1. NS4540 Winter Term 2017 Venezuelan Disaster
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Overview
Michael McCarthy, Venezuela’s Manmade Disaster, Current History, February 2017
Focuses on the country’s bad governance and low oil prices
Under Chavez, Venezuela experienced combination of
High oil prices
Highly ineffective governance
When price of oil fell by nearly 50% in 2014 country left with a dysfunctional economic/political model
Led to a full-blown crisis in 2016

3. Crisis I Chris has been characterized by Three year recession
Double digit contraction of GDP
Hyper inflation and
Massive shortages of food and medial goods
One out of five Venezuelans eat only one meal a day
Massive exodus, creating problems for neighboring countries
Although oil prices have recovered a bit still way below what the country needs
State oil company producing 225,000 barrels a day less than it did in 2015
Barring an unexpected oil boom – outlook for 2017 only marginally less grim.

4. Crisis II During Chavez regime Finally, the money ran out
Government took on huge debts
Ignored fiscal discipline
Nationalized industry
Adopted regulatory policies including currency and price controls that strangled private sector
Unrestrained spending stoked corruption
Forced the oil company to take on massivesocial-assistance provision
Finally, the money ran out

5. Crisis III Chavez still reelected in 2012 by a 10 point margin
Fell ill with stomach cancer and died five months later
Maduro, former labor leader took over
Oil prices crashed – imports declined from $57 billion in 2012 to $17 billion in 2016
Opposition won the 2015 elections for National Assembly with 56% of popular vote and two-thirds of seats in the legislature
Supreme Court intervened – nullified victories of three opposition members depriving the opposition of a two-thirds majority and thus wide powers to oppose Maduro

6. Crisis IV Government’s response to crisis
Tightened its grip on society
Raised costs of protests by clamping down on dissent and jailing activists
Using party-state apparatus to funnel pork-barrel spending down to grassroots
Increasing the military’s role and involvement in the economy
The military now is in charge of food distribution
Corruption through rent seeking is pervasive
Heavily involved in drug trafficking
Only functioning economic activity is the informal economy helping people cope with scarcity

7. Assessment Manmade disaster has However government deeply entrenched
Devastated economy
Shifted public opinion in favor of the opposition
However government deeply entrenched
In oil state with millions of patronage jobs on public payroll, opposition’s task difficult