How did Maduro's govt mess up their economy? It was my impression that the US placing sanctions on Venezuela was the tipping point.
This is satire?
Total dysfunction, cronyism, corruption, dysfunction, (a lot of government debt is held by members of government!) and of course arbitrary government intervention in the economy like forcing retailers to have certain prices, nationalizing private businesses and factories willy nilly and ploughing them into the ground, fixing exchange rates etc. etc. etc..
I could go on.
Basically 'everything is wrong' with how they managed the economy.
Mass cash inflows from Oil sales can paper over a lot of problems and pay for some infrastructure, healthcare and education for the plebes (which is good), but ironically it can make the rest of the economy very dysfunctional and fragile ... but his 'red revolution' did in realtime what all the red revolutions do. How many times does this story need to repeat itself?
Chile is a better example.
Intervention in the economy was also a move employed by Chavez - who was, and still is, well loved by the country. Price control was implement so that the poor would not starve - maybe this was a good idea poorly implemented. Fast forward several years and with foreign goods becoming cheaper than what they could make in their own country = devalued Bolivar + more inflation.
Anyways, the point I was making was that it was already set in motion that their economy would crash before Maduro took power. Hence, my statement "How did Maduro's govt mess up their economy?"
Chavez set into motion that which Maduro continued and is the primary problem creator.
Chavez is only beloved by some because he had massive Oil revenues to bribe the plebes with, and he left others holding the bag of the destruction he created.
'Price controls' are a very temporary and ultimately destructive way to do anything and certainly will only guarantee more economic destruction thereby making things much, much worse for everyone especially the poor.
Maduro is responsible because he resided over the continuance and embellishment of stupidity. He could have ushered in some responsible reforms, but he did the opposite.
Some would call this well-intentioned socialism, others clientist bribery. But it doesn't really matter. What matters is that these programmes were affordable only when the price of oil was sky-high. When the price of oil collapsed a few years ago, they became unaffordable.
At this point, the government needed to make substantial cuts to the size of the state and its welfare programmes to stabilise its finances. However, such cuts are just not really possible for this kind of government: The entire basis of its power is a huge web of political patronage and self-enrichment, sitting on top of a mass of impoverished supporters. Money is the only thing that makes the system work.
Thus, the government attempted to maintain its spending through borrowing and enlargement of the money supply. Their hope was that, eventually, oil prices would rebound enough to restore the lost revenue and stabilise the economy. As they waited, their domestic and foreign opponents saw an opportunity to make the situation worse for them through measures like sanctions. However, the debt and printing of money would have lead to financial crisis sooner or later.
If they'd stuck with that things could have gone ok. There was way more disfunction and crackpot economics.
Ps. I wish I was able to write as well as yourself.
"As they waited, their domestic and foreign opponents saw an opportunity to make the situation worse for them through measures like sanctions. "
America is not an enemy of Venezuela and does not want to hurt them.
Canada is also working with the US on sanctions and here is the motivation from Gov. Canada website [1]:
"After democratic elections held in December 2015 saw a coalition of opposition parties win a majority in the National Assembly, the Venezuelan government proceeded to systematically strip the powers of the National Assembly. In January 2016, President Nicolas Maduro declared a state of emergency and has since been ruling by decree."
Tip of the iceberg.
[1] http://www.international.gc.ca/sanctions/countries-pays/vene...
1) By relying almost exclusively on oil
2) By implementing price controls on staple goods to help the poor: this effectively drove whole industries out of business
3) By trying to control of the foreign exchange, preventing people from freely exchanging their money with dollars
In other words, by trying to implement a socialist government program.
By continuing Chavez' policies.
Given the incentives in place, it is hard to imagine that it could turn out anything but corrupt and incompetent. What reason do Venezuelan officials, aside from personal pride, have to execute their office faithfully and competently? What reason do they have to hire people who execute their offices faithfully (aside from to their boss) and competently?
Chavez took it because the oil execs were messing with the economy as a form of protest against taxes. A move that was highly controversial.
As for Norway, to avoid the Dutch disease they made several crucial decisions [2] early on, one of them being to encourage the development of a healthy, competitive private oil/gas sector while still retaining the majority of revenue and oil fields. They also funneled the profits into the now-famous sovereign wealth fund.
[1] https://foreignpolicy.com/2018/07/16/how-venezuela-struck-it...
[2] https://www.ft.com/content/99680a04-92a0-11de-b63b-00144feab...
Furthermore, Venezuela oil was seen as a necessity for some companies, while Norway oil was discovered at a time when there were decades of oil reserves on tap.