After narrowly defeating Henrique Capriles in a hotly-contested presidential election (Capriles is demanding a recount), Venezuelan President-elect Nicolás Maduro will soon have to turn to a more threatening foe: the nation’s economy.
In a time of high commodity prices, why is one of the world’s top oil exporters facing such dire straits?
A lot of it has to do with Hugo Chávez’s socialist legacy.
For years, Venezuela has had a fixed exchange-rate regime. The Chávez administration, eager to control every aspect of life in Venezuela, decided who got how many dollars, and at what prices. Currently, the fixed exchange rate is 6.3 bolívars (BsF) per dollar. A parallel “auction” system is selling dollars at BsF 12, and the black-market rate currently hovers around BsF 23 per dollar.
These deep distortions are the reason why Venezuelans are suffering some of their worst shortages in years. Long accustomed to subsidized greenbacks for importing nearly everything, Venezuelans now find dollars harder to come by. However, the government has other priorities: oil production is stuck or declining, and with the nation’s refineries in bad shape, Venezuela needs to import refined products such as gasoline, which the government practically gives away for free.
Importers lucky enough to access dollars at the BsF 6.3 rate find it very tempting to sell the same dollars at the black market rate instead of using them for their intended use—importing basic staples. That is one of the main reasons why Venezuelans´ shelves are empty.
Untangling this economic crisis will require the skills of a deft politician—something Maduro clearly is not. Likewise, doing away with the regressive gasoline subsidies that threaten to bring down the state’s finances will require a national consensus that seems impossible right now. Meanwhile, generating enough confidence to spruce up private investment is simply not in the cards for Venezuela.
Mr. Maduro is likely to find that Mr. Capriles and the pot-banging opposition are the least of his problems.