Like Argentina, Venezuela is blessed with a superabundance of natural resources. And like Argentina, it is cursed with intellectuals and politicians whose ideas about how the world works are deeply at odds with reality. As a result, despite its oil riches Venezuela is saddled with ruinous inflation and has been forced to devalue its currency. The New York Times:
The devaluation will help the government balance its books by giving it more bolívars for the dollars it earns selling oil on the world market. Venezuela’s economy is highly dependent on oil, with petroleum sales making up about 95 percent of total exports. The country is the fourth-largest foreign oil supplier to the United States.
But the devaluation will also make imported goods more expensive, which will probably make inflation worse. Inflation for the 12 months ended on Jan. 31 was 22.2 percent, one of the highest rates in Latin America.
Surging inflation could cause political problems for the government. But the exchange rate had reduced the dollars available to importers, leading to shortages of goods like sugar, chicken and toilet paper.
It’s easy to sympathize with the hunger of Venezuelans for a new direction for their country; the pre-Chavez elite did far too little to use oil wealth to build a progressive and open society. And the mix of thuggish populism, authoritarianism and crude socialism that Chavez and company imposed has further frayed Venezuela’s social fabric and undermined its economy.
Devaluing the currency obviously won’t stop the bleeding; the political leadership of Venezuela is firmly committed to making things worse. Yet despite Hugo Chavez’ best efforts, he has not yet reduced Venezuela to the level of Cuba. And when and if he and his allies pass from the scene, Venezuela’s oil wealth can help the country recover from its man-made disaster faster than poor Cuba can ever hope to do.