Venezuela may have achieved the socialist dream. It once had gold and oil in abundance, yet now, people are starving, and toilet paper is a luxury.
Venezuelans can no longer afford the most basic necessities. During the first quarter of 2018, consumer prices rose again, this time by 454 percent. Hyperinflation has made the bolivar essentially worthless. The country experienced 8,900 percent inflation in just 12 months.
While the bolivar has turned into mere paper, Venezuela continues to print the currency at breakneck speed. The money supply has risen 2,900 percent over the last year, while goods are becoming scarcer and scarcer. Welcome to hyperinflation 101.
Venezuela plans on solving the crisis by eliminating three zeros from the Bolivar while it retains its current value, which has plunged by over 99 percent since 2013. The elimination of zeros was necessitated by the near crash of the Caracas stock market computers, which were unable to handle the burgeoning volume of transactions.
How did once-prosperous Venezuela get to this point? It has the world largest oil reserves, but it is importing millions of dollars of oil on a daily basis. Oil is the only affordable commodity left in Venezuela, although few civilians own cars.
It is believed that Venezuela’s oil fields are operating at a mere 40 percent of capacity. Oil production declined by 100,000 barrels in a single day in February. As Venezuela continues to mismanage its own oil supplies and neglects its refining infrastructures, it continues to import oil at an unprecedented rate. If this continues, Venezuela’s need for oil could soon cause a global oil deficit.
Venezuela has access to 25 percent of the world’s heavy crude. This crude needs to be diluted for commercial use. For the past two years, Venezuela has imported up to 200,000 oil diluents a day, with the US being the major supplier. Everyone knows about Venezuela’s long food queues. These days, this oil-rich country is seeing cars queuing up for cheap gas at $0.01 (0.7p) per liter.
According to Francisco Monaldi, director of the Center for Energy and the Environment at IESA in Venezuela, a major political change is needed in Venezuela to reverse its current devastating economic crisis. Its people are being starved by the tenets of socialism. Many Venezuelans would agree. In desperate need of food and medical care, 77 percent of Venezuelans want to see changes, and a reelection of President Maduro is not looking good. The only faction currently on his side is the military, which is using blunt force to keep the people in line.
While most global economies are growing, even if only slightly, Venezuela’s economy is expected to tumble by 15 percent by the end of the year. Its GDP is expected to decline by 50 percent since 2013. Venezuela is hanging on by a thread, and the thread is fraying.
Venezuela has depended on oil for 90 percent of its exports. But corruption and lack of investors have left oil industry in a state of chaos and the economy in shambles. Many Venezuelans are looking for relief abroad as they flee the country in hopes of something better. The majority of households have a family member who has emigrated abroad. Many of these are young and eager workers whose only chance lies beyond Venezuela’s own borders.
Many global central banks have been repatriating their gold reserves in an effort to strengthen the value of gold against a weakening dollar. Turkey is the latest country to fall in line as it announces plans to recall its own gold reserves. Recalling gold is a well-known move which can precede a period of crisis. It was done by former Venezuelan President Hugo Chavez, who demanded the return of all gold to its own country. So, exactly what has been happening with all that gold that Chavez repatriated to its homeland?
Russ Dallen of Caracas Capital recently provided the answer. In 2011, under Chavez, Venezuela had gold reserves valued at $21,269 billion. In 2016, following a massive sale of gold to Switzerland to pay for maturing bonds, Venezuela’s gold reserves shrunk to $7.7 billion. Unfortunately, this gold has been used to back a number of loans, and these loans have come due. Venezuela is currently holding a mere $6.6 billion of gold, having lost an additional $1.1 billion without having paid the amount due on the bonds.
If Venezuela continues to sell its gold reserves, the world’s textbook socialist Eden will soon find itself without any gold at all. It has, in effect, eaten its way through $21 billion in gold in seven years as the people continue to starve.
With Turkey being the latest country to call home all its gold, it is recommended that Turkey’s President Erdogan keep a sharp eye on the crisis in Venezuela.
In a world that sometimes defies logic, President Maduro has clearly demonstrated that socialism will always result in logical consequences: poverty and destruction. It is a rare chance to see Marx’s cherished principles in action. And we wish we weren’t a witness to the growing catastrophe.