The past two weeks have been tense on the political front, eclipsing some brutal news on the economics side that point to a depressing humanitarian outlook for the coming months.
The most worrisome news is the drop in PDVSA’s oil output. Figures reported by PDVSA to OPEC, as well as OPEC’s own estimates, and those by IPD Latin America, point to a drop of between 5% and 7% in oil output.
That would put Venezuela’s oil output at around 2.5 million barrels per day. In 1998 it had reached 3.5 million, and even under chavismo, in 2005, it was 3.3 million.
That puts the only piece of good news – the increase in the price of the Venezuelan oil export basket to $35 – in a different light.
If PDVSA had kept output at the same levels as 2015, that increase would have meant an improvement of close to $6 billion in the country’s finances, compared with oil prices in January. Thanks to the drop in output, the improvement would be of around $4 billion.
Two billion lost, when every dollar counts.
To make up for those lost billions, and all the other billions still left to find over the course of this year, we’re going to have to tighten our belts a lot more.
That’s what the Vice-President for Economic Affairs, Miguel Perez Abad, implied last week when he announced what amounts to the carpet bombing of Venezuelans’ living standards.
He said imports were on track to close the year at USD 20 billion, a 46% cut from 2015; but that they would aim to cut even more, to hopefully USD 15 million, a 60% cut.
Yes, he really said “hopefully”, like it would be something to be happy about.
Three months ago, I wrote about how our dependence on imported food could mean food shortages would increase dramatically this year. I thought total imports would be cut to around USD 27 billion; any more than that was unthinkable for humanitarian reasons.
How naïve of me.
The last time Venezuelan imports were lower than what Pérez Abad is now “hoping for” was 2002 and 2003, the years of the PDVSA strike and the coup. Before that, you have to go back 17 years, to 1999. Back when there were 6 million fewer people, back before Chávez’s expropriations, back before exchange and price controls had decimated our capacity to produce… anything.
It’s like we’re already under an IMF program, just one without the billions in loans to ease the pain.
See, when the IMF lends money, its primary objective is to get that money back, on time and in full. They are loaning money from other countries, and those countries don’t want to see it squandered. So their policy demands are geared towards repayment, not economic growth.
Imagine you go to a bank and ask for a loan. The bank says they can loan you some money, but since they want to be sure you’re going to pay them back, they have a few conditions: cancel your cable TV and mobile phone; sell your TV, car and jewelry; no more cinema, bars or restaurants; find a better paying job and destroy your credit cards. If you don’t agree, well, the door is right there.
That’s what the IMF does: they want countries to cut expenses and increase revenues, fast, to make sure they can repay the loans. The “get the money back” imperative is why the IMF is so reluctant to lend fresh money to Greece: they believe it’s impossible for Greece to repay it unless they get massive debt relief and decades of moratoriums, no matter how many other reforms they enact.
Those IMF prescriptions are recessionary, and usually undertaken by countries already in a recession. That’s what made the IMF’s name so toxic in leftist circles in the region.
This is where things get weird, though: the Venezuelan government is thinking like the IMF. They only seem worried about debt repayment, cutting expenses left and right (besides imports, government spending in real terms has dropped significantly), selling assets and increasing taxes. And in doing so, it’s deepening the already catastrophic recession.
They want to avoid a default in October, at any cost, including humanitarian costs.
The difference is that the Venezuelan government is doing so without the mountains of cash the IMF could bring in to help pay old debts, avoid a costly and chaotic default, and soften the blow to society. And they’re doing so without the credibility boost you get from having the IMF rubberstamp your plans, which can improve your chances of restructuring foreign debt.
Needless to say, the government is also forgoing other parts of an IMF program, like lifting price and exchange controls.
It’s like they’re hiking Everest without oxygen when there are tanks for lease. Because they hate the guy leasing the tanks.
There might be worse news in the horizon. Given PDVSA’s difficulties paying contractors, the electric energy crisis, lack of maintenance and parts, and rumored structural damage to vital oil fields, some analysts expect PDVSA’s output to drop even farther this year.
Watching all these news the past week, and the political crisis playing out before our eyes every day, I can’t help think of the recently late Humberto “Beto” Perdomo, the play-by-play baseball commentator in television.
When the pitcher got in deep trouble, he’d always say: “Esto está feo, muy feo”.
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