How Bad Is Venezuela's Economic Chaos?

[Bacchus4.0]

http://www.forbes.com/sites/nathanielparishflannery/2015/02/18/how-venezuelas-economic-crisis-hurts-u-s-companies/

Venezuela’s economy is slowly collapsing, crushed by the pressure of a falling oil prices and the accumulated weight of decades of mismanagement. Venezuela’s currency, the bolivar, is overvalued and artificially propped up by an arcane system of currency controls. The bolivar, like Venezuela’s economy, is trapped in a downward spiral. Within Venezuela the effects of the economic chaos are seen at the supermarket, where empty shelves are a constant reminder of the economic dysfunction that has come to define South America’s fifth largest economy. The economic distress is also felt on the balance sheets of dozens of major U.S. companies who hold sizable assets in Venezuela.

A group of around 40 companies, including General Motors and Merck & Co Inc, together hold assets worth US$11 billion in Venezuela. The problems for these companies stem from the fact that the official dollar exchange rate of 6.3 is fanciful. The unofficial black market rate is close to 190, meaning any time Venezuela devalues its currency, assets currently accounted for at the 6.3 bolivar exchange rate see their value plunge. It’s a phenomenon that has already impacted the balance sheets of major companies.

In late 2014 Scotiabank announced a C$129 million writedown on its stake in Banco del Caribe in Venezuela. Ford started 2015 by writing off its entire $800 million investment in Venezuela. PepsiCo followed suit by writing off a $105 million charge after adjusting the value of assets related to its Venezuelan operations. Spanish telecoms giant Telefonica has written off a whopping $3.23 billion charge and Clorox has taken the decision to simply shutter its operations in Venezuela.

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Venezuela’s president, Nicolas Maduro, faces no easy policy solutions. Although he has acknowledged that in 2014 his country faced “economic contraction of 2.8 percent and a very high inflation, above 64 percent” his policy responses have focused on blaming store owners and companies for exacerbating the shortages.

[TBF]

1. Revenue from petroleum exports accounts for more than 50% of the country's GDP

and roughly 95% of total exports.

So, I can't imagine they are doing very well with the current oil prices.

[Bacchus4.0]

2. nope, not well at all. Government mismanagement. n/t

[truebluegreen]

3. It's government mismanagement that caused the drop in oil prices? nt

[Bacchus4.0]

4. No, poor government planning by not encouraging diversification of the economic sector

not puting away a rainy day fund, expropriating productive businesses and making them unproductive, artificial exchange rate, and so on. On the other hand, Maduro does blame the US for the drop in oil prices.

[Marksman_91]

5. It was putting all their eggs in one basket that got them in trouble, and the basket (oil prices) is breaking

They had an extremely huge oil bonanza for over a decade, and didn't do the smart thing with, which should've been to improve infrastructure and develop other areas of industry, diversifying their economy and becoming less dependent on a finite source of revenue which price can drop from year to year, as it's happening now. Not to mention the fact that they expropriate any privately owned productive business and then run it to the ground. This isn't how you create prosperity in a nation, even a socialist one.

[COLGATE4]

6. They should change the national anthem to

"Send in the Clowns".

[hack89]

7. Their oil production has been steadily declining due to government mismanagement

it is a double whammy.

[bemildred]

8. Just about bad enough to justify overthrowing the elected government would be my guess. nt

[Marksman_91]

9. When your popularity is under 30% and decreasing, you can't expect people to behave

Maduro and co. dug their own graves, and Diosdado is just bidding his time now until he sees himself and the military "forced" to take over the mess that Maduro created. Only thing is, this puts them between a rock and a hard place: on the one hand, they can't admit that Maduro dun goof'd up because he was Chávez's hand picked successor, and is supposed to be the one to carry out his legacy. On the other hand, Cabello and the military think Maduro is an half-brained asshat, and can't stand him being the president and screwing things up more and more. And then there's the whole situation with one of Cabello's personal guards accusing him of being a drug lord. At this point, Godgiven Hair, and pretty much any other high-ranking politician that doesn't have diplomatic immunity, won't dare leave the country, some under the fear they'll be arrested or extradited to the US, and some probably because they've been outright prohibited to leave the country by the Capo Cabello himself, since they don't want to risk ANYONE else talking under asylum, like what Leamsy Salazar did.

[bemildred]

10. Kissinger agrees. nt