Wednesday, December 18, 2013

Maduro's Economic Hangover

Back in November, Nicolás Maduro declared the early beginning of Christmas in anticipation of the December elections. Sometimes after a party, though, you suffer a hangover. Moody's has provided that:

New York, December 16, 2013 -- Moody's Investors Service has downgraded the Government of Venezuela's local and foreign currency ratings to Caa1 from B1 and B2 respectively. The outlook on both ratings remains negative. The key drivers for the action are: 
1. Increasingly unsustainable macroeconomic imbalances; and
2. Materially higher risk of an economic and financial collapse. 
The downgrade reflects Moody's view that Venezuela is facing increasingly unsustainable macroeconomic imbalances, including a skyrocketing inflation and a sharp depreciation of the parallel exchange rate. As government policies have exacerbated these problems, the risk of an economic and financial collapse has greatly increased.

That came a few days after Standard & Poor's did the same:

S&P cut the rating to "B-", already well into junk-bond territory, and added a "negative outlook" to the rating.
[I]t expects further deterioration of the situation, which "could increase the risks of a government debt default over the next two years".

A response I've often seen is that the inflation rate is not so different than from the past and so is being exaggerated. Then the logic gets tortured in a way that's unintentionally ironic.

The Toronto Star is worried about inflation in Venezuela – but did it worry in the decade of the 1970’s when inflation jumped from 7.6% to 20.4%? Or that in the decade of the 80’s the average inflation rate was 19.4% until it reached 47.4% in the decade of the 90’s?[1] And what world newspaper or politician at that time forecasted with undisguised glee the ruin of the Venezuelan economy? None.  Which newspaper denounced the immoral excesses – mistresses, drinking, fraud and corruption- of presidents Betancourt, Leoni, Caldera y Carlos Andrés Pérez? None.

Yikes! What this Chávez supporter argues is that inflation (and the numbers she cites are lower than now) was part of a past economic collapse but the media shamefully ignored the collapse. Remember that the past collapse heralded regime change and the triumph of chavismo. By extension, then, she's acknowledging that history can repeat itself, but she's just mad that it is getting media attention.

I have no idea what will happen to the Venezuelan economy, but the government and its supporters are finding it increasingly difficult to explain things in a credible way. The latest blackout, for example? It was a imperial-loving fascist saboteur with a gun. There is proof of this, though I guess we're not allowed to see it.

Hangovers are no fun.


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