The blame for
Venezuela’s failure goes to their voters who voted for the crooks who stuffed
the ballot boxes. The long road to ruin began in 1959 with the government
scheme to seize and nationalize their oil industry. See below.
HOW
VENEZUELA STRUCK IT POORThe tragic
and totally avoidable self-destruction of one of the world’s richest oil
economies. By Keith Johnson.
In the spring of 1959, at a secretive meeting at a yacht club in
Cairo, Venezuela’s then-minister of mines and hydrocarbons, Juan Pablo Pérez
Alfonso, hatched a plan to give big oil-producing countries more control over
their black gold and a greater share of the wealth it promised to create. A
year later, his scheme would be formally christened the Organization of the
Petroleum Exporting Countries, or OPEC. Venezuela, which sits atop what are
arguably the biggest petroleum reserves in the world, was the only non-Middle Eastern
country to be included a testament to its importance to the global oil
business.
Venezuela was considered rich in the early 1960s: It produced more
than 10 percent of the world’s crude and had a per capita GDP many times bigger
than that of its neighbors Brazil and Colombia — and not far behind that of the
United States. At the time, Venezuela was eager to diversify beyond just oil
and avoid the so-called resource curse, a common phenomenon in which easy money
from commodities such as oil and gold leads governments to neglect other
productive parts of their economies. But by the 1970s, Venezuela was riding a
spike in oil prices to what looked like a never-ending economic bonanza.
Complemented by years of stable democracy, it seemed a model country in an
otherwise often troubled region.
Such success makes the sorry state of Venezuela’s oil industry
today, not to mention that of the country at large, all the more surprising and
tragic. The same state that, six decades ago, dreamed up the idea of a cartel
of oil exporters now must import petroleum to meet its needs. Crude production has tanked, hitting
a 28-year low last fall when it dipped under 2 million barrels a day. “I don’t
think we’ve ever seen a collapse of that magnitude [anywhere] without a war,
without sanctions,” said Francisco Monaldi, a Latin America expert at Rice
University’s Baker Institute for Public Policy.
Venezuela has not, of course, fought a war in recent years. But
the combination of plummeting oil revenues and years of government
mismanagement has virtually killed off the country’s economy, sparking a
humanitarian crisis that threatens to engulf the region. Caracas refuses to
track inflation (or at least publish its findings), but the National Assembly
calculates the annual rate to be more than 4,000 percent, and the International
Monetary Fund predicts it could hit 13,000 percent this year. Given how much
prices have already risen since January, the real number could be 10 times
higher.
Venezuela’s murder rate, meanwhile, now surpasses that of Honduras
and El Salvador, which formerly had the world’s highest levels, according to
the Venezuelan Violence Observatory. Blackouts are a near-daily occurrence, and
many people live without running water. According to media reports,
schoolchildren and oil workers have begun passing out from hunger, and sick
Venezuelans have scoured veterinary offices for medicine. Malaria, measles, and
diphtheria have returned with a vengeance, and the millions of Venezuelans
fleeing the country — more than 4 million, according to the International
Crisis Group — are spreading the diseases across the region, as well as
straining resources and goodwill.
What explains the country’s precipitous decline from being one of
Latin America’s richest and most stable states? Mark Green, the head of the
U.S. Agency for International Development, blames President Nicolás Maduro who,
in May, won another six-year term in elections widely denounced as fraudulent
and his “delusional” policies. But while there’s no question Maduro is
partially culpable, to fully understand how a country blessed with the world’s
biggest oil endowment could end up so crushingly poor requires going much
further back. The fuse for the bomb that is now blowing up Venezuela’s oil
industry and the country along with it was deliberately lit and fanned by
Maduro’s predecessor and mentor, the strongman Hugo Chávez, not long after he
swept into power in the late 1990s.
The decline and fall of
Venezuela’s oil industry essentially begins with its nationalization in 1976, a
time of booming crude prices and rising resource nationalism. President Carlos
Andrés Pérez sought a much greater role for the state over the economy and
especially wanted to use the country’s fast-growing oil wealth to turbocharge
development.
That year, to gain full
national control over the oil fields, Caracas banished foreign oil firms and
created a new, state-run oil monopoly called Petróleos de Venezuela (PDVSA).
The moves marked the capstone to Pérez Alfonso’s decades-long dream of
Venezuela grabbing full control of its destiny. It was also the logical outcome
of the widely held belief that the country’s oil, discovered in 1922 on the
shores of Lake Maracaibo, was national patrimony.
At first, Venezuela’s
state-owned oil company stood out from peers such as Petróleos Mexicanos in
many ways. A large number of its executives, for example, had previously worked
for foreign companies in the country and imbued the new firm with a
business-oriented outlook and a high degree of professionalism. PDVSA had a
lean workforce, an efficient cost structure, and a global outlook: A decade
after its creation, the company acquired half of Citgo, the big U.S. refiner,
and stakes in a pair of European refineries.
Yet none of these assets
proved much help when a global oil glut in the mid-1980s depressed prices and
hammered the national economy. OPEC members struggled to prop up prices by
cutting back output. By the middle of the decade, Venezuelan production had
fallen below 2 million barrels a day, or about 50 percent less than during the
heyday right before nationalization.
When oil is cheap, it
becomes very tempting for countries to pump more crude even if that extra
production ends up keeping prices low. And so, to right the reeling Venezuelan
economy in the early 1990s, the government sought to reopen the oil industry to
international companies. The outsiders would be especially useful in accessing
Venezuela’s mother lode, the Orinoco heavy oil belt, which holds more than a
trillion barrels of tarlike bitumen. Unlike regular light crude oil, which can
be pumped straight out of the ground and sold as is, heavy oil is more
difficult to extract and then needs to be upgraded to something resembling
liquid oil before sale. Doing all that takes the kind of cash and sophisticated
know-how PDVSA lacked at the time.
By the mid-1990s,
international firms, including Chevron and ConocoPhillips, had moved back into
the country and were hard at work unlocking Venezuela’s massive heavy oil
deposits. But in 1998, the price of oil collapsed again, dipping to $10 a barrel.
The impact on Venezuela which, like many oil-rich countries, had never managed
to diversify its economy despite a bout of reform efforts in the 1970s was
severe, given that petroleum exports then represented about one-third of the
state’s revenues.
Then along came Chávez,
a former army lieutenant colonel who’d served time in prison for an abortive
coup attempt in 1992. He won the 1998 presidential election on the promise to
reshape and restore Venezuela’s reeling
Norb Leahy, Dunwoody
GA Tea Party Leader
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