On the other hand, all the debt that was issued in bolivars is basically void since a loaf of bread is now worth more than several millions bolivars. All savings are lost, pensions are worth nearly nothing and anyone who trusted the Venezuelan government by buying bonds and/or financing their projects by lending bolivars is fucked.
This moves allow Venezuela to technically erase around 1/3 of it's debt, hoping that will allow them to not default on the part that is due in foreign currencies, but scarifying it's own population in the process. Fun times.
If you could produce so much oil, then you wouldn't have the debt in the first place.
So the debt actually went up by the Bolivar devaluation, because now Venezuelans must create 20 times the value they created before in order to repay the debt.
The issue comes from the fact that during the last weeks/month, oil production has significantly dwindled due to political turmoil. Instead of defaulting on the foreign debt, they sacrificed their own population.
They do not need to create 20x the value they created before. The USD price of a Kilogram of coffee did not change at all, so any amount of coffee they would be selling now will contribute the exact same amount towards foreign debt reduction than the same amount produced 3 month ago: they don't suddenly need to produce 20x more.
On the other hand, if they did sell a significant amount of coffee 3 month ago and saved the profits in bolivars for their old days, or to invest in modernising the farm, their savings just got divided by 20.
It's funny because 'stability and predictability' alone would yield them the kind of business climate and interest rates they would need to attract investment and they'd be much richer as a result.
Mexico, Brazil, Argentina and Colombia proves that your point is not right.
If they were like Japan, or Germany, or Sweden - they would get tons of investment.
Canada is the 'other country' that has vast Oil Sands and we get billions invested to extract it. The volatility is only in the market demand side, not the geopolitics side.
How so?
[1]: "Some statistics on this page are disputed and controversial. Different sources (OPEC, CIA World Factbook, oil companies) give different figures. Some of the differences reflect different types of oil included. Different estimates may or may not include oil shale, mined oil sands or natural gas liquids."
https://en.wikipedia.org/wiki/Oil_shale_reserves
https://en.wikipedia.org/wiki/Oil_shale_economics
Even with conventional oil, though, 11th place worldwide seems reasonable, particularly compared to neighboring countries (behind Nigeria and ahead of Kazakhstan, China, and Qatar). Don't forget that the U.S. still has very active oil production in Alaska, Southern California, Texas/Oklahoma, and the offshore Gulf of Mexico.
Also, renovation of the Venezuelan infrastructure was paid for but not accomplished (graft/corruption). So they're in a hole for efficient production?
Finally, food production: they divided up farms and gave small holdings to the workers, who unfortunately had not the education, equipment nor capital to run them. So food supplies tanked, resulting in foreign exchange being used principally to import food.
All this added up to, a total fail of the regime to pay for their socialist experiment? Never mind games with imaginary points (currency valuation). The country can't feed itself nor make its own food nor trade its resources for food. They're in a big hole.
> Venezuela produces extra-heavy crude oil in the Orincoco Oil Belt area and heavily relies on imports of lighter liquids (diluents) to blend with this crude oil to make it marketable. Financial difficulties recently have occasionally prevented the state-owned oil company, Petroleos de Venezuela SA (PdVSA), from importing the necessary volumes of diluent to sustain production and exports.
They just need to switch to a working version and they should be good.
/s
The socialism in Venezuela is also of the crazy-left type, not even remotely as in Denmark or Germany.
[1] https://www.merriam-webster.com/dictionary/social%20democrac...
If you use the real definition of socialism, you might as well say "the US should not adopt Nazism" as "the US should not adopt socialism" because both are equally likely to actually be adopted (i.e. not very likely at all). No mainstream politician in the US is suggesting that the state should take over ownership of most private businesses.
Not true. Especially not in Europe.
> hit that Merriam-Webster link in the parent
Unfortunately, Merriam-Webster has it wrong in this case. Social democracy is not a synonym for democratic socialism. The two are very different ideologies with very different goals. As stated in the Wikipedia article for social democracy (with accompanying references):
"Social democracy is a political, social and economic ideology that supports economic and social interventions to promote social justice within the framework of a liberal democratic polity and capitalist economy... Social democracy became associated with Keynesian economics, state interventionism and the welfare state, while abandoning the prior goal of replacing the capitalist system (factor markets, private property and wage labor) with a qualitatively different socialist economic system... By the post-World War II period, most social democrats in Europe had abandoned their ideological connection to Marxism and shifted their emphasis toward social policy reform in place of transition from capitalism to socialism." [emphasis added]
Contrast this with the article for democratic socialism:
"Democratic socialism is further distinguished from social democracy on the basis that democratic socialists are committed to systemic transformation of the economy from capitalism to socialism, whereas social democracy is supportive of reforms to capitalism... As socialists, democratic socialists believe that the systemic issues of capitalism can only be solved by replacing the capitalist system with a socialist system—i.e. by replacing private ownership with social ownership of the means of production."
In summary, social democracy grew out of a movement that advocated transitioning from capitalism to socialism, but ultimately rejected such a transition in favor of working within a capitalist economy. Democratic socialism, on the other hand, advocates for the abolition of capitalism and private property. It does not reflect the present policies of Denmark and Germany, given that neither intends to abolish private property and transition to a socialist economy.
Previously Canada has had and spun off: Nationalized petroleum company (PetroCanada), package delivery company (Purolator), freight rail network (CN), airline (Air Canada) and aircraft manufacturer (Canadair).
I feel the reason many people don't associate Canada with 'real' socialism is that I feel socialism in Canada is a pragmatic and not idealistic decision in many cases. It's a massive country and as a result it's not economical to provide many essential services. These services are pragmatically socialized, and once they become profitable to operate as businesses are spun off as was done with the aforementioned.
[1] https://en.wikipedia.org/wiki/Crown_corporations_of_Canada
[2] https://www.thestar.com/business/2018/08/09/ontario-power-ge...
Most industry in Venezuela is privately or publicly owned.
Venezuela also is not by definition a socialist country, it just has a socialist party whose goal is socialism. There still is a relatively strong opposition.
(Using the definition "a democratic welfare state that incorporates both capitalist and socialist practices")
Not at all, case in point: We are having a political discourse and people don't consider it interchangeable.
According to the Canada 2006 Census, 316,350 Canadians reported American as being their ethnicity, at least partially. There are also between 900,000 and 2 million Americans living in Canada, either as full-time or part-time residents. [1]
According to U.S. Census estimates the number of Canadian residents was around 640,000 in 2000. [2]
According to Stats Canada, the trend has reversed over time as the absolute number of Canadians living in the US peaked in 1930 at 1.3MM, which would be about 12% of the Canadian population at the time, down to a current 1.8% [3] On the other hand, Americans in Canada acount for 0.66%. At most it's a 3X discrepancy, not 10X, and it's largely due to the draw of the US economy. What would be more interesting to me, IMO, would be how many return home.
By all means, have at them windmills though, at least you've got a good view from on top that high horse ;)
[1] https://en.wikipedia.org/wiki/American_Canadians
[2] https://en.wikipedia.org/wiki/Canadian_Americans
[3] https://www150.statcan.gc.ca/n1/pub/11-008-x/2010002/article...
Two of our four major parties (the NDP and the Parti Québécois) officially adheres to a Democratic Socialist policy [1]. Sure they've not had a turn at governing though they've been the official opposition, and the NDP is currently in charge of the Alberta government. They're not some fringe party. Their platform overlaps heavily with the ruling Federal Liberals - and they're both considered "centre-left" parties.
Second, even if the NDP and PQ adhered to democratic socialism, that would not mean Canada is democratic socialist. The fact that the Conservative Party adheres to conservatism, for example, does not mean Canada is conservative.
Third, Canada is not democratic socialist because democratic socialism is incompatible with capitalism. Democratic socialists are committed to the systemic transformation of the economy from capitalism to socialism, including the elimination of private property. There is simply no realistic chance of Canada transitioning to a socialist economy and eliminating private property in the foreseeable future. This doesn't mean it couldn't happen eventually, just that it is not feasible under Canada's current political climate, government institutions, and legal framework.
PS: Did you mean to refer to Bloc Québécois (the federal party) rather than Parti Québécois (the provincial party)?
One thing I find interesting is that Venezuela might have the number 1 oil reserves, and that's repeated over and over. Their oil is garbage (extremely heavy) and requires the importation of dilutants paid for by foreign currency, as well as equipment and specialized engineers that are paid for by foreign currency as well. If the prices of oil are too low, it doesn't matter how much oil is under the land they're sitting on. It's going to stay there until kingdom come.
[0] https://tradingeconomics.com/venezuela/crude-oil-production
The 95% devaluation doesn't really change anything - unless you were specially connected, you couldn't change bolivars for USD at the official exchange rate. At most this devaluation just brings the official rate back in line with the black market rate, which is the real exchange rate because that's the only rate at which you can actually exchange currency.
Folks holding bolivars (and creditors, and pensioners) were already screwed. This just makes it official.
In most situations, this is true. In Venezuela, however, inflation was already running at 300x a year before this announcement. (source: https://www.nytimes.com/2018/08/16/world/americas/inflation-... ). So it seems like any functional business must already essentially be operating in foreign currency.
I.e., if a debt is VB1000 before devaluation, worth about USD$100, but each bolizar is devalued by 100, then after devaluation, that same debt is still VB1000 but is now only worth USD$1. The devalued debt is now much easier to pay off.
However, if the debt had been measured in USD, it would now be 100x more expensive to pay off in terms of bolivars.
Internal debts will be cut by a factor of 20, so if you owe a 5 million bolivar mortgage, suddenly that is much less money. Conversely if you have 5 million bolivars as life savings, they just became worthless.
This is satire?
Total dysfunction, cronyism, corruption, dysfunction, (a lot of government debt is held by members of government!) and of course arbitrary government intervention in the economy like forcing retailers to have certain prices, nationalizing private businesses and factories willy nilly and ploughing them into the ground, fixing exchange rates etc. etc. etc..
I could go on.
Basically 'everything is wrong' with how they managed the economy.
Mass cash inflows from Oil sales can paper over a lot of problems and pay for some infrastructure, healthcare and education for the plebes (which is good), but ironically it can make the rest of the economy very dysfunctional and fragile ... but his 'red revolution' did in realtime what all the red revolutions do. How many times does this story need to repeat itself?
Chile is a better example.
Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve - maybe this was a good idea poorly implemented. Fast forward several years and with foreign goods becoming cheaper than what they could make in their own country = devalued Bolivar + more inflation.
Anyways, the point I was making was that it was already set in motion that their economy would crash before Maduro took power. Hence, my statement "How did Maduro's govt mess up their economy?"
Chavez set into motion that which Maduro continued and is the primary problem creator.
Chavez is only beloved by some because he had massive Oil revenues to bribe the plebes with, and he left others holding the bag of the destruction he created.
'Price controls' are a very temporary and ultimately destructive way to do anything and certainly will only guarantee more economic destruction thereby making things much, much worse for everyone especially the poor.
Maduro is responsible because he resided over the continuance and embellishment of stupidity. He could have ushered in some responsible reforms, but he did the opposite.
Some would call this well-intentioned socialism, others clientist bribery. But it doesn't really matter. What matters is that these programmes were affordable only when the price of oil was sky-high. When the price of oil collapsed a few years ago, they became unaffordable.
At this point, the government needed to make substantial cuts to the size of the state and its welfare programmes to stabilise its finances. However, such cuts are just not really possible for this kind of government: The entire basis of its power is a huge web of political patronage and self-enrichment, sitting on top of a mass of impoverished supporters. Money is the only thing that makes the system work.
Thus, the government attempted to maintain its spending through borrowing and enlargement of the money supply. Their hope was that, eventually, oil prices would rebound enough to restore the lost revenue and stabilise the economy. As they waited, their domestic and foreign opponents saw an opportunity to make the situation worse for them through measures like sanctions. However, the debt and printing of money would have lead to financial crisis sooner or later.
If they'd stuck with that things could have gone ok. There was way more disfunction and crackpot economics.
"As they waited, their domestic and foreign opponents saw an opportunity to make the situation worse for them through measures like sanctions. "
America is not an enemy of Venezuela and does not want to hurt them.
Canada is also working with the US on sanctions and here is the motivation from Gov. Canada website [1]:
"After democratic elections held in December 2015 saw a coalition of opposition parties win a majority in the National Assembly, the Venezuelan government proceeded to systematically strip the powers of the National Assembly. In January 2016, President Nicolas Maduro declared a state of emergency and has since been ruling by decree."
Tip of the iceberg.
[1] http://www.international.gc.ca/sanctions/countries-pays/vene...
Ps. I wish I was able to write as well as yourself.
1) By relying almost exclusively on oil
2) By implementing price controls on staple goods to help the poor: this effectively drove whole industries out of business
3) By trying to control of the foreign exchange, preventing people from freely exchanging their money with dollars
In other words, by trying to implement a socialist government program.
By continuing Chavez' policies.
Furthermore, Venezuela oil was seen as a necessity for some companies, while Norway oil was discovered at a time when there were decades of oil reserves on tap.
Chavez took it because the oil execs were messing with the economy as a form of protest against taxes. A move that was highly controversial.
As for Norway, to avoid the Dutch disease they made several crucial decisions [2] early on, one of them being to encourage the development of a healthy, competitive private oil/gas sector while still retaining the majority of revenue and oil fields. They also funneled the profits into the now-famous sovereign wealth fund.
[1] https://foreignpolicy.com/2018/07/16/how-venezuela-struck-it...
[2] https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feab...
Given the incentives in place, it is hard to imagine that it could turn out anything but corrupt and incompetent. What reason do Venezuelan officials, aside from personal pride, have to execute their office faithfully and competently? What reason do they have to hire people who execute their offices faithfully (aside from to their boss) and competently?
At risk of sounding inflammatory, every time someone complains about inflation, the response is "don't worry, that means your wages go up by the same amount".
'Pegging' currencies is a problem, because the country loses monetary policy controls, but maybe they're smart enough to realize that's the problem in the first place ... it's smart to peg it to something petroleum based as the economy is effectively based on that. Perhaps it's a desperate attempt to restore faith in the currency, i.e. it's 'crypto' and can't be tampered with, and attached to something rational.
This might actually be the first hard case use for a good crypto: to basically provide 'integrity' wherein the underlying political system has none ... of course, the only way it can work is if the regime has enough self awareness to recognize this and accepts the limitations of the crypto, and the fact it's an admission that they are so incompetent that they screwed up the entire economy and currency.
Of course, any smaller nation may still very well simply opt to use USD as it's considerably more liquid and just makes more sense for so many reasons, political populism aside.