The Permanent Crisis in Venezuela
1:45 PM, Feb 25, 2013 • By JAIME DAREMBLUM
Not surprisingly, Venezuela has a disgracefully overcrowded and violent penitentiary system. Last month, a prison riot in its fourth-biggest city (Barquisimeto) left several dozen people dead and more than 100 injured. According to the Associated Press, the jail where this violence occurred was built for roughly 850 prisoners but was holding approximately 2,400 at the time of the riot. Afterwards, Venezuelan authorities evacuated the facility and discovered 106 guns, including “revolvers, shotguns, submachine guns, and assault rifles used by the military.” They also discovered upwards of 8,000 ammunition rounds.
Venezuela’s security crisis has worsened its economic crisis. Under Chávez-style socialism, the government routinely seizes broadcasting stations, banks, food factories, and other private property. In the Heritage Foundation’s 2013 Index of Economic Freedom, no country scores worse for property rights than Venezuela—even Cuba (!) scores higher in that category.
As you might imagine, the South American nation has been suffering from massive capital flight, which is why the regime long ago implemented draconian currency controls. Its fiscal profligacy has produced runaway inflation and a huge budget deficit. Yet Caracas dramatically ramped up money creation and government spending ahead of Venezuela’s October 2012 presidential election, to help guarantee another term for the ailing Chávez. The numbers really are quite astounding: “In 2012 alone,” notes former Venezuelan trade minister Moisés Naim, “the money supply expanded 62 percent while public spending grew 52 percent.”
Now the regime is trying to close its enormous deficit and avoid a sovereign default. Thus, on February 8, Venezuela announced a 32 percent devaluation of its national currency, prompting citizens to rush out and buy a range of domestic appliances and other imported goods before the prices went up. Harvard economist Francisco Monaldi has predicted that the devaluation could increase Venezuelan inflation by 30 percent this year, and also slash real incomes by 20 percent. Obviously, this would hurt the poor more than anyone else. Inflation is already running at 22 percent, and “about 70 percent of products consumed in Venezuela are imported or assembled from raw material shipped from abroad,” according to Bloomberg News.
In other words, Chávez’s designated successor, Vice President Nicolás Maduro, may soon face an economic challenge of historic proportions. Maduro will inherit an economy that ranks sixth from the bottom in the World Bank’s 2013 Ease of Doing Business Index, and that ranks dead last for paying taxes. The Latin Business Chronicle has reported that Venezuela requires 70 tax payments each year, “the highest number in Latin America and more than double the regional average of 29.”