Venezuela's tragedy: Corruption and cronyism in plain sight

Venezuela's tragedy: Corruption and cronyism in plain sight

by Joshua Curzon
article from Thursday 23, August, 2018

RUNNING A COUNTRY in crisis is challenging for even the most capable politicians. When thinking of those that have successfully led a country out of crisis, you might think of a leader with the vision of Roosevelt and the personality of Churchill. What then of a country where politicians are not only incompetent, but extraordinarily self-interested?

Venezuela is such a country.

Ranked 169th in the world by Transparency International in its Corruption Perceptions Index – the seventh lowest score – Venezuela is one of the most corrupt places on the planet. Period. Elections are widely regarded as shams, political accountability is non-existent, and former President Hugo Chavez’s daughter is worth billions.

Venezuela’s ongoing economic crisis may be a direct result of falling oil prices, but growing corruption (it was ranked 69th in 2001) and political cronyism have exacerbated the situation. After a failed strike in 2003, Chavez fired 18,000 employees of Venezuela’s state oil company, PDVSA.  The skilled and experienced workers who left were replaced by Chavez’s political supporters, regardless of their qualifications. This started a catastrophic decline in oil production, as valuable technical knowledge was lost.

As the economy worsened over the years, and faced with declining oil production and falling oil prices, Venezuela’s political elite was faced with a tough decision. One option was to remodel the economy, diversifying away from oil and encouraging foreign investment to help stave off future crises. The other was to print money to allay its short-term cash flow issues.

President Nicholas Maduro chose the latter. Ignoring the well-known fact that printing money is like playing economic Russian roulette with only one empty chamber, Maduro ploughed on ahead. Maduro believed that printing money and hoping the price of oil would recover and replenish his foreign currency reserves before hyperinflation began.

Fast forward several years and the economically illiterate Maduro has driven inflation rates up so far that the IMF predicts that inflation will reach 1,000,000 per cent by the end of 2018. Farcically, Venezuela now owes money to the foreign firms that print its currency. Oil production may drop to 1 million barrels per day in 2018, down from almost 2.5 million as recently as 2016.

Catastrophe in Venezuela is political: it comes from the top, from the corrupt and incompetent politicians that are driving the country to ruin. Only when Venezuela’s leaders are held to account can the recovery efforts begin.

More information on The Venezuela Campaign can be found on its website.

This article was first published on the Adam Smith Institute blog.

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