Hugo Chavez died a couple of years ago. My guess is that he had no idea of how quickly his regime would fall apart.
The situation in Venezuela is so bad that some see the collapse in terms of weeks and not months.
Venezuela saw a decline in the GDP of 10% in 2015 and 4% in 2014. How big is that? We had 0.7% growth in the US GDP in the last quarter of 2015 and everyone started talking recession or slowdown. So a 10% decline in GDP is huge!
It gets worse: 200% inflation and the fiscal deficit relative to GDP jumped to 20%.
Nevertheless, it will be worse in 2016. This is from Ricardo Haussman:
As bad as these numbers are, 2016 looks dramatically worse. Imports, which had already been compressed by 20 per cent in 2015 to $37bn, would have to fall by over 40 per cent, even if the country stopped servicing its debt.Why? If oil prices remain at January’s average levels, exports in 2016 will be less than $18bn, while servicing the debt will cost over $10bn. This leaves less than $8bn of current income to pay for imports, a fraction of the $37bn imported in 2015. Net reserves are less than $10bn and the country, trading as the riskiest in the world, has no access to financial markets.In the meantime, the government has not announced any plans to address the domestic imbalances or the balance of payments problem. It has no strategy to seek the financial assistance of the international community. It has not even increased petrol prices from their current level, where $1 buys over 10,000 litres.By contrast, the opposition, which now controls the National Assembly, is fighting to have its authority recognised by the other powers. It is in no position to lead an economic adjustment. Even the best and most stable government could not avoid a lousy performance in such circumstances. But in the middle of a political crisis, things are bound to get very messy indeed.The fallout for Venezuela’s neighbours and the global economy will be substantial. Colombia has already felt the impact of the decision taken in September by Nicolás Maduro, Chávez’s successor as president, to close the border to avoid smuggling.Exporters to Venezuela are owed tens of billions of dollars of unpaid bills.Under these conditions, a disorderly default, on a scale similar to the Argentine crisis, is almost inevitable. And it will not only be Venezuelans who get hurt.
A collapse of Venezuela would not be a direct national security threat to the U.S. It could pull the rug from under the Castro regime, unless Raul Castro can find a sugar daddy to bail out Cuba. It will also have an impact on regimes in Ecuador and Bolivia who are close to Venezuela.
Keep an eye on Venezuela because it could get really interesting down there!
P.S. You can listen to my show (Canto Talk) and follow me on Twitter.
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