Venezuela's Default Disaster

Tyler Durden's picture

Authored by Daniel Lacalle via The Mises Institute,

Socialism always promises heaven and gives hell...

In the early hours of Thursday, November 2, the Maduro regime certified its latest failure with what they promised would never happen: technical default. With his usual arrogance, Maduro issued a “decree” demanding “the refinancing and restructuring of the debt as of November 3.” That is, default.

The bad news for investors or high-yield hunters is that the likelihood of being swindled again is almost 100%.

Chavez once said “put me oil at zero and Venezuela will not suffer,” and Maduro stated that “a revolutionary government with economic power as the one I preside has plans to surpass any situation arising from any price of oil.”

Reality has now kicked in.

Venezuela was not destroyed by low oil prices, but by high socialism.

Socialism has led Venezuela to an unparalleled economic disaster . No, it’s not “the price of oil.” Venezuela is the only OPEC country that has fallen into default, depression, and hyperinflation. It’s not oil, it’s socialism.

The management disaster is spectacular and the greatest example of the devastating effect of socialism is the state-owned oil company. PdVSA, the national oil company, has gone from being one of the most efficient and profitable twenty years ago, to end up importing oil.

Although Venezuela has the largest reserves of crude oil in the world — 296 billion barrels — the country began importing oil last year. Its production is less than 2.7 million barrels per day, a drop of 20% in less than two decades, while the Chavez.Maduro regime multiplied its workforce by five, to 175,000 “workers”.

Brutal cost increases, spectacular worsening of production, collapse in margins and plundering of the cash to pay for subsidies led the company from being one of the most profitable and with the best balance sheet in the world to borrow more than 43 billion US dollars.

During the presidency of Maduro, the regime has led the country to hyperinflation, which already exceeds 2000% and a shortage of more than 80% in goods, while foreign currency reserves have plummeted 64%, the worst level in forty years.

This disaster is not because of low oil prices, it is a reflection of the reality of what socialism does. No oil producing country shows such atrocious figures, not even close.

In fact, if anything can be said about the fall in oil prices is that the vast majority of producing countries have managed it admirably, with GDP drops that ended being much lower than feared, keeping their reserves in foreign currency at comfortable levels, and adapting to the new reality quickly and efficiently. Almost all, except Venezuela.

The True Economic War in Venezuela: the Chavez-Maduro Regime Against the People

Venezuela had 12,700 private companies when Chávez took power, according to Conindustria. Today there is less than one-third of that figure. To the economic destruction, the regime added the assault on private property with expropriations of more than 690 companies in twelve years. Today, those expropriated companies are technically bankrupt and those that survive are zombies producing less than half of the figures prior to the confiscation.

As always happens in socialism, the first thing was to deny reality. “Investors should not worry about the debt repayments of 2017 and 2018,” said Rafael Ramírez. And indeed, they should not have worried. They should have panicked. One of the largest investment banks in the world, which bought $ 2.8 billion of bonds is now facing the false “restructuring” decreed by Maduro.

Maduro “decrees” restructuring as if it were a miracle. But it is another nail in the coffin of the regime. Economic destruction is not only not changing, it is getting worse.

The restructuring simply has no solution. Correa, in Ecuador, has already experienced the “success” of default.

Ecuador, the “example” that populists used on how to “confront the IMF” and encourage default, has doubled its debt, mortgaged the country with China at much higher rates than those of the IMF and finally had to ask for help to… the IMF. This is “success.”

Correa in Ecuador defaulted on 3.2 billion US dollars to finish depending on China at a much higher cost (7.5%) and shorter maturities (8 years). And Ecuador now discovers that its real debt is more than 41.8 billion dollars instead of the 27.8 billion that Correa left as “official”. That hole will cost billions in adjustments. This is the reality of default and re-structuring. Things get worse.

But Ecuador at least had an economy with growth possibilities. Maduro now seeks to refinance with … what? He has devastated the country. Between 1999 and 2014, Venezuela received 960.5 billion US dollars of oil revenues, 56.5 billion annually for 17 years, five times more than the average annual real income of previous governments between 1993 and 1998, according to the BBC quoting Ecoanalítica.

That huge oil revenue was squandered and at the same time the economy was destroyed by assaulting legal security and investment initiative with savage expropriations. Who is going to lend to such disastrous managers, even at higher rates and different terms? Now the string of litigation and complaints about breach of contracts will begin. And the credit tap closes.

This restructuring is not going to be a relief nor the beginning of the solution. It is the verification of an absolute failure of the Venezuelan government and it will cost a lot, as always, to the poorest citizens. Because there has never been a story of default that is accompanied by higher real public spending. Never .

The lesson of this new example of socialist failure is that it is a system based on lies that ignores the most basic principles of the economy and destroys even the richest country.

In the end, the socialist promise of free money is very expensive for all. Let’s learn the lesson.

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illuminatus's picture

Government always promises heaven and gives hell...  

There, fixed it for you.

TBT or not TBT's picture

People's Revolutions are so romantic though!

Escrava Isaura's picture

Socialism always promises…… 

Socialism can’t promise anything because socialism is locally run, meaning poor and mediocre.

Religion and capitalism, on the other hand, make all kinds of promises.

Government helping the rich and poor is not socialism.

It’s call welfare. Government welfare.

In socialism the locals run the government.

And the government personnel will rotate between the residents. There are no elections.

But, you can’t have socialism in an industrial society with 7 billion people, because both would overwhelm socialism.

Socialism is a great fit for rural/agrarian societies.   

 

 

Mtnrunnr's picture

You shoul really look up the definition of capitalism some time. It'll blow your mind. It's directly antithetical to democracy. Cue the dumbass responses to this.

techpriest's picture

It's quite the definition game, so I must ask, what source are you using for a definition?

And speaking of "antithetical to democracy:"

https://duckduckgo.com/?q=democracy+the+god+that+failed&t=canonical&ia=p...

Mtnrunnr's picture

Yup. This is what I'm talking about. When few control the capital and the means of production it concentrates power. That is the definition of capitalism.

EddieLomax's picture

Capitalism has nothing to do with a few controlling the capital and means of production, it is about investing resources to live off the profits.

In capitalism everyone gets to decide the price of things, because everyone has money, you don't like that phone - buy a different one instead.  With true socialism it is the man in government who chooses the price of things, which products sell and which ones fail, pure socialism is communism, and like all forms of authoritarianism it fails utterly.

nmewn's picture

Well stated.

I would just add, Marxism (whether one prefers to define it as socialism or communism) seeks to make the majority equally miserable. 

So its obvious when the buzzword of "democracy" is used relating to it that its a farce, a shell game, a bait & switch promulgated to get the masses swaying in a chosen direction.

I mean, who doesn't want Faaarrreee! shit stolen "by law" from someone else? Its an easy thing for any "leader" to do.

downwiththebanks's picture

Capitalism has raped, pillaged, enslaved and genocided the world from the start, leaving the planet a polluted, shit-stained landfill to the service of financiers.  

Lots of pride in that legacy for an IMF buttlicker.

Escrava Isaura's picture

The biggest failure of capitalism is not that capitalism in its core is to maximize personal gains at the expenses of others. And, if you try to run a family under these values that family will self-destruct.

The worst part in capitalism is not that its lies dumb down and distracted the population.

The worst is not that capitalism lacks consideration for others. That’s chiefly concern with one's own personal profit or pleasure. 

The worst in capitalism is not that it became a religion.

The worst part of capitalism is not even that it’s failing.

The worst part of capitalism is when its blows up, and it will, matter of time, it will leave society totally unprepared. It will leave society deprived of the ability to cope, to understand, to make sense, because society didn’t develop the necessary common interest and mutual supports. In fact, capitalism blinded society form cooperation, cohesion, and fraternity.

These critical social orders were not allowed to take hold, develop, and even less to flourish under the capitalistic social order. And these are critical structures, if humanity intends to survive.

However, these structures for human survival would be able to take hold under socialism. And probably flourish.

But now it’s too late.

 

“Capitalism is the theory that the worst people, acting from their worst motives, will somehow produce the most good”. – John Maynard Keynes

 

 

Mtnrunnr's picture

BEfore you open you're uneducated and biased fucking mouth read ANY text book. I haven't checked but I'm pretty sure even wikipedia describes captalism well. So fuck off, read first and come back and we'll have a discussion because is room for one.

1 Alabama's picture

Socialism works just fine when the laws of nature are applied, add defective human law, and it all goes to hell in a hand basket.

sonoftx's picture

Laws of nature?

When I look at nature the strong survive and thrive and the weak die or are eaten. The sick and old are left to fend for themselves. The ones who are lucky and are the closest to water and grow the fastest towards the sun choke all the others out and they die. The physically lame or the mentally retarded usually die not long after birth unless there are humans around. Males dominate the females and impregnate them at their whim while the females when in estrous prance around and put it in the males face every chance they get.

There is no sympathy in nature. It just is. The Laws of Nature have absolutely NO socialism in them. Nature is a cruel teacher and many times there are no second chances. If it was not for human law along with morality it would be a struggle and a fight every moment of our existence.

dchang0's picture

Who said democracy is such a good thing that we would prefer it to capitalism?

Democracy = tyrrany of the majority enforced with gov't guns.

I'd rather live in a purely capitalist society; at least we'd have the Pareto distribution working in our favor (see Dr. Jordan Peterson explain "hierarchy of competence" and the Pareto distribution).

Put another way, the majority in any group is mostly useless/incompetent.

I'm not seeking a utopian ideal--no group of humans will ever be free of tyrrany. I'd just rather choose the least destructive forms of tyrrany.

techpriest's picture

Your post perfectly explains why my in-laws, after living in socialism for decades, choose religion and capitalism instead.

Dave Thomas's picture

Y'all don't get it, DEBT MONEY perverts any system it touches no matter how well thought out and ethical.

 

nmewn's picture

The Federal Reserve construct is a crony-socialism system. 

It socializes the losses and privatizes the gains, crony. It was passed in the dead of night on Christmas Eve (as I remember, to add insult to injury), under Woodrow Wilson (a prog of the highest order) who's other "grand ideas" were creating the UN, an income tax, getting us invloved in WWI, college education "for some" but not the worker bee's and was a major factor in the Versaille Agreement.

Woodrow Wilson, easily the most destructive President to this Republic until Barack Obama.

Ajax-1's picture

It's a little known fact that the Pilgrim's that arrived at Plymouth Rock, MA initially employed a socialistic model pursuant to their settlement in North America. As a result, it was a massive failure that led to massive hardship and starvation. It wasn't until they abandoned Socialism and embraced Capitalism that their community began to thrive. It was a basic experiment into the human condition, I.E. Effort vs Reward. Anyone whom believes otherwise is a social science denier.

TBT or not TBT's picture

It's also great for developed societies that wish to sink back to into such misery.  I'm thinking of an example.  Starts with a V.   Has enormous petroleum deposits. 

brushhog's picture

Somebody needs a political science course. Socialism has absolutely NOTHING to do with "locals running the government". Nothing. Nor are there "no elections". Socialism is simply government control over the means of production.

sixsigma cygnusatratus's picture

"Socialism is a great fit for rural/agrarian societies."

Socialism will turn every modern society into a starving rural agrarian society.  Fixed it for you.

GunnyG's picture

"Socialism is a great fit for rural/agrarian societies."

Nope, it failed in the Virginia Colony under Gov Breadford. No one wanted to work what wasn't their's. Gee, go figure. 

Secret Weapon's picture

"Socialism is a great fit for rural/agrarian societies."

Like Cambodia.  Look at what Pol Pot was able to accomplish.

https://www.google.com/search?q=pol+pot+atrocities&client=firefox-b-1&so...

downwiththebanks's picture

Seem to remember Tricky Dick overthrowing a leader and bombing the country first, yes?

After turning it into the opium capital of earth?

blargg's picture

Citizens demand heaven and put up with hell.

ludwigvmises's picture

That's why we should be happy to have capitalism in the US. Our system is based on merit. Smart, hard-working people with high IQs earn the most money. More mediocre people, who work less hard earn low than average incomes. The top 1% of our society have an average IQ of 118. The middle 20% have an IQ of 99. I see many people whining about America and the American Dream. But the proof is indusputable: People earn according to their ability and work ethic! Best system I know.

Mazzy's picture

Except that we really DON'T have Capitalism. 

dchang0's picture

Correct.

The socialist and capitalist fanbois are all wrong.

We have always had and will always have oligarchy, disguised under another name such as but not limited to: monarchy, empire, democracy, republic, socialism, communism, capitalism...

https://en.wikipedia.org/wiki/Iron_law_of_oligarchy

dirty fingernails's picture

Wow, now thats some weapons grade Kool Aid, Sir!

I nearly pissed myself laughing when you said smart hard working people earn the most.

downwiththebanks's picture

Hey all you bloodsuckers:   here's a lesson.

F.U.C.K.  O.F.F.  When Uncle Sam puts a government under sanctions as a means to ratfuck them into submission, say bye bye to your money.  

Welcome to the world of the PetroYuan!

 

shovelhead's picture

Sanctions?

Like not letting Venezuelan drug dealers into the US?

Cool excuse bro. Commies always got em.

Secret Weapon's picture

How come Iran is not defaulting?  The US has sanctioned the shit out of them.

downwiththebanks's picture

They decided to kill US backed ISIS mercenaries instead, I guess.

Ntoxic8ingWave's picture

The government perverts the free market, then the crazy leftists use that fact to argue that we need socialism to fix it, lol...

TBT or not TBT's picture

See also "Mortgage Loan Crisis" and 'Student Loan Crisis".  

HuskerGirl's picture

Yep.  The left & the political class always think more government is the solution to failed government.

dchang0's picture

In the end, the statists don't trust the people to make their own decisions. It is arrogance that drives them, not compassion.

Umh's picture

It is greed that drives them. The party platforms are for the voters not the politicians.

philipat's picture

Couldn't happen in America. Oh, wait.......

johnnycanuck's picture

Your government is owned lock stock and barrel by Corporations and foreigners with an agenda.  It does their bidding so don't blame anyone other than those responsible.

bigfire's picture

Socialism faithfully executed.

AldousHuxley's picture

socialism works when government directly gives you low quality products at low cost just to cover the basics while free market is allowed to take care of higher quality goods and services.

 

in USA it is even worse...government subsizides "free market" risk so investors class basically get a free ride, while people pay inflated prices for everythign from education to healthcare to housing.

 

Are you really better off than Chinese or Russians or Europeans?

 

dirty fingernails's picture

well said. why can't more posters see past the dog whistle word "socialism"?

shovelhead's picture

Yum, more socialist sawdust bread please.

With a nice fresh dollop of Mad Cow gummint butter.

dirty fingernails's picture

Mad cow came from the bastion of bootstrapping capitalism where sick and dead cows were ground up and fed back to cows as protien feed supplements.

You do realize the US *legally* allows additives and other ingredients (that aren't even considered ingredients and tgerefor aren't labeled) that the rest of the western world banned, right? US food is of extremely poor quality overall.

Lucky Leprachaun's picture

It's socialism definitely but it's also the fact that Venezuela is 95% mestizo or black. Fifty years ago France was more 'socialist' than Venezuela is now yet it had one of the worlds' highest standards of living.

dirty fingernails's picture

Having the US corps constantly trying to loot and destroy your country could never be a reason. Gotta be melanin content. JFC you are stupid

HenryHall's picture

Quite.

Venezuela's problems are not the result of misguided government.

Venezuela's problems are caused intentionally, not accidentally or uncaringly.