"Venezuela is not Greece"--Mark Weisbrot in the UK Guardian

[Peace Patriot]

Venezuela is not Greece

Given the Venezuelan government's low public and foreign debt, the idea the country is facing an 'economic crisis' is plain wrong

Mark Weisbrot
guardian.co.uk, Thursday 6 May 2010 18.00 BST

With Venezuela's economy having contracted last year (as did the vast majority of economies in the Western Hemisphere), the economy suffering from electricity shortages, and the value of domestic currency having recently fallen sharply in the parallel market, stories of Venezuela's economic ruin are again making headlines.

The Washington Post, in a news article (LINK) that reads more like an editorial, reports that Venezuela is "gripped by an economic crisis," and that "years of state interventions in the economy are taking a brutal toll on private business."

There is one important fact that is almost never mentioned in news articles about Venezuela, because it does not fit in with the narrative of a country that has spent wildly throughout the boom years, and will soon, like Greece, face its day of reckoning. That is the government's debt level: currently about 20% of GDP. In other words, even as it was tripling real social spending per person, increasing access to healthcare and education, and loaning or giving billions of dollars to other Latin American countries, Venezuela was reducing its debt burden during the oil price run-up. Venezuela's public debt fell from 47.5% of GDP in 2003 to 13.8% in 2008. In 2009, as the economy shrank, public debt picked up to 19.9% of GDP. Even if we include the debt of the state oil company, PDVSA, Venezuela's public debt is 26% of GDP. The foreign part of this debt is less than half of the total.

Compare this to Greece, where public debt is 115% of GDP and currently projected to rise to 149% in 2013. (The European Union average is about 79%.)

Given the Venezuelan government's very low public and foreign debt, the idea the country is facing an "economic crisis" is simply wrong. With oil at about $80 a barrel, Venezuela is running a sizeable current account surplus, and has a healthy level of reserves. Furthermore, the government can borrow internationally as necessary – last month China agreed to loan Venezuela $20bn in an advance payment for future oil deliveries.

(MORE)

http://www.guardian.co.uk/commentisfree/cifamerica/2010/may/06/venezuela-greece-economic-crisis

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I've been saying this all along, amidst all the lying propaganda in the corpo-fascist press and here at DU about how bad off Venezuela is. The Chavez government faced the Bushwhack Financial 9/11 of September 2008 with LOW DEBT, GOOD CREDIT and HIGH CASH RESERVES--as well low unemployment, vast reductions in poverty and great advances in school enrollment and other social indicators. It also, during the boom years (2003 thru 2008) produced the most growth, in a dramatic growth situation, in the PRIVATE sector. These are the signs of a WELL-MANAGED economy and country. Even their devaluation of the bolivar--undertaken voluntarily, at a moment of their choosing--was a sign of good management.

What we're getting from the Wall Street Urinal and all the predatory capitalist sources is kneejerk hysteria about oil profits being used to benefit the poor and relentless badmouthing in the HOPE that the Chavez government will fail, in an effort to influence Venezuela's upcoming National Assembly elections and--also likely, in my opinion--as psyops preparation (a la the WMDs not in Iraq) for U.S. aggression or proxy aggression (via Colombia and local fascist coup plotters) against Venezuela's democracy.

One other important purpose of this "Big Lie" is to keep us--the American people--stupid and uninformed about the improvements in the lives of ordinary people that the Chavez government has achieved, to convince us of the lie that it is not possible to use resources to benefit everyone--that we must let the rich get richer and hope for a "trickle down" effect, and that we cannot have government "of, by and for the people" AND a decent life for all. Oil ripoffs, insurance ripoffs, bankster ripoffs, war profiteer ripoffs, tax cuts for the rich and their whole loot and plunder program is GOOD FOR YOU, is the "Big Lie" they are telling--and they can't stand having anyone prove otherwise, as the Chavez government is doing in Venezuela.

It is not a perfect government. But it is TRYING to be a GOOD government, with many successes on social justice and economic/financial management--and that is why it has been repeatedly elected, with big margins of the vote, in honest, transparent, internationally certified elections.

Can the U.S. say the same? That poverty has been REDUCED, that we have low debt and high cash reserves, that everyone has access to health care, that our educational system is improving, that the private sector has expanded, that our elections are transparent?

The U.S. corporate rulers' propaganda against the Chavez government is egregiously hypocritical, as well as being a pack of lies.

[Judi Lynn]

1. So glad to see this Weisbrot article. Mark Weisbrot does know his subject.

We've been missing almost all perspective from the predictable corporate assault on credibility.

Wonderful knowing people like Mark Weisbrot are always there, watching every move, and more than willing to share their observations.

Thanks, Peace Patriot. I'm bookkeeping your article.

[Judi Lynn]

2. Recommending.

:kick: :kick: :kick: :kick:

[protocol rv]

3. Another Reality Check ref Venezuela's Economy

Patriot, I'm sorry to rain on your tirade, but things aren't as rosy as you think. Let me explain why.

1. The Chavez government used a lot of the surplus cash they gained from the run up in oil prices to hand out money - they didn't create more or higher paying jobs, they just handed out cash and created what is termed a "client base", people who receive direct handouts, subsidized food, and other goodies.

2. The opportunity to set the economy on a sound footing was wasted by maintaining the Bolivar exchange rate controlled at a very high price. This essentially served to poison and destroy local producers - both in the agricultural as well as the industrial sectors. Chavez seems happy to see private industry destroyed, because he wants to implement a communist system, but the little he has done to develop government enterprises has been a failure. Every industry he has nationalized or confiscated has suffered, produces less, is less inefficient, is more corrupt, and thus generates less economic benefit for the nation.

3. Oil Prices during the Chavez tenure have about quadrupled. This means the country receives FOUR times the amount of cash now, than it did when he took over. This is a chart from Mongabay, the environmentalist website, to back this up:

http://www.mongabay.com/images/commodities/charts/crude_oil.html

4. So, in spite of having a much higher cash flow than in the past, the government continues to borrow both abroad and inside Venezuela. This thirst for borrowing during a period of high oil prices is noted by the market, which smells a rat - if Venezuela is borrowing so much now, what is Venezuela going to do to pay its debt in the future, if Chavez stays in power and the same economic policy is used? Result: The market is punishing Venezuelan bonds by demanding a very high interest rate.

5. Meanwhile, foreign reserves are being drawn down at a very high pace: $8 billion in the first four months of 2010. You can claim wsj is a corpo fascist media, but I just found the readers something in English. The figures are also posted by the Venezuelan Central Bank, in Spanish, if anybody wants to research it.

http://online.wsj.com/article/BT-CO-20100503-705051.html

6. Inflation is raging as a result of the sudden devaluation (the "voluntary" devaluation you made so much noise about a couple of months ago). This devaluation was needed, but it was delayed too long, and the shock has been brutal, prices are skyrocketing because Venezuela under Chavez has been becoming more and more dependent on imports - evidently an artificially high exchange rate was poison for local producers, and the government has also been destroying productive capacity via nationalization and arbitrary behavior, which scares investors away.

7. To make matters even worse, the government has continued the irrational policies of the past, such as keeping the gasoline and diesel prices cheaper than water. This means we burn a lot of fuel we could export.

8. And of course, there's the electricity crisis, which hasn't gone away. The Guri water level is still at a dangerously low level, and the power cuts continue. This has devastated industrial production in some sectors, such as aluminum and steel, which are heavy energy consumers.

9. Compoounding the problem, the Venezuelan government has stated its intent to turn the economy towards communism. Chavez has also been acting as if his power is limitless (ie threatens individuals with expropriation if they don't behave as he commands it). So there's a lot of fear, and this means people are leaving the country and taking whatever they can with them.

The net result? The economy is indeed crashing right now. GDP is probably going to be minus 5 % this year, the worst performance in the Western Hemisphere, and there's no sign it will recover next year either. This article by Mark W. just shows the panic in the air is starting to hit the government, and they're calling on their propaganda weapons to try to hold their sinking ship together as best they can. But the key is the foreign bond buyers, and they won't be taken in by a simplistic article in the Guardian. Sorry, but you need to see reality, and it sure looks grim.

[ChangoLoa]

4. SInce when did Venezuela become "GOOD CREDIT"??

You know that our debt is considered by the financial markets to be one of the 3 riskiest in the world.

What do you mean by "GOOD CREDIT"?

[protocol rv]

5. "Addicted"

Here's a discussion about Venezuela's "good credit"

source: http://www.businessweek.com/news/2010-04-08/venezuela-reserves-fall-to-one-year-low-on-transfers-update1-.html

‘Addicted’

The central bank sold $310 million of zero-coupon from Jan. 13 to March 4, allowing investors to pay with bolivars to allow them to transfer local currency into dollar-denominated assets.

Reserves have dropped 20 percent this year even as oil, which accounts for more than 90 percent of the country’s exports, jumped 8 percent.

The central bank is slated to turn over another $2 billion to the development fund by June to bring the first-half transfers to $7 billion. The bank has given the fund -- which was set up to finance government infrastructure projects -- more than $35 billion of reserves since 2005, according to estimates by RBS Securities Inc.

Barclays’s Grisanti said the central bank may have to make another transfer in the second half. A decline in reserves to below $26 billion could worry Venezuelan bondholders, he said. The 8.57 percentage-point premium that investors demand to own Venezuelan dollar bonds instead of U.S. Treasuries is the highest among emerging-market countries in JPMorgan Chase & Co.’s EMBI+ Index.

“The biggest fear we have is that the government demands another transfer of reserves larger than the $7 billion,” Grisanti said. “Governments become addicted to reserve transfers and the people pay for it with inflation.”

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My comment: The 8,6 % premium (the spread) paid over US bonds goes up and down as the market observes what's happening in Venezuela. As Chavez becomes more radical, and the market makers see his actions are contrary to sound economic management, the spread increases. Therefore the issue goes beyond whether Venezuela has $26 billion in reserves, or XX billion, or whether debt is X % of GDP or not. If a government shows it's unable to hold reserves, if the economy is going down, if they can't forestall a collapse in the currency, then prospective bond buyers don't care to buy - or they start demanding higher and higher interest rates. Venezuelan bonds are already classed as "junk grade", and they could go beyond junk to a point where they become "toxic". At that point the government loses its ability to maneuver, because it's using bond sales into the parallel market to prop the currency - and this seems to be failing.

If there's a panic, they'll have to choke the market, if they choke it, imports will go down - and people will panic even more, so they'll stop investing. It's going to be "hide the money in the mattress" time. I'm afraid real estate will also start collapsing as people panic to get out of the country.

And this is where Mr W. from the Guardian is missing a point, because he's a white guy from the UK, and doesn't see how the shelves are stocked in Venezuela: Almost everything is imported. It really doesn't matter if he can pull this or that figure - when a panic starts, it's a stampede, and it's mighty close to one now.

The government should be calming people down with a measured approach, instead they're acting like savages driving a 747. So this doens't look very good at all, because the end effect, a choking of the import flow, will lead to scarcity, they'll fall in the same trap the Cubans did - put in a food rationing system, and this will in turn lead to even more panic. I really don't know what they're thinking, if they want a full meltdown to instigate a revolt, so they can repress it, declare a state of emergency, and cancel the forthcoming elections?

Their actions are so irrational, maybe that's the rationale behind it, they just want the whole thing to collapse to instigate a people's revolt. So I guess we might as well get used to eating rice and bananas for 4 1/2 months, go without electricity, buy nothing, and sit at home because crime is going to go through the roof, then hope we can get these guys out of the National Assembly, and see if we can put some order in the economic house.

[protocol rv]

6. Recommending too

:thumbsup:

[protocol rv]

7. Recommending again

:-)