[Rockstar]

I dont believe its just the current fall in oil thats causing our southern neighbors such problems. Though Im sure some will be inclined to try fit and label the box for blame on far-right/left wing populist nationalist ideology and hitler, lol.

Back in the late 1980s, the economists Rudiger Dornbusch & Sebastian Edwards described how countries such as Venezuela which pursue highly expansionary populist policies to the detriment of public finances typically go through four distinct phases in what might be called a “boom-bust” cycle. This is their description of Phase 3:

Phase III: Pervasive shortages, extreme acceleration of inflation, and an obvious foreign exchange gap lead to capital flight and demonetization of the economy. The budget deficit deteriorates violently because of a steep decline in tax collection and increasing subsidy costs. The government attempts to stabilize by cutting subsidies and by a real depreciation. Real wages fall massively, and politics become unstable. It becomes clear that the government has lost.

This is why Moody’s has been too generous to Venezuela. The balance of payments problem is merely the trigger for a massive fiscal, economic and ultimately political crisis that can only end in one way – the disorderly collapse of the regime. Whether this will take the form of a revolution, a military coup or simple chaos remains to be seen. But what we are witnessing is the destruction of Venezuela’s economy. And that destruction is not, fundamentally, because of external factors. It is a direct consequence of the economic policies pursued by the Chavez and Maduro regimes.

Over the last fifteen years, the Venezuelan government has nationalized hundreds of companies and seized assets on a massive scale. Many of those seizures have been the subject of expensive litigation in international courts: the most recent case was Exxon's award of $1.6bn in compensation for expropriation of its Venezuelan oil projects. Often, these nationalizations have come in response to falling production due to government price and exchange controls. For example, production in Venezuela's car industry dropped by 85% between January 2013 and January 2014: in February 2014, Toyota suspended production for six weeks citing inability to import parts, resulting in calls from trades unions for the industry to be nationalized. All too often, the Venezuelan government has given in to such calls, rather than addressing the underlying problems.

Widespread nationalization of private enterprises and seizure of assets discourages both domestic entrepreneurialism and foreign investment, and nationalized companies too often end up less efficient and less productive than they were when in private hands. The Venezuelan government has mismanaged its nationalized oil industry, resulting in revenues far below what would reasonably be expected from its vast oil reserves, and misallocated those disappointing revenues into the bargain: instead of using the revenues to diversify its economy and develop domestic production in other sectors, it has diverted them into politically popular but unproductive social programs and distortionary price controls and subsidies. Consequently, Venezuela has become far too dependent on oil revenues, its fiscal finances are in a parlous state and its industry is highly inefficient.

It was in a mess long before the present fall in oil prices.