Venezuela’s currency continues to collapse.Just in November, the bolivar has lost 55% of its value.
It’s the latest sign of Venezuela’s extreme economic, political and humanitarian crisis. Sky high food prices — or massive shortages of basic food and medicine — have plagued Venezuelans for years and have gotten worse this year. Inflation in Venezuela is expected to rise 1,660% next year, according to the IMF. The country has been in recession for three years now.
One dollar fetched 1,567 bolivars on November 1. On November 28, a dollar was worth 3,480 bolivars on the widely-used unofficial exchange rate monitored by Dolartoday.com.
“It’s a currency that’s going down the toilet,” says Russ Dallen, managing partner at Caracas Capital Markets, an investing firm in Miami. “No one wants to hold on to something that’s going to be worth 50% less in a month.”
There’s more at the link, including a link to an article noting that President Nicolas Maduro just increased the nation’s minimum wage by 40%, the fourth increase this year, but a 40% increase at the end of October was more than wiped out by a 55% decrease in the value of the Bolivar, and a 500% inflation rate; the International Monetary Fund forecasts 1,660% inflation in Venezuela next year.
Venezuela is sitting on the world’s largest proven petroleum reserves,1 and if a lot of that oil is very ‘heavy,’ and requires additional extraction and refining costs, the real problem has been the country’s mismanagement of its oil industry:
By Nick Cunningham | July 14, 2016 | 3:37 PM CDT
Venezuela’s oil production plunged to a 13-year low in June as the economic crisis continues to eat into the nation’s only source of export revenue.
Venezuela’s oil production has declined by 170,000 barrels per day since the start of 2016, dipping to 2.18 million barrels per day (mb/d) in June, according to the IEA’s latest Oil Market Report. Part of that was due to electricity blackouts that cut 120,000 barrels per day from the country’s output between April and June, but even with some of those issues resolved – rain has restored some output at hydroelectric dams – the IEA says that “further losses are expected in 2016.” A year-on-year decline in oil production of 200,000 barrels per day “looks unavoidable as foreign oil service companies reduce their activity and international oil companies face repayment issues and daily operational challenges.” But 200,000 barrels per day could be just the start.
Venezuela does have some of the largest oil reserves in the world, but much of its oil production occurs at mature fields that require maintenance. But maintenance requires cash, something that is increasingly scarce in the country. Venezuela’s state-owned PDVSA was already failing to properly invest in oil production even when oil prices were in triple-digit territory several years ago. In fact, production has been gradually declining for more than a decade. The problem is that the declines are now accelerating.
In the mature oil fields around Lake Maracaibo in the west, wells are depleting as investment falls short. The IEA says that even in the Orinoco Belt in the southeast output is falling because PDVSA is struggling to process the heavy crude due to a shortage of light crude for blending. Venezuela has long predicted that it would be able to ramp up production from its heavy oil fields in the Orinoco Belt, which holds some of the largest heavy oil reserves in the world and accounts for half of the country’s output, in order to compensate for the aging fields in the Maracaibo region. The predictions were always overoptimistic, but now they are entirely off the table.
Not only did the country short-change maintenance in the state-run oil company Petroleos de Venezuela (PDVSA), then-President Hugo Chavez inserted politics into the workforce:
In 2002, nearly a half of PDVSA workers went on strike to pressure Chavez to call early elections. This virtually halted oil production for two months before the government gradually reestablished control over PDVSA. It then promptly fired 18,000 of its workers – approximately 40% of the workforce. The country’s oil industry was then further hindered when the government, in an attempt to replace the fired employees, hired less skilled — yet pro-Chavez — workers.
And every time a foreign oil company makes investments in Venezuela’s oil production, the country lets them proceed, and then nationalizes the assets. At this point, only an economic idiot would invest private dollars into Venezuela’s oil industry.
The promises made by socialists have always been that the economy would be run for the good of the people, and that the fat-cat capitalists would be brought to heel, and those promises have seduced many, man people. But not even one attempt at socialism has had any success at achieving those promises, and socialist countries have always devolved into authoritarian states.