Even when the Venezuelan government has not allowed its own numbers to be verified for almost a decade, and stopped reporting various standard economoic indicators several years ago (practices which all started during Chavez’s administration), the numbers that it does report confirm The Economist’s appraisal of the country as Probably the world’s worst-managed economy.
Right now the government,
facing deteriorating economic conditions at home, is quietly slashing imports to cover foreign debt payments amid a severe hard-currency crunch.
Carmen Reinhart and Kenneth Rogoff write on Venezuela’s Spectacular Underperformance
Maduro, of course, rules over a major oil-exporting economy that is so badly mismanaged that real (inflation-adjusted) per capita GDP today is 2% lower than it was in 1970, despite a ten-fold increase in oil prices.
The relevant reality now is the long-term plight and dwindling standard of living of the average Venezuelan citizen. Over the past 45 years, as Venezuela’s real per capita GDP fell, US per capita GDP roughly doubled and Chile’s per capita GDP nearly tripled. And neutral observers project that 2014 will be even worse for Venezuela – not surprising, given the chaos of the country’s policy fundamentals.
Venezuela repeatedly has defaulted on the moneys it owes on pharmaceutical imports, food, airlines, oil suppliers and joint-venture partners; Reinhart and Rogoff ask
historically there have been many external defaults without domestic defaults, the converse is not true: nearly all domestic defaults are “twin defaults” that also involve external creditors. Will the Venezuelan case be different?
In other words, the two things go hand in hand, and it’s only a matter of time before Wall Street bond-holders are treated like foreign airlines.
However, Francisco Toro points out that
in the technical sense that’s relevant in market terms, Venezuela is not in domestic default.
. . .
This is the crux of the Great Venezuela Macro Debate of 2013-2014: to what extent can the government’s patent inability to meet its obligations be ascribed to a basic inability to pay, and to what extent is it just the Nth insane distortion you get when the government makes it illegal to pay a penny more than 77 cents for a $10 bill?
So, while we split hairs on exchange rate misalignments and the like, Venezuela undoubtely becomes a land of political killings and gang turf wars.
Related: Venezuela: The Left vs. reality