Commodities, Currencies, Emerging Markets, Frontier Markets

As Venezuela’s Economy Crumbles, Maduro Quietly Slashes Imports

Amid a severe currency shortage, of mostly U.S. dollars, Venezuela is facing a number of economic problems on its domestic front and is quietly cutting imports to cover its foreign debt obligations, The Wall Street Journal (WSJ) reported yesterday.

The move by Venezuela is an unorthodox measure taken by a country whom is battered by chronic shortages in basic staples needed by its citizens, collapsing industrial production, and the world’s highest inflation, the WSJ said.

With a very gloomy economic outlook for the nation, the administration of the much criticized president, Nicolas Maduro has ruled out other adjusted measures to counter the rising economic distortions, such as a devaluation of the nation’s currency (which has fallen to an all-time low versus the U.S. dollar) or reducing government spending.

Maduro’s administration, however, says it has a plan: “hike” domestic subsidized gas prices, which costs pennies for its citizens to fill up their tanks and costs the nation $12 billion a year.

Venezuela’s government, whom controls all the U.S. dollars greenbacks in the country through a very confusing and disorganized series of currency regulations, could also restrict imports by restricting the amount of U.S. dollars that it makes available to its private-sector firms whom supply the domestic market.

“It’s a strange adjustment for a strange economy,” Dimitris Pantoulas, a Caracas-based political consultant, told the WSJ.

The import cutback in Venezuela, almost mirrors the reduction that Greece saw when they dealt with their debt crisis during 2008-2010, Francisco Rodriguez, a Bank of America economist, who analyses the nation’s trade data, the WSJ said.

“What’s going on is very bad for Venezuelans,” Rodriguez said. “It means deteriorating living standards and that that’s even bad in the long term for anyone who’s going to lend to the country.”

Last week, Venezuela said it paid off $1.5 billion in maturing bonds. But analysts say that is still unlikely to settle investor nerves for future debt payments given the severe economic distortions. The World Bank and International Monetary Fund both estimate that the economy will shrink by nearly 3% this year, more than any other country in Latin America.

Restricting imports into Venezuela is a big deal, as the WSJ notes that the nation looks abroad for around 75% of what it consumes, which ranges from production parts to poultry to much needed medicines.

“With Maduro’s actions, it’s ordinary people who are paying the price,” Nicmer Evans, an acclaimed leftist political analyst and writer told the WSJ. “If we are in a crisis, where is the government going to cut? Is it the baby diapers, the detergent that we can’t find in stores right now?”

During president Maduro’s nearly daily addresses, the president blames shortages on an “economic war” that is waged by “capitalist enemies” and smugglers whom buy the nation’s subsidized fuel for pennies and then sell to neighboring Colombia for a sizeable profit, the WSJ said.

The bulk of the cutbacks in imports have fallen heavy on the nation’s private sector due their inability to acquire U.S. dollars via the tight fisted government controls, the WSJ reported.

Nearly one in three goods was missing from supermarket shelves in January, before the central bank stopped printing its “scarcity index.”

The WSJ notes that it’s not hard to see the impact from the cuts in imports felt on the nation’s citizens whom line up under the hot sun on a daily basis to buy hard-to-find shampoo, toilet paper, milk, and other items.

“When a country lacks daily staples and medicines and shelves are empty, you don’t even need statistics,” Moises Naim, an ex-Venezuelan trade minister whom is now a senior associate at the Carnegie Endowment for International Peace in Washington told the WSJ. “There’s already a ferocious adjustment taking place.”

Last Friday, Venezuela’s Foreign Minister Rafael Ramirez called on an emergency OPEC meeting, ahead of its planned November 27 meeting, to urgently discuss action that is needed to be taken to arrest the plunge in oil prices.

However, in recent days Kuwait joined its mid-east neighbor Saudi Arabia, whom both are two of OPEC’s largest members, stating that there would be no immediate cut to the production of oil amid tumbling oil prices.

Recently, there have been a growing number of urgent warnings from prominent economists and professors at the Harvard University, warnings that should be taken very seriously.  

Source: WSJ

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