What's Next For Venezuela

Tyler Durden's picture

Authored by Michael Cembalest, CIO JPMorgan,

Venezuela is a place of severe contradictions. It’s the only country we found that ranked in the top ten regarding improvement in the UN Human Development Index since 2006, and also ranked in the top ten regarding intentional homicides per capita. Usually, these two things do not go together. Similarly, income inequality has been reduced, but has been accompanied by very high inflation. Chavez’ redistribution policies contributed to a large decline in Venezuela’s Gini coefficient since 2002, now the lowest in the region (lower implies less income inequality). This is no small achievement, as Latin America is notorious for income inequality: half of the top 20 most unequal countries in the world are in Latin America. However, Venezuela has also experienced the highest inflation in the world over the last 5 years (excluding Zimbabwe, of course), which suggests that Venezuelans have in part been made more equal by having their incomes inflated away. The tables tell the story.


While the UN Human Development scores suggest modestly improved living conditions, other measures are quite downbeat, and frankly a bit startling. The World Economic Forum compares conditions across 144 countries, and as shown below, Venezuela ranked extremely poorly in many of its basic pillars in 2012, including two last-place finishes. I added the three countries that outperformed Venezuela in each category to give you a sense for what neighborhood they are operating in. Venezuela’s gains have been in health, basic education and higher education, with little progress elsewhere.

Venezuela appears to be continuing to underutilize its oil riches. While the level of Venezuelan per capita GDP has always been among the highest in Latin America, other than during the oil boom of 2002 to 2007 when crude prices quintupled, Venezuela’s growth in per capita GDP has been at or near the bottom. One possible conclusion regarding the last few years is that a chaotic redistribution of wealth has a cost, one that prevents the economic pie from growing.

Where does Venezuela go from here? There are certainly strange things happening with Venezuela’s balance of payments, some of which help explain why per capita GDP growth has stalled since 2008. The net foreign asset position of the private sector has been growing, most likely a function of rapid capital flight, a process which diverts resources away from domestic investment and infrastructure. The public sector net foreign asset position, on the other hand, has been shrinking. One would expect it to be rising at a time of current account surpluses and high oil prices. Its decline suggests that the public sector has been spending its accumulated riches to sustain growth, something that it might not be able to do forever. Venezuela stands out unfavorably compared to other oil exporters by having both fewer foreign exchange reserves, and higher external government debt. We tried to get an assessment of Venezuela’s total national wealth including its sovereign wealth fund Fonden (the National Development Fund), but the accounting is very opaque; the Sovereign Wealth Fund Institute gives Venezuela its lowest transparency score, along with Libya, Algeria and Mauritania.

Despite all the challenges, Venezuela’s economic model may well survive given how high oil prices are. The budget deficit and growth in domestic debt in Bolivars is explosively high, but so is inflation; as a result, domestic debt has only risen from 9% of GDP in 2010 to 13.5% by Y/E 2012. On hard currency debt, Venezuela only owes $11bn each year on its government/PDVSA debt, and takes in over $80 bn in oil revenues. What no one knows is how much hard currency the government needs to spend to maintain support from the Chavistas. The government has been draining its external asset position for several years, both through spending and external borrowing. If the current pace of spending has to be sustained to maintain its legitimacy, Venezuela may eventually run out of lenders, unless oil prices rise again. And if oil prices fall…then watch out. But to me, more of the same looks like the most likely outcome.

As with Cuba, there are those who sit in constant wait for regime change as the patriarchs of the revolution pass on. I’m not so sure; neoliberal market economies have not always generated enough growth for the majority of people to have an unquestionable stake in keeping the status quo. That is something we have seen at work in a few places in Latin America, and is a topic for another day.

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surf0766's picture

Jessie Jackson for President and Sean Penn for VP

ShorTed's picture

As long as they promise to never come back!

DoChenRollingBearing's picture

My next article will feature (in part) the editor of Cajamarca´s (Peru) newspaper and his comments on Hugo Chavez...  But, the one up now is about Cajamarca (Peru) in general, gold and blood soaked through the centuries...  But very hospitable to tourists (except maybe from Spain, LOL...), the food was great and the scenery was spectacular.

Brother akak!  Check out the "cuy" I ate...!

"Cajamarca, Peru"


DJ Happy Ending's picture

What's next for Venezuela? More of the same. They will vote themselves another iron-fisted nanny to keep the gravy train rolling.

surf0766's picture

The are hoping to live in the shithills of Brazil !!. Ahhhhhh the hopes and dreams

TBT or not TBT's picture

The ol' resource curse. At least it isn't a blistering dry sand box, or Islamic.

Vampyroteuthis infernalis's picture


Venezuela appears to be continuing to underutilize its oil riches.

When you fire all of your capable oil engineers for the simple reason of politics. (Any one with a brain sees Chavez is a moron.) You can sit on oceans of oil and it will never be extracted. Lack of investment in infrastructure doesn't help either.

akak's picture

Hey DoChen, great photos and info on Peru there!

Someday, I will have to go back down there.

ShorTed's picture

As long as they promise to never come back!


US is sharpening up the cancer machine for the next target..Watch this little clip


TruthHunter's picture

"US is sharpening up the cancer machine for the next target"

Its the retired and disabled that are the next target. If you get a shot at the emergency room or whatever, they will have a different batch for you.

They accidentally stumbled on this with Gulf War Vets. Most of them are dead, but nobody is telling the rest of us.

rhinoblitzing's picture

What's coming next for Cuba?

And will that bring the US flag back to Miami, and end the special status of Cubans?

besnook's picture

when i lived in florida, ready to make my exit, i used to taunt my cuban friends by telling them i hoped castro would survuve until i left so i could get a good price on all my stuff because when castro died they would all go back to havana crashing the local economy. they all admitted they were in the usa to stay but would definitely go back to cuba to pillage and plunder(carpetbag) their former home if given the chance.

Neethgie's picture

Jail Chavez crush the people

gould's fisker's picture

What's coming next for V . . . They're digging up coffins to steal rings and other shit out of and they dress their traffic cops up like clowns to enhance people's respect for them.  So, that country is on the Hall of Fame list of Countries that are the most FUCKED, but of course we are all competing for the lead nowadays.

cynicalskeptic's picture

The US strategy seems to be making sure it's not the 'most' fucked.... As long as someone - preferably 'big and important' like Europe - implodes first, the US will continue to look 'good' in comparison.  


You have a bunch of people who jumped out of a plane.  The guy who hits the ground last thinks he's fine because everyone else hits before he does.  Problem is that the consequences are the same no matter when you hit - SPLAT!

Lore's picture

It's looking more like Italy starts the ball rolling before Greece...

nmewn's picture

Hugo Under Glass...a fucking communist classic.

krispkritter's picture

He's doing his part by being a carbon sink...indefinitely.  I hope someone screws up and makes it from a fresnel lens, would be nice to see him burn. Funny, I got redded for calling him what he was and whoa, turns out his redistribution policies made him a billionaire while the rest of the serfs endured inflation and poverty...go figure.

Desert Irish's picture

Yet another despot caught up in his own visions of grandeur whilst feeding off the illiterate masses.


Good article by the late Hitchens that does both Chavez and Penn justice



nmewn's picture

Its funny ain't it krisp, Chavez' family is TWO BILLION RICHER through government redistribution than the denizens still living in shacks around Caracas.


I swear, common people who claim to be statist-socialists have to be the dumbest fuckers on the face of the planet...or scarred up masochists...lol.

rhinoblitzing's picture

Look at Obama - How exactly did he make his Millions (and Billions) oh yeah - he wrote a book. 

GeezerGeek's picture

To borrow from Obama himself, he didn't write that book, someone else wrote it for him.

DoChenRollingBearing's picture

Chavistas and Fellow Travelers are the dumbest a$$e$ in the world.  Or else, the most criminally rich.

Alas, it is not so LOL for me, my grandma was really messed with by the Sovs in Poland right after WWII, she headed up the US Red Cross relief there for a while.

Andthe REAL Socialists (Chavez, Kirchner, Castros, etc.( really have screwed up their countries'economis and thrown their opponents in jail (or killed them outright).

Sorry, Sean Penn.  There really IS a difference between right and wrong.

nmewn's picture

"...it is not so LOL for me, my grandma was really messed with by the Sovs in Poland right after WWII..."

Not enough kids understand what it was like. They got this bullshit of Che in their head, Che would shoot those kids in the head (and did) to make a point and not even think about it. He was a real bad ass when he was at Cabaña Fortress shooting civilians.

TBT or not TBT's picture

Easy to drone the sob now.

ali-ali-al-qomfri's picture

‘the Carcass in Caracas‘ ……..sure to be the next tourist attraction.

Chupacabra-322's picture

What's next?

Economic Hitmen



Murder, rape, pillage and steal resources.

Freewheelin Franklin's picture

From what I understand, Venezuela paid back all of their IMF loans 5 years ahead of time.


But that probably won't stop  banksters. They'll just issue new loans to the new regime. Then, they'll send in the Jackels et al.

LeisureSmith's picture

CIA Playbook for 200$. Standard procedure for defiant energy rich nations. What is destabilisation.

TBT or not TBT's picture

Uh, that's retarded. If anything our play is over stabilizing these shitholes. Think Saudi Arabia. Or the UN. Protecting koweit.

LeisureSmith's picture

Retarded? Yes, very much so but Saudi Arabia is subservient and interdependent. Saudi Arabia is on the destabilisation calendar, but not before they have been used up and have thrown all their hardware against Iran. For now they put the Petro in the Petrodollar so they are fine......until they aren't.

TBT or not TBT's picture

Sovereignty and stability thereof is a US State Dept fetish, anxd fundamental to the UN charter that we set up and financially support to this day. Our executive order against assassinations ditto.

LeisureSmith's picture

Not to say that the turdmunchers in power in Venesuela haven't got the ability to fuck their country up all by themselves. But going from history, "help" is not far away.

spooz's picture

But the USA receives the HIGHEST score, because we are so transparent and above corruption, right JP Morgan? And what about neolib ideology fostering populist uprisings, which may become more likely as the majority loses its stake in the status quo. Does JPM have any opinion on that in relation to the rising inequality in the US?

Here is another piece on Chavez, from Greg Palast who says, even in death, he wouldn't bet against Chavez's class war:


"We tried to get an assessment of Venezuela’s total national wealth including its sovereign wealth fund Fonden (the National Development Fund), but the accounting is very opaque; the Sovereign Wealth Fund Institute gives Venezuela its lowest transparency score, along with Libya, Algeria and Mauritania."

SilverMaples's picture

So that beautiful collective dream only cost 25% per year? Is that in BLSBS units or real units? Not that it matters much at these levels anyway ... poor sheeples ...

machineh's picture

It bears repeating that Venezuela's 25% inflation ranks No. 1 only because Argentina haircuts its inflation figures by about 20%.


In a true comparison, Argentina's inflation has been about 30% in the past five years, versus 25% for Venezuela.

Argentina's black widow presidenta, Kristina Kirchner, was a great buddy of Chávez. But unlike the blunt-spoken Chávez, she lies like a cheatin' bitch.

Yes_Questions's picture



What's next is attempted coup II and more anger at the US government. 


No matter who controls the oil afterward.

Seize Mars's picture

Well, well. The U-fucking-N.

"It’s the only country we found that ranked in the top ten regarding improvement in the UN Human Development Index since 2006, and also ranked in the top ten regarding intentional homicides per capita..."

Here's the nexus: David Rockefeller. You can bet that if the UN says something or wants something, it is good for Mr. R.

For example, check this:

"United Nations threatens Colorado, Washington state over marijuana decriminalization laws"


Well the UN has decided it doesn't like all those American peasants thinking that they can inch their way toward hemp. The problem is that when people grow hemp in their back yards, they will quickly realize that will have absolutely no need for dacron, polyester et cetera. Chemical corporatism = oil corporatism = Rockefeller.

So gee whiz, the UN likes dictatorships! Who could have known? The murder stats tell the truth - it's a hell hole. But it's attractive to Mr. R to have a dictator at the helm. Ceteris paribus he would prefer a guy who "gets it" like Kim Jong Un or Castro or Obama. Hugo didn't "get it."

besnook's picture

chavez has been an astounding success. he has managed to change south america forever. the usa blew it. usa influence in the region will never be the same. this is critical in the face of extensive chinese influence on the continent built since the vacuum created by chavez.

i think there will be a renewed focus in regaining the influence under the thumb of the empire.

kito's picture

Chavez was good for South America...a catalyst for the continent to free itself from the grip of the u.s. imf world bank colonialism.....however he was horrible for his own country.......bringing economic and market distortions to Venezuela.........

Freewheelin Franklin's picture

But who will give poor Americans free heating oil? Joe Kennedy can't do it all by himself.

Atomizer's picture

Spicoli takes over the free pizza delivery business until Mr. Hand declares a nanotechnology [US national security] spiking of nationalized oil supply punch bowl crisis ensues. No one can predict if the Niger Delta oil terrorist will attack Venezuela with blow darts & overthrow supply chain management.



Kirk2NCC1701's picture

Where from here?  That's easy:  They will go the way of a banana republic, taking its queues from the Banana Republic par Excellence.  Otherwise they just might have al-CIA-dah guys popping up.

Long decent oil supply from Venezuela.

Abraxas's picture

What's next? The same as with Zaire, Iraq, Lybia, Yugoslavia  ... the West will come to "stabilize" the situation. "The West is the best, get here and we'll do the rest".

q99x2's picture

If globalists hate Venezuela then that is a good sign that they are doing something right.

lakecity55's picture

They may be successfully fending off TPTB, but there is short-term thinking involved which will hurt their society in the long run if they do not open markets to competiton.

The US would be more successful IF the laws on the books were enforced, but we know they are not, as per the example of Corzine walking the streets today a free man.

TBTF should have Fell in 2008.

Instead, the Elites have corrupted Rule of Law.

Paul successfully started up the argument during his fillibuster: Enforce the Constitution. He needs our assistance!

dunce's picture

The income figures can not be believed, the Chavistas are not reporting how much they are stealing through corruption and sneaking into off shore banks and properties. The ones in Florida were mostly part of the rich slice and took their wealth with them further skewing any numbers. I have not seen the numbers that fled to other countries like Spain, but i am sure it is not small. The most likely scenario is probably as Thatcher pointed out, they will not quit until they run out of other peoples money or in their case many years hence because they will continue to squander their oil resource revenue on a failed system. The Russians did not run out of natural resources, but changed superficially in the govt. They are still selling the raw mineral wealth rather than developing real industry but not spending quite so much on arms. Venezuela might try the musical chair change to fool people several times as they circle the drain.

observer007's picture
Assassination of Hugo Chavez?


The Venezuelan president himself, before he died, wondered aloud whether the US government - or the banksters who own it - gave him, and its other leading Latin American enemies, cancer.


shovelhead's picture

Political Science is the art of assigning names and methodologies to tapeworms.

Shovelhead 4.20