Venezuela: Forty Years Of Economic Decline, Part 2

Tyler Durden's picture

Authored by Jose Nino via The Mises Institute,

This is Part Two of a two-part series. Part One is here.

The brunt of the blame for Venezuela’s current economic catastrophe should fall on Hugo Chávez and his successor Nicolás Maduro. However, this does not mean that all was well in Venezuela before Chávez arrived on the scene. The ideological and institutional seeds of the current crises were sown decades earlier. A rising tide of government interventions in the marketplace during the 1960s and 1970s would soon lead to a host of new problems for Venezuela.

The Oil Boom Party Ends

The 1970s looked like a never-ending boom period for Venezuela thanks to high oil prices. The then-President Carlos Andrés Pérez took full advantage of this boom to implement his lavish social spending program. Eventually, the boom period came to a crashing halt by the early 80s, and Venezuela had to face a harsh economic downturn.

Luis Herrera Campins would succeed Carlos Andrés Pérez’s government. From the start, he came to the realization that Pérez’s spending bonanza was unsustainable. In fact, Herrera had choice words for Pérez's policies, claiming that Pérez left him a "mortgaged" country.

Although Herrera was correct in his assessment of the Pérez administration’s fiscal irresponsibility, he would ironically continue more of the same cronyist policies as his predecessor. The chickens eventually came to roost as Venezuela experienced its very own “Black Friday.”

What once was one of the world’s most stable currencies, the Bolívar, experienced it’s most significant devaluation to date. Unfortunately, Herrera’s administration responded with heavy-handed exchange controls to stem capital flight. These controls would be administered by an agency called the “Differential Exchange Rate Regime” (RECADI), effectively creating a multi-tiered system of exchange rates.

Considerable corruption scandals emerged during the succeeding government of Jaime Lusinchi, as countless members of the political class would exploit the multi-tiered exchange rate system for their own gain.

Despite its abolition in 1989, RECADI would serve as a precursor to the byzantine exchange rate systems that the Commission for the Administration of Currency Exchange (CADIVI) and its successor, the National Center for Foreign Commerce (CENCOEX), would later preside over during the United Socialist Party of Venezuela’s period of dominance throughout the 2000s.

All in all, Venezuela’s Black Friday devaluation marked the beginning of a lost decade of sorts for Venezuela throughout the 1980s that set the stage for subsequent devaluations, currency controls, and irresponsible fiscal policy further down the line.

IMF to the Rescue?

Rising poverty rates, increased foreign and public debt, corrupt state enterprises, and burdensome regulations contributed to an environment of growing social tension and economic malaise throughout the 1980s. Venezuela’s previous growth miracle became an afterthought at this point. And it’s golden goose, oil, could not bail it out thanks to the low oil prices of the 1980s.

For Venezuela to right its ship, it would have to undergo painful fiscal reforms.

Ironically, it was Carlos Andrés Pérez that was entrusted with reigning in the excessive government largesse; the very same leader that established Venezuela’s profligate welfare state and laid the foundations for its collapse in the 1980s.

In 1988, Pérez campaigned on a platform that promised to bring back the splendor and prosperity of the 1970s. But once he assumed the presidency, Pérez realized that the Venezuela before him was on the verge of bankruptcy and crippled by excessive state intervention in the economy.

Under the auspices of the IMF, Pérez made a half-hearted attempt in reforming Venezuela’s broken petrostate. When broken down and analyzed, these reforms consisted of tariff reductions, tax hikes, flawed privatizations, and marginal spending cuts that ultimately did not address the underlying problems with the Venezuelan political economy — its flawed monetary policy, burdensome regulatory framework, and entrenched crony capitalist policies.

However, these reforms were too much for Pérez’s very own party, Acción Democrática (AD). AD was incensed by these reforms that hacked away at certain facets of the cronyist petrostate that it depended on to maintain its political power.

Of note, the phasing out of gas subsidies by the Pérez government — a popular social program that artificially kept gas prices low for the impoverished sectors of Venezuelan society — was used by the AD to channel discontent among the general populace.

Enter Hugo Chávez

Countless individuals would then take to the streets and protest the so-called “austerity” policies of the Pérez government. This eventually led to the infamous “Caracazo” incident in 1989, where the capital city of Caracas was engulfed in a series of protests, lootings, and riots. The government responded in a heavy-handed manner, leaving hundreds dead.

In the midst of the political chaos, radical groups took advantage of Venezuela’s political turmoil to advance their agenda. One of the most famous was then Lieutenant Colonel Hugo Chávez´s group, Revolutionary Bolivarian Movement-200 (MBR-200).

Chávez took advantage of the political disarray by consolidating an anti-government movement within the ranks of the Venezuelan military. This culminated in the failed coup attempts of 1992.

Even though Chávez was imprisoned for his coup attempt, Chavez’s agitation was enough to put the whole bipartisan Punto Fijo model into question. Eventually, corruption scandals and rising degrees of social unrest would whittle away at the Pérez administration’s legitimacy. The final nail in the coffin came when Pérez was impeached for corruption charges in 1992, thus putting the Punto Fjio model on the ropes.

Collapse of the Punto Fijo Model

Two coup attempts and the impeachment of Carl Andrés Pérez, marked the beginning of a tumultuous 1990s for Venezuela. The Venezuela of the 50s to 70s — characterized by its unprecedented economic prosperity and political stability — was starting to become a distant memory.

By 1994, the Punto Fijo model was in shambles as Rafael Caldera assumed the presidency under a new coalition, Convergencia (Convergence), of disaffected political parties.

Policywise, Rafael Caldera did not rock the boat. He pursued several of the IMF’s half measures, while not addressing structural problems such as the privatization of the oil industry, Venezuela’s downward spiraling monetary policy, and big business’s cozy relationship with the state. In addition, Caldera pardoned Hugo Chávez in 1994, rehabilitating him politically.

Thanks to the failed land reforms and housing subsidization polices pursued by the two major social democrat parties (AD and COPEI) during previous decades, major metropolitan areas like Caracas, Maracaibo, Maracay, and Valencia began to be populated by a growing subsect of impoverished Venezuelans. Chávez would tap into this low stratum of Venezuelan society and effectively turn them into shock troops for his campaign to radically transform Venezuela into a full-blown socialist state.

The Failure of the Social Democratic Era

It is undeniable that Venezuela’s social democratic consensus delivered sub-optimal results. From 1958 to 1998, Venezuela’s per capita GDP growth was a paltry -0.13 % indicating that the Venezuelan populace grew faster than the wealth produced in that time frame. In his book, Introduction to Economic Growth, Charles I. Jones classified the Venezuelan case as an example of a “growth disaster.” Venezuela was one of two countries in Latin America that suffered negative growth during this 40-year period, the other being Nicaragua, a country that suffered a costly civil war and was under the rule of a socialist government.

Chávez capitalized on this stagnation by launching a campaign against the bipartisan political consensus that ruled Venezuela at the time. Branding himself as a “Third Way” candidate, Chávez sought to provide an alternative to the perceived corruption of the Punto Fijo political order.

Despite the rosy rhetoric, Chávez was surrounding himself with hardened Marxists and other collectivist figures that were hell-bent on subverting Venezuela’s already fragile political order. Little did the disillusioned voters that cast a ballot for Chávez know what they were about to get themselves into.

Chavismo: Interventionism on Steroids

While Chávez may have been correct in pointing out the corruption of the old Punto Fijo order, he would ironically continue many of its failed policies throughout his regime, amplifying their disastrous effects and implementing them in a tyrannical fashion.

Currency controls, expropriations, price controls, and the use of the state-owned oil company, PDVSA, to finance lavish social spending programs were fixtures of Hugo Chávez’s socialist economic policy.

In addition, Venezuelan political institutions were completely eviscerated, media outlets were suppressed, and political activists were subject to numerous human rights violations under Chávez’s heavy-handed rule.

Chávez had the luxury of high oil prices from 2003 to 2010 to finance his socialist schemes and channel the petroleum rents to consolidate political support in the short term. But once oil prices plummeted, the laws of economics reared their ugly head and the system began to unravel in no time.

Even with Chávez’s death in 2013, his brand of tyrannical socialism has continued unabated under the rule of his successor, Nicolás Maduro.

The Venezuela that stands before us is a failed state. In an atavistic sense, Venezuela has returned to its 19th century state as an increasingly fragmented, political backwater.

Time will tell if the Venezuelan nation will continue to exist as a cohesive whole, or if certain sectors of Venezuelan society decide to blaze their own trail and start to break up the country.

Lessons Learned

If Venezuelans want to restore Venezuela to its once prosperous state, they must look back and understand the genesis of Venezuela’s current crisis.

It is myopic to pit the blame solely on demagogues and believe that things will be perfectly fine once the “right people” are put in charge. Political events like the rise of Hugo Chávez do not occur in a vacuum. Astute observers of political economy must analyze the overarching institutions and policies that create the type of political environment that enables authoritarians like Hugo Chávez to come into power.

The Venezuelan case serves as a strong warning to many a European country with crumbling welfare states and growing social discontent. Sooner or later, unsustainable transfer systems are bound to collapse and social disorder ensues.

Left unchecked, socialism only creates a vicious cycle of interventionism that leads to more chaos and misery. To reach the light at the end of the tunnel, Venezuela must completely abandon socialism and embrace the capitalist path to prosperity.

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38BWD22's picture



I have been to Venezuela two times, both times about 25 years ago (pre-Chavez).  While there was plenty of poverty, crime and corruption (and LOTS of crony-capitalism), it is true that the country was more prosperous and advanced than any other in Lat Am at the time.

Such a decline (while dabbling in Socialism) can happen to any country...

HRH Feant2's picture

Exactly. Anyone that thinks this isn't happening in the USSA is wearing blindfolds and earplugs.

Richard Chesler's picture

"Caldera pardoned Hugo Chávez in 1994, rehabilitating him politically."

Chavez was black (one ugly looking mofo at that).

Caldera was a liberal "social christian".

THIS is what really fucked it all up.


38BWD22's picture



Just saw this lovely little item in Peru's largest newspaper (online edition), in Spanish:

"Get your filthy hands off, and go home Donald Trump"

Yeah, because it's all Donald Trump's fault.......

meta-trader's picture

you can add an extra 1500/USD week after week in your income just working on the internet for a couple of hours each day... check this link...

cokito's picture

Study the different ethnic group in Venezuela and find out who is the majority. You racist MF.

Richard Chesler's picture

cokito: member 1 week 3 days.

Educate yourself before posting here you ignorant son of a bitch.

"The autosomal DNA genetic composition of mestizo population in Venezuela, is 60.60% of European contribution, 23% of indigenous contribution, and 16.30% of African contribution."



Benjamin123's picture

It has to be significantly less european by now. About 2 million venezuelans have left Venezuela, and these tended to be the whitest of the bunch.

Sort of like the migrations from South Africa, you'd think the country was white by looking at the people leaving it.

shovelhead's picture

With the US having a distinct advantage. We can sell our crap paper all over the globe.

For some crazy reason people want to buy it and use it thinking it won't blow up.

Gonna be some grumpy faces when they figure out they got Ponzi-ed.

DaveA's picture

Returning to a global gold standard would benefit the American people in the long run, as it would seriously constrain our government's ability to carry out hare-brained economic experiments with freshly-printed money.

It would be an even greater benefit to people in the third world, because our government is a paragon of fiscal restraint compared to theirs.

cokito's picture

US can’t go back. Nixon unpegged the $ from the gold standard (1972) because, after the Vietnam’s war, the US kept printing $ w/o gold to back it up. He also imposed price controls because inflection was out of control. US debt = 19T$. US has to do a RESET = WWIII :))))

new game's picture

one step at a time in the wrong direction and unstoppable.

reality, sad and hopelessness.

preparation is all that can be done.


leave for less crazy envirnment.



DaveA's picture

We can go back, and we will, when a trillion dollars won't buy a loaf of bread. The men with guns will say, "pay us in gold", and the government will either pay them in gold or be overthrown and replaced with a government that pays them in gold.

Of course single mothers, the disabled, and the elderly have no such bargaining power, and will continue to be paid in worthless paper or not at all.

booboo's picture

Until the citizenry come to grips with the undeniable truth backed up by impirical evidence that unchecked governments left to their own devices will always, no matter what flag the fly (Communist, Socialist Republican, Democratic, etc) will always kill their own citizens after bleeding them dry.......... nothing will change. Wash, rinse, repeat. Insanity in living color.

nmewn's picture

Oh if only, the government could control all means of production. Oh if only, the strongest & smartest among us would sacrifice our very lives and family ties while dedicating ourselves to the betterment of mankind by being benevolent, alturistic, bureaucrats busying ourselves in the business of the common people...why then!...and only then!...all ills of the world would be cured.

Oh, only if ;-)

I think von Mises already covered this in Human

veritas semper vinces's picture

Jewmerica has a decline of 60 ys and it wuold have been much worse if not for the "extravagant privilege " of printing dollars as Mitterrand put it. I would add to that the "privilege" of plundering the world bc of wars of aggression.

Venezuela goes through a color revolution-it started with killing Chavez,economic sanctions and now an AMERICAN SPRING brought to Venezuela

HRH Feant2's picture

"These controls would be administered by an agency called the “Differential Exchange Rate Regime” (RECADI), effectively creating a multi-tiered system of exchange rates.

Considerable corruption scandals emerged during the succeeding government of Jaime Lusinchi, as countless members of the political class would exploit the multi-tiered exchange rate system for their own gain."

Two-tiered systems never work. The USSA now has a two-tiered justice system, one for the serfs and another for the oligarchs. The serfs make plea deals, serve time, pay fines, and have their lives ruined. The oligarchs pay fines and their lives go on as usual.

Golden Showers's picture

Hey! You are so right. A bit of that history can be read here:

Thanks and upvote!

logicalman's picture

Imagine the difference if Veneauela could just print the world's reserve currency

CompleteAphasia's picture

This is what BERNIE wanted to bring us

booboo's picture

you will get it with or without crazy bernie, it's inevitable.

Ajax-1's picture

True. I always wanted to ask Bernie the difference between a Democratic Socialist and a Nationional Socialist. Hitler was a National Socialist.

kenny500c's picture

Any economic system that requires producers to subsidize takers is ultimately bound to fail because it goes against human nature but first the government will try to force the issue. So then not only do you have non-productive takers but also non-productive government types attempting to enforce the income transfer.

jasony's picture

Oh but these Bernie Babies like socialism. MORONS!

veritas semper vinces's picture

So ,what do you have here in Jewmerica? You have a parasitocracy,the vanishing middle class is supporting both ends-the very top and the bottom.And the top parasites are not even Americans . Yse,it is much better.

If Jewmerica did not have the "privilege " to print "money",it would have been long gone.

Please see your own country before criticizing other country.It is amazing how some are unable to do this.

And Venezuela is not conducting a color revolution here as opposed to Jewmerica there

conraddobler's picture

I have seen this in companies, "Even my own" and others.

Producers have to constantly fend off advances from the takers.  They are evolved to be relentless.

While the producers are busy producing, "It's what they do" the schemers art form is to take whatever is produced without actually doing a fucking thing.

There are people that have this as their life tool kit and it's a powerful one but ultimately it will destroy anything it touches.

You can watch them they ALWAYS hide behind rules which they break all the time but are cunning about it and they lay traps for the producers and when the producers break them they'll always make a deal to divy up the kill and the producer will just be happy they can still produce but the cumulative effect is to render the producer the slave of the taker.

Seen it time and time again, it cuts through literally everything.

Only changes come when the producers stop producing until the takers starve out.

That is the only answer they must be starved out or it will follow the same path it always follows, enslavement of production every time, every where, for all eternity it is always the same struggle.

You can watch this with Trump, he's up there with a bagillion takers and they're laying traps right and left for him.

I for one am glad he's dealing with it because while they are busy chasing him around they aren't getting much else done which is what is so fucking glorious about Trump.

He is a lightning rod and if you watch the flashes it's very illuminating.

I pray to God for deliverence from these bastards.  

Hard working people deserve the fruits of their labors without having them stolen from them.  I wish people were not like this but they are.

SmallerGovNow2's picture

"The Venezuelan case serves as a strong warning to many a European country with crumbling welfare states and growing social discontent"...

Serves as a strong warning to the USSA but NO ONE GIVES A SHIT!  iPhones, drugs, alcohol, sports, and sex is all that maters....  Fuck it...

shovelhead's picture

Ahora reís llorar más tarde

Laugh now, cry later.


DaveA's picture

"Venezuela must completely abandon socialism and embrace the capitalist path to prosperity."

No, capitalism requires too many institutions and cultural values (e.g. don't steal even if you're starving) that no longer exist in Venezuela. Feudalism would be a better bet, being a simple, extremely localized political system that allows people to grow food and eat it.

veritas semper vinces's picture

"Capitalism" means let Jewmerica plunder and rape the country

Robinson's picture

The article is well made, and I add.

Marcos Perez Jimenez, was the best president of Venezuela in all its history, was accused of being a dictator and gave a coup. After declaring at a meeting of Latin American countries in Panama, that Venezuela had a plan to pay the debt of all Latin American countries, Marcos Perez Jimenez, in his auto biography, tells the same story. The coup was organized by the CIA.

The system of subsidies and the lottery of gifts to the population, is the mechanism of the politicians to gain substantial commissions for being the intermediaries of the subsidies and gifts.

The solution to the problem of what to do with the oil income, is to give that money directly to each citizen, accompanied by a media campaign, to teach them to spend that money to improve their education.

The problem is not a socialism system, because Chavez was a communist, that love power more that people, and die in power.  The problem is the natural egoism of human beans.   Capitalist, Socialism, Communist, All are the same. 

What we need is a change the system, change this cleptocracy plutocracy, with a real democracy.  No more let a bunch of people take decitions for all the population.  People must not subdue her democratic power to a plutocracy.

new game's picture

the play on our own weakness of compassion is at the root of why the fuks come to emense power.

think of bad guys hanging from the oak branch for stealing horses. some call it a dark age of humanity.

i call it justice. so we are so compassionate that the bad guys literally get away with murder.

they kill us many differnt ways. just look at a getto. mentally killed humans, called useless eaters for votes.

they use the fed funds to control our lives financially with the extorsion device of the irs backed by force.

i could go on and on. they are here and now in our lives controlling our every movemnet if we get out of line.

listening, watching and ready to pounce on dissidents. be carefull. 1984 is here. the intelligence communities are the latest front of movement to control us. and we willfully comply as the monitary systems evolve to full digital control.

to hold them acountable requires violence like in the 1800's. a new sheriff is not enough anymore...

Last of the Middle Class's picture

Just one more psychotic socialist for president and all will be fine! Shit, even Castro knew when to back off and let people breathe and eat (a little).


Haitian Snackout's picture

Castro was the key to the whole Sal,  as Sir Robert Peele was to the Sgt. Pepper album.

south40_dreams's picture

Brazil is not looking good either

tuetenueggel's picture

40 years of war practiced by USA against the people of Venezuela. They only want their oil. If you won´t give it these US-criminals will come and take it. You´ll get democracy and murder for it. So gentlemen, load your guns.

Publicus's picture

Yeah but real Socialism has never been tried. Just ask Bernie.

. . . _ _ _ . . .'s picture

Trump Administration Green Light’s “Regime Change” in Venezuela

"The U.S. has now imposed sanctions; will a coup take place by the U.S. backed opposition? The Trump administration (Secretary of State Rex Tillerson in particular) wants to get their hands on Venezuela’s vast oil reserves. It’s not about the Venezuelan people or their grievances, its business."

Towards a « Latino Spring »?

"Anxiety is growing in Latin America – the United States and the United Kingdom are preparing a « Spring » for them on the model of the «Arab Springs». Of course, this time, it will not be a case of spreading war and dividing the populations along religious lines – Latino citizens are practically all Christians – but by using elements of their local identities. The objective will, however, be the same – not to replace the governments with other governments, but to destroy the States in order to eradicate any possibility of resistance to imperialism."

KKR, Mexico's Pemex agree to $1.2 billion sale, leaseback: sources

"U.S. private equity fund KKR and Mexico's Pemex are wrapping up details on a $1.2 billion sale and leaseback agreement"


It looks like the US knows that the ME is lost to them.

Even Germany is leaving Turkey for Jordan.

German Military to Leave Turkish Airbase: Split Inside NATO

"Germany will have «to explore other ways of fulfilling our mandate». One alternative among others is Jordan."

The USA seems to be hedging closer to home, trying to secure all the oil in the hemisphere. Will they invade Canada next? They've already drawn up plans for that contingency. Search 'War Plan Red'. After all, they can't allow the evil Russians to invade from the north.

estebanDido's picture

Maduro should do what Ortega did in Nicaragua. He told Reagan: if you invade Nicaragua you wont find and army you will find an armed population. Guess what happened, Reagan backed off.  The biggest problem Vnzla has is the lack of a decent and democratic opposition.

datapanik's picture

"The brunt of the blame for Venezuela’s current economic catastrophe should fall on" . . . Wall Street inteventionism.

"Left unchecked," . . . Wall Street and the IMF . . . "only creates a vicious cycle of interventionism that leads to more chaos and misery."

There, that sounds more honest.


mary mary's picture

Since 1950, Venezuelans have increased their population 400%, while their natural resources increased 0%.  Therefore, every person in Venezuela has 1/4 the natural resources his grandparents had.  Misery and chaos will continue.

estebanDido's picture

Stop the stupid analysis, the F USA wants to make Venezuela a Narco State like Colombia. Once this is achieved and the oil is in ¨Good Hands¨ you wont see any press coverage in the MSM.