Determining just when Venezuela might run out of money is complicated by several factors, one of which is the poor quality of official economic data, which makes it difficult to gauge precisely how dire the country’s fortunes are. While many energy-producing emerging markets are struggling due to low oil prices, Venezuela’s unique political culture and fiscal policies leave the country with fewer options than other countries have in order to address a balance of payments crisis of this nature.
Venezuela’s relationship with the IMF and other international institutions has been so strained by the anti-free market policies of former president Hugo Chavez and his successor that getting assistance from multinational institutions is not an option. Any sort of international financial assistance would likely come with conditions that would require a massive revamping of an economy that has diverged sharply from international norms over the past 14 years. While a similar package of reforms imposed by international donors kept Greece from defaulting last year, Venezuela is not politically capable of doing what Greece did in accepting an international bailout, which was the introduction of painful cuts to government programs.
Venezuela is an idiosyncratic case. It is not the same as any other oil producer. Most other oil producers are suffering just as much, but they have flexible exchange rates and better managed economies. The fact that the foreign exchange in most cases is floating has helped those countries to alleviate the pressures of a low oil price. While the oil price has fallen, the government in Venezuela has kept spending just the same, so the country has a huge fiscal debt. This is a self-imposed crisis, and I cannot think of many countries in the world that have managed to destroy their economy in such a short period of time.
Javier Murcio – Standish, a BNY Mellon company