Protests a chilling reminder Venezuela running out of options


Wednesday, June 14, 2017

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“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.” — Sir Winston Churchill.

Venezuelans are starving. That ' s because there is no food on the shelves and no money to buy any more. Money is owing to creditors and the central bank reserves can only pay about 64 per cent of the bills. Venezuelans are dying because most medications are no longer available. And if anyone is of the impression that this problem will be solved any time soon, may I add that 3,000 bolivars are now required to buy US$1 if it can be found on the black market. And inflation is expected to be running at 1,500 per cent soon. Oh, that ' s the highest anywhere in the world!

Years ago, I saw Venezuela as one of the most blessed countries. It is endowed with more oil deposits than any other country in the world and the quality of the crude is very good, requiring less refining operations than some other countries.

Venezuela has eight times the reserves to be found in Nigeria, which is beset with myriad problems. Bureaucracy, oil theft, kidnapping and terrorism are just a few. Yet Nigeria produces more oil than Venezuela.

Venezuela is estimated to have about US$14.3 trillion in natural resources. Years ago I likened the country to a first son born to wealth and privilege. The assumption is that he will get a jump-start in life and be insulated from the stresses that bedevil the rest of us. Could this abundance be a resource curse? If there is a curse, I would cite the countries that providence seemed to have forgotten, like Japan, South Korea and, worst of all, Singapore.

Japan is a crowded country that is mostly volcanic rock. There are no natural resources to speak of and the soil is very poor. As if that wasn't enough, in August 1945 the US dropped bombs on Hiroshima and Nagasaki. Hundreds of thousands died. Half of them on the first day. Buildings (mostly wooden) were destroyed and the environment suffered greatly. Today, Japan is one of the great industrial miracles. Apart from being the world's largest auto manufacturer, it produces consumer electronics, computers, petrochemicals, pharmaceuticals aerospace equipment and is a leading shipbuilder.

South Korea — not so long ago — was described by the World Bank as being of “African Standard”. That's code for “barefoot and broke” when coloured people are likely to hear what you are saying. Unfortunately for them, the mineral resources on the Korean peninsula are all in North Korea where the leader is busy trying to find ways to destroy everybody else. But South Korea is now one of the world's leading industrial powerhouses producing semi-conductors, wireless telecommunications, automobiles and they build ships. They export US$552 billion of goods, annually, but that's not all. They are engaged in a massive expansion programme!

Venezuela is 1,309 times the size of Singapore. That's about the size of St James. When natural resources were being handed out, Singapore turned up when nothing was left. If water is needed, they have to buy it from neighbouring Malaysia. Today Singapore is one of the world's most prosperous and advanced economies. That tiny country exported goods totalling US$415 billion last year.

So what explains this strange state of affairs? Resource-abundant countries can't seem to benefit from their natural endowments and those with nothing seem to be the ones that are prospering. It's not just Venezuela. Russia is almost twice the size of the US. Its natural resources are estimated at US$75 trillion compared to US$45 trillion for the US. But the US has a GDP per capita income of US$59,000 compared to Russia's US$10,885. What is wrong?

Well, for the better part of the last century, Russia flirted with a more extreme version of socialism. When that crashed, Russia took a few years to recover and is now being run by a thug who is answerable to no one. His few trusted errand boys become instant billionaires and we have seen where some of those who oppose him drop dead. He is under no pressure to perform.

Singapore exported US$415 billion last year and Venezuela can't find US$5 billion to pay its debts. Perhaps, when they realised that they were poor orphans these countries had no choice but to look to themselves. So they worked with what they had — themselves. Today, it is easier to find a needle in a haystack than to find one illiterate person in these countries. Not only are they functionally literate, they are highly trained .

No Singaporean is available for janitorial work. That has to be imported too. The spectacular achievements listed result from those countries importing raw material and turning them into something that the world will buy. Wherever in the world you go, these countries — Singapore in particular — are lauded for good governance and strategic economic policies.

Venezuela is in recession. That is expected to continue until 2019. The country has the world's largest oil reserves. Oil provides 95 per cent of its revenue. So they decide they have it made and can relax. Sick and hungry, the people are getting restive. So President Nicolas Maduro decides the appropriate response is to become repressive and brutal. While he is busy rewriting the constitution to justify delaying elections, there are claims the police are robbing demonstrators.

I suspect President Maduro will soon be sent on a long vacation. Permit me to suggest a few ideas that he and others of his ilk may want to contemplate. First, when you are blessed with a resource-abundant country, try to benefit from the comparative advantage by developing the sector and using it as a leverage to develop other sectors. Look around you, President Maduro. Where are the linkages to the rest of the economy, Sir? How will you start that when scientific research in the country fell by 37 per cent in 2011 alone?

The protests are a chilling reminder that Venezuela is running out of money and options. And that is usually a strong signal that the country is also running out of time.




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