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Venezuela seems to be a country that is running into hard times, financially and politically. And if history repeats itself, it will soon be a country where what little is left of personal freedom will also disappear.
Over the last month, President Hugo Chavez has begun to shutter his opposition, has increased the pace of nationalization of private businesses, and has restricted the amount of money that his citizens can move out of the country. More recently he has canceled a highly publicized trip abroad and cut short a four day talk show marathon. These are all signs of a regime that is quite uptight about its situation.
According to a recent Wall Street Journal editorial, the Chavez "is beginning to buckle from a shortage of the greenbacks he needs to pay for imports and to keep the national oil monopoly running." The Journal added: "A stronger dollar and reduced demand for crude has meant fewer dollars flowing into Venezuela. Add in what industry analysts say is a significant drop in output due to the politicization of the oil monopoly known as PdVSA, and it's easy to see why central bank reserves have been shrinking."
The Journal suggests that Chavez' government may be "saved" if the U.S. continues to print money, as it would increase the supply of dollars that Chavez has available to continue to fund his government's social programs, as well as his other projects, which include alleged support of rogue groups such as Colombia's increasingly weakened paramilitary guerillas FARC.
Pdvsa's problems are not new. Since the failed coup against Chavez a few years ago, anyone who knew about the oil business has been removed or left the company while the getting was good, leaving political appointees to run the national oil company. The result has been steadily decreasing output and a very weak company to replace what was once considered a world giant. That's why Chavez recently nationalized another 70 foreign oil service companies recently. According to The Journal: 'The Caracas-based VenEconomía newsletter noted that he made a big deal about the seizures in a photo op on the shores of Lake Maracaibo. But it said a larger concern ought to be the simultaneous takeover of five gas, steam or water injection plants, which "sustain roughly half of today's [crude] output." The report notes that "many analysts warn that PdVSA does not have the knowledge or the skills to run those plants efficiently" and if that's true, the company could lose significant capacity. Injection revives spent wells."
Chavez also canceled a planned trip to El Salvador where he was going to bask in the glory of another leftist regime coming to power in South America. According to Stratfor.com: "Chavez’s decision to not attend Funes’ inauguration is particularly curious, as the new Salvadoran leader is something of a regional celebrity. As the first leftist president in El Salvador since the end of the civil war in 1992, Funes represents an opportunity for Chavez to increase his influence in Central America by cultivating a close relationship with the new leader."
Aside from issues such as illness or other personal problems, there are plenty of signs that Venezuela is in trouble. As the Journal points out: "Mr. Chávez is short of hard currency. And while the president boasted last week that Venezuela has plenty of money to pay for all its takings, that's doubtful. Some whose property was expropriated last year, such as three foreign-owned cement makers and the Venezuelan owners of the steel giant Sidor, have not been compensated. A Spanish-owned bank, also taken last year, is still awaiting payment."
This statement from the Journal crystallizes the issue best: "The fundamental problem is that Venezuela imports a large portion of what it consumes. Importers are supposed to get the needed dollars at the official rate from the government's foreign-currency administrator, known as Cadivi. But in April, Cadivi openly began advising importers to go to the black market to get dollars. Cadivi's "suggestion" is another indication that the government is short on foreign exchange. It seems to have improvised an extra-legal alternative to an embarrassing official devaluation."
Conclusion
The news from Venezuela is sobering, as it seems quite plausible to consider the fact that the country is running out of currency with which it can carry out international trade.
This is particularly in stark contrast to Chile, where the government built a slush fund during the heyday of the copper bubble, and is now using that money to stimulate its economy.
As long as the price of oil continued to rise, Chavez was spending lavishly and expanding his influence abroad. Now, with prices still over 50% below their peak, it seems that his spendthrift ways have caught up with him.
And while some are using this as a sign that his days may be numbered, history is clear on the fact that leftist dictators, elected or otherwise, rarely give up their governments without at least making life miserable for the public under military rule for some time.
In other words, harder times are likely ahead for Venezuelans as the economic realities of an oil based economy without plan B continue to manifest themselves.
Still, as Stratfor puts it: "With so much political turmoil, Chavez very likely could be vulnerable to coup attempts. Though there is little evidence to suggest this with any certainty, the cancellation of an important state visit could indicate that Chavez does not feel secure in leaving his government to its own devices."
Indeed, life in Caracas is about to get much more interesting.
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