICOM is used for everything else (including oil) and is auctioned.

When I was Venezuela in 2009 - very briefly - I was struck by the divergent nature of the place compared to their neighbours Colombia. You couldn’t use the cash machines because they required your Venezuelan registration number and the differences in official and unofficial currency exchange rates were very apparent (I paid nearly $90 for two sandwiches from Subway in the airport).

Fuente: Adam Smith Institute

This is a country of 31 million men, women, and children who have had their lives ruined by two successive socialist presidents, in a place that sits on the largest oil reserves on the planet.

Medicines are running out and infant mortality has spiked 21% in a single year and is 45% higher than in 2013. Heart surgeons have conducted operations by the light of mobile phones as power cuts hit.

One of the most striking things that has happened is a change in people’s diets as inflation has skyrocketed and the Bolivar’s value has fallen, sapping their purchasing power. Consumption of staples that Venezuelan families had bought for decades began to fall as prices shot up. People stopped being able to afford things like rice, chicken and beef and have to replace these with cheaper and less nutritious crops like potatoes. Over 75% of the Venezuelan population say that they lost an average of 19lbs in 2016.

Fuente: Adam Smith Institute

That’s before we mention the scary fact that Venezuela is fast approaching a crunch point. The country is down to its last $10bn of foreign reserves while the oil price is nowhere near the level of around $75 dollars the Latin American country needs to finance its public spending and debt commitments. State oil company PDVSA has $3.7bn of repayments to foreign creditors to make this year and another $8bn in 2018 - debts it needs to pay in order to keep any money coming in from oil exports.

The policies that Jeremy Corbyn has publicly praised as examples, that John McDonnell wants in order to start ‘fermenting the conditions to overthrow capitalism’, and that their media hands have been supporting for a decade are coming to their inevitable conclusion.

Venezuela deserved better than the economic hell its leaders have created. Venezuela is not an example that Britain should be looking to, but a warning. Those British journalists and politicians, including those leading Her Majesty’s loyal opposition, that lauded the socialist revolution should be looking again at their own policy suggestions.