The Maduro government, fully aware of its precarious position as heir to the internally beloved Chavez regime, has attempted to double down on the generous policies that swept Chavez into power more than a decade ago. Chavez’s largesse, however, was the beneficiary of largely well-managed and productive oil fields, which produced a constant and growing revenue stream to finance such programs.
The world has changed since Chavez and his Fifth Republic Movement began their economic reforms in 1999 – rising oil prices encouraged over production for a number of years in Venezuela, but growing social programs meant a larger portion of revenues were channeled away from reinvestment into the fields, extraction technology, or new discovery. As a result, the country’s oil production has declined from 3.2 million barrels per day in 2001 to 2.2 million barrels a day in 2010 – a stark reduction. The decline forced Chavez in his later years to borrow increasing amounts to finance social spending, including from oil-hungry China. Under Maduro, this debt has come due, and now the country must redirect more than half of its oil exports to China for free, as debt repayment – eliminating an even larger portion of revenue and reinvestment, and forcing more borrowing.
Maduro has thus far proven predictably unwilling to stake his government on reining in overspending, and instead has encouraged a policy of misdirection and deliberate mismanagement to distract the domestic population. Understandably, this tenuous despot, like so many before him confronted by economic malaise, has chosen to embrace inflation as a way of financing the very programs which keep him in power. The expansion of the monetary base, as seen by Maduro, happily has the multiple effects of reducing debts denominated in Venezuelan bolivars, offering a new source of cash for social spending, and creating scapegoats among the business community due to price increases so as to encourage the seizing of goods and potentially large-scale nationalizations, thereby injecting yet more funds into his government. It is doubtful that his citizens are quite so sanguine.
Fundamentally, then, the inflation problem is a debt problem – if Maduro had the credibility or backbone to cut domestic entitlement programs, or perhaps if some part of the international community was willing to overlook Venezuela’s churlish attitude towards the organizations or countries that have the capacity to step in and offer the funds to stabilize the country, then what now seems like an impending derailment could instead become a bumpy, and temporary, detour. With no such resolution in sight, it seems likely Maduro’s regime, and the wreckage of a country he will likely leave behind after he is deposed, will continue to hurtle into the abyss.