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Meltdown in Venezuela
US oil sanctions, debt default loom as repression grows.
LATINVEX EDITORIAL
Sunday’s vote on a new Constituent Assembly in Venezuela is only the latest move towards a full-fledged dictatorship in the South American country. The assembly is expected to strip all power from the democratically-elected national assembly, which is controlled by the opposition. Members of the constituent assembly are all from the government and their elections were marred by fraud, with voting system company Smartmatic saying at least one million votes were manipulated.
A few days later, the government of President Nicolas Maduro also re-arrested two key opposition leaders – Leopoldo Lopez and Antonio Ledezma, the democratically elected mayor of capital Caracas who had his powers stripped away by Maduro’s predecessor, the late Hugo Chavez. The re-arrest of Lopez came after he had just been released from jail on July 8 after spending 41 months behind bars. The sentence against Lopez without any credible evidence against him showed “an utter lack of judicial independence and impartiality in the country,” Amnesty International said in 2015.
ECONOMIC FREEFALL
The new, repressive moves come as Venezuela continues its horrendous economic freefall, with the oil rich nation suffering from massive shortages of everything from food to medicines.
Venezuela’s estimated 7.4 percent GDP decline this year will be the world’s worst, according to a Latinvex analysis of recent projections from the International Monetary Fund (IMF). The economy, once ranked as the fourth-largest in Latin America, is expected to rank seventh in two years, according to the IMF.
Meanwhile, currency expert Steve Hanke – a professor of applied economics at Johns Hopkins University – estimates Venezuela’s annualized inflation reached 1,032 percent as of August 1, beating the previous high of 809 percent in July 2015.
Money supply surged 10 percent in just one week last month, its largest single-week rise in a quarter of a century and jumped 384 percent in the last year compared with 5.5 percent in the United States, according to Reuters.
At the same time, the country’s international reserves are falling. They stood $9.983 billion on July 14 -- a 77 per cent decrease since January 2009 when they hit a peak of $43 billion, according to the Financial Times.
US SANCTIONS
The Trump administration is now mulling sanctions against Venezuelan oil, a move that would also impact Venezuelan bonds. Venezuela bondholders are spooked, Bloomberg reports.
The US already levied sanctions on 13 Venezuelan individuals, including the vice president of finance at state oil company PDVSA, a move that is likely to hurt the company in its efforts to raise cash among foreign investors.
US oil sanctions would also boost the likelihood of a Venezuelan debt default. The implied probability of Venezuela missing a payment over the next 12 months rose to 62 percent Monday, according to credit-default swaps data compiled by Bloomberg.
Tragically, there is little hope for improvement in Venezuela for now. Maduro – with the aid of the Venezuelan armed forces and national guard – is firmly in power and will likely continue to shrink political freedoms further.
The economic crisis will only get worse. The new constituent assembly is expected to pass laws that will control prices further (current laws are one of the key reasons behind shortages) and boost debt to offset falling oil income.
© Copyright Latinvex
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