Venezuela’s Spectacular Underperformance

[EX500rider]

If it were not such an affront to the freedom of expression, we would almost be amused by Venezuelan President Nicolás Maduro’s recent tantrum over a commentary by economists Ricardo Hausmann and Miguel Angel Santos. Venezuela has long lashed out at the International Monetary Fund for daring to suggest that its macroeconomic policies might not be working well. Now its president is lashing out at academics.

Maduro, of course, rules over a major oil-exporting economy that is so badly mismanaged that real (inflation-adjusted) per capita GDP today is 2% lower than it was in 1970, despite a ten-fold increase in oil prices. Hausmann and Santos had the temerity to ask whether, having defaulting on every conceivable kind of domestic debt, Venezuela should invite foreign investors to the party and default on its debt to them as well. Is it such an unreasonable question?

It is unclear whether Maduro, who called for Venezuela’s authorities to take unspecified “action” against Hausmann and Santos (both Venezuelan citizens), was more offended by the suggestion that his government should default on external debt, or by the authors’ list of all the other ways it has already defaulted. These include the government’s $3.5 billion unpaid bill for pharmaceutical imports, payment arrears of more than $2 billion for food, and nearly $4 billion owed to airline companies. Oil production has more than halved since 1997, in no small part because the state-owned oil company has repeatedly defaulted on suppliers and joint-venture partners.

Both the scope and magnitude of domestic default are enormous, with significant de facto “haircuts” (that is, expropriation) for creditors. During 2013-2014, yields on domestic government debt were around 17%, while inflation oscillated in the 55-75% range. Negative ex post real interest rates in the vicinity of 30-60% register on the high end of historical haircuts. The toll of this “taxation” is not confined to bondholders: pensioners, depositors, and anyone else with claims against the government – or who holds a bolívar – is affected.

Carmen Reinhart
Carmen Reinhart, a research associate at the National Bureau of Economic Research, is Professor of the International Financial System at Harvard University.

Kenneth Rogoff
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003.

read more at: http://www.project-syndicate.org/commentary/venezuela-economic-underperformance-by-carmen-reinhart-and-kenneth-rogoff-2014-10#CpVeQJqlWD3zQc0E.99

[Bacchus4.0]

1. If those economists were in Ven, they would most certainly be arrested

Ven no longer publishes key economic figures such as monthly inflation even though their law requires it.

[EX500rider]

2. This part was pretty sad for a oil producing country:

The relevant reality now is the long-term plight and dwindling standard of living of the average Venezuelan citizen. Over the past 45 years, as Venezuela’s real per capita GDP fell, US per capita GDP roughly doubled and Chile’s per capita GDP nearly tripled. And neutral observers project that 2014 will be even worse for Venezuela – not surprising, given the chaos of the country’s policy fundamentals

[Flatulo]

3. God-damned Yanquis.