Sunday, April 3, 2016

Venezuela today looks like Zimbabwe 15 years ago

Following the Mugabe model
Spot the difference
Venezuela today looks like Zimbabwe 15 years ago
Apr 2nd 2016 | CARACAS | From the print edition

VISITING a supermarket in Venezuela is like entering Monty Python's
cheese-shop sketch. "Do you have any milk?" The shop assistant shakes
her head. Sugar? No. Coffee? No. Soap? No. Cornflour? No. Cooking oil?
No. Do you in fact have any of the products that the government deems so
essential that it fixes their prices at less than what it costs to make
them? No.

This is hard cheese for the masses queuing outside in the hope that a
truck carrying something, anything, will arrive. Yesenia, a middle-aged
lady from a village near Caracas, got up at midnight, rode a bus to the
capital, started queuing at 3am and is still there at 10am. "It's bad,
standing here in the sun. I've had no breakfast, and no water." Why does
she think there are such severe shortages? "Bad administration."

That is putting it mildly. The Venezuelan government spends like Father
Christmas after too much eggnog, subsidising everything from rural homes
to rice. It cannot pay its bills, especially since the oil price
collapsed, so it prints money.

Cash machines in Caracas spit out crisp new bills with consecutive
serial numbers. The last time your correspondent saw such a thing was in
Zimbabwe in the early 2000s. The IMF predicts that inflation will be
720% in Venezuela this year, a figure Zimbabwe hit in 2006. By 2008
Zimbabwe was racked by hyperinflation so crippling that beggars who were
offered billion-Zimbabwe-dollar bills would frown and reject them (see

Might Venezuela go the way of Zimbabwe? They are culturally very
different, but the political parallels are ominous. Both countries have
suffered under charismatic revolutionary leaders. Robert Mugabe has
ruled Zimbabwe since 1980. Hugo Chávez ran Venezuela from 1998 until his
death in 2013. His handpicked successor, Nicolás Maduro, continues his
policies, though with none of Chávez's—or Mr Mugabe's—political adroitness.

Mr Mugabe seized big commercial farms without compensation, wrecking
Zimbabwe's largest industry. Chávez expropriated businesses on a whim,
sometimes on live television. He sacked 20,000 workers from the state
oil firm, PDVSA, and replaced them with 100,000 often incompetent
loyalists, some of whom were set to work stitching revolutionary T-shirts.

Mr Mugabe lost a referendum in 2000 but rigged the subsequent election
to keep the (more popular) opposition out of power. The chavistas lost a
parliamentary election in December but have used their control of the
presidency and supreme court to neuter the (more popular) opposition.

Mr Mugabe recruited a ragtag militia of "war veterans" to intimidate his
opponents. Chávez recruited gangs from the slums, known as colectivos,
to terrorise his. On March 5th gangsters on motorbikes rode around the
(opposition-controlled) National Assembly and sprayed pro-government
slogans such as "Chávez vive" on its walls. Police stood and watched.

Yet the key similarity between the two regimes is not their thuggishness
but their economic ineptitude. Both believe that market forces can be
bossed around like soldiers on parade. In both cases, the results are
similar: shortages, inflation and tumbling living standards.

Mr Mugabe, who like the chavistas professes great concern for the poor,
fixed the prices of several staple goods in the early 2000s to make them
"affordable". They promptly vanished from the shelves. The subsidies
that are supposed to make price controls work have often been stolen in
both countries. Suppliers, rather than giving goods away at the official
price, prefer to sell them on the black market.

Retail riot police
Ana, a young hawker in Caracas, explains how it works. She holds a bag
of washing powder that is supposed to be sold for 32 bolívares. She
bought it for 400 and will sell it for 600. Her business is illegal, but
she conducts it openly in a crowded square. Nearby, hawkers from the
countryside haggle over illicit nappies. The bus ride to Caracas was 13
hours; the hawkers say they come every two weeks.

Outside a state-owned supermarket, a dozen national guardsmen equipped
with body armour, truncheons and tear-gas are stopping a pregnant woman
from coming in. It's not one of her designated days of the week for
shopping, they explain. (You get two.) Shoppers must show their identity
cards to enter the store and have their fingerprints scanned before
buying their ration of price-controlled goods.

Yet such measures are no match for the law of supply and demand. Suppose
you are driving a tanker of subsidised petrol. You can sell the cargo
legally in Venezuela for $100, or drive across the border to Colombia
and sell it for $20,000. The pitifully paid border police will be easy
to square.

Wily entrepreneurs find ways around price controls without violating the
letter of the law. When bread was price-controlled in Zimbabwe, bakers
added dried fruit and called it "raisin bread", which was not
price-controlled. Venezuelan firms have added garlic to rice, called it
"garlic rice" and sold it at unregulated prices.

Ridiculous laws breed bitter comedy. A Venezuelan company boss recalls a
time when he could not buy toilet paper. He rang up a friend who ran a
paper company. The friend said he couldn't sell him a single pack, but
he could sell him a small truckload, company to company. It cost less
than the single pack he had initially asked for.

Mr Mugabe has long blamed his country's economic woes on speculators,
traitors, imperialists and homosexuals. Mr Maduro, to his credit,
doesn't blame gay people. But he insists that local capitalists and
their American allies are waging an "economic war" on Venezuela. This is
absurd: in both economies the assaults have come from their own governments.

By the most overvalued official exchange rate, ten bolívares are worth
one American dollar. On the black market, the same dollar fetches 1,150
bolívares. Zimbabwe abandoned its worthless currency not long after
monthly inflation hit 80 billion per cent in November 2008. Zimbabweans
now use American dollars and other foreign currencies. Real incomes in
Zimbabwe fell by two-thirds between 1980, when Mr Mugabe took over, and
2008. They have partially recovered, thanks to dollarisation and the
scrapping of some of the old man's daftest policies.

For Venezuela, the lesson is plain. If it fails to pick a better model
than Mugabenomics, things will only get worse. The Venezuelan opposition
are keen to change course. Mr Maduro's cluelessness gives them a chance.
He says that he is tackling shortages by raising his own chickens—and so
should everyone else.

Source: Spot the difference | The Economist -

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