Venezuela, That Sinking Feeling

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

Venezuela has been burdened by government corruption and incompetence for years. For an excellent primer, which documents these endemic problems in the pre-Chavez era, I recommend Moises Naim’s book, Paper Tigers & Minotaurs: The Politics of Venezuela’s Reforms. Washington, D.C.: The Carnegie Endowment for Peace, 1993.

Ever since Hugo Chavez injected his brand of socialism into Venezuela’s arteries in 1999, corruption and incompetence has been on steroids.

Two charts tell the tale of Venezuela’s woes. First, take a look at Venezuela’s oil production post-Chavez: it’s been sagging, and not because of dwindling reserves.

Second, while oil production has slumped, Venezuela’s implied annual inflation rate has soared, according to my calculations at the Cato Institute’s Troubled Currencies Project. At present, Venezuela’s annual inflation rate is 304 percent, the world’s highest.

Venezuela’s elevated inflation rates have been mirrored by a collapsing bolivar and plummeting foreign reserves. With the cupboard nearly bare, businesses can’t obtain greenbacks from the central bank, which they need for imports. In consequence, shops and factories are being shuttered with each passing day. On April 29th, Empresas Polar SA, the producer of 80 percent of Venezuela’s beer, shut down. This could be the straw that breaks the camel’s back. A country in misery, without booze, is a country on the brink of revolt.