Update: Venezuela looks set to fail

Venezuela looks as though it will be the first market to fall of those negatively impacted by the decline in oil prices. As we previously highlighted, at home, economic collapse and a humanitarian crisis are now imminent, and internationally, the collapse will imply the largest and messiest emerging market sovereign default since the Argentine crisis of 2001; this is all being made worse by the inability of the government to deal with the impending catastrophe. Interestingly, neighbouring countries and the international community remain surprisingly passive; they appear to have forgotten that the IMF was created to avoid countries causing harm to others through their economic policies. Furthermore, reports Venezuela's Government is  ordering bank notes by the planeload to keep the economy going have experts saying this could exacerbate the country's economic meltdown. The only question now is whether Venezuela's Government or its economy will collapse first.

Sign up to our Evening Headlines email for your daily guide to the latest news Sign up to our free US Evening Headlines email Please enter a valid email address Please enter a valid email address SIGN UP I would like to be emailed about offers, events and updates from The Independent. Read our privacy notice Thanks for signing up to the

Evening Headlines email {{ #verifyErrors }} {{ message }} {{ /verifyErrors }} {{ ^verifyErrors }} Something went wrong. Please try again later {{ /verifyErrors }}

The only question now is whether Venezuela's government or economy will completely collapse first.

The key word there is "completely." Both are well into their death throes. Indeed, Venezuela's ruling party just lost congressional elections that gave the opposition a veto-proof majority, and it's hard to see that getting any better for them any time soon — or ever.

Incumbents, after all, don't tend to do too well when, according to the International Monetary Fund, their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It's no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.

The only thing Venezuela is well-supplied with are lines (AFP/Getty) (AFP/Getty Images)

That's not an easy thing to do when you have the largest oil reserves in the world, but Venezuela has managed it. How? Well, a combination of bad luck and worse policies. The first step was when Hugo Chávez's socialist government started spending more money on the poor, with everything from two-cent gasoline to free housing. Now, there's nothing wrong with that — in fact, it's a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn't.

The 30 most dangerous cities in the world Show all 30 1 / 30 The 30 most dangerous cities in the world The 30 most dangerous cities in the world 30. Teresina, Brazil Teresina had 42.64 homicides per 100,000 residents. According to the Mexico Citizens Council for Public Security's annual ranking of the world's most violent cities in 2015) The 30 most dangerous cities in the world 29. Goiânia y Aparecida de Goiânia, Brazil Goiânia has 43.38 homicides per 100,000 residents The 30 most dangerous cities in the world 28. Detroit, Michigan, USA Detroit had 43.89 homicides per 100,000 residents The 30 most dangerous cities in the world 27. Feira de Santana, Brazil Feira de Santana had 45.5 homicides per 100,000 residents. The 30 most dangerous cities in the world 26. Belém, Brazil Belém had 45.83 homicides per 100,000 residents The 30 most dangerous cities in the world 25. Guatemala City, Guatemala Guatemala had 47.17 homicides per 100,000 residents. The 30 most dangerous cities in the world 24. Cumaná, Venezuela Cumaná had 47.77 homicides per 100,000 residents The 30 most dangerous cities in the world 23. Manaus, Brazil Manaus had 47.87 homicides per 100,000 residents The 30 most dangerous cities in the world 22. Cuiabá, Brazil Cuiabá had 48.52 homicides per 100,000 residents The 30 most dangerous cities in the world 21. São Luís, Brazil São Luís had 53.05 homicides per 100,000 residents The 30 most dangerous cities in the world 20. Barquisimeto, Venezuela Barquisimeto had 54.96 homicides per 100,000 residents The 30 most dangerous cities in the world 19. Baltimore, Maryland, USA Baltimore had 54.98 homicides per 100,000 residents The 30 most dangerous cities in the world 18. Maceio, Brazil Maceio had 55.63 homicides per 100,000 residents. The 30 most dangerous cities in the world 17. Culiacan, Mexico Culiacan had 56.09 homicides per 100,000 residents The 30 most dangerous cities in the world 16. João Pessoa, Brazil João Pessoa had 58.40 homicides per 100,000 residents The 30 most dangerous cities in the world 15. St. Louis, Missouri, USA St. Louis had 59.23 homicides per 100,000 residents The 30 most dangerous cities in the world 14. Salvador, Brazil Salvador had 60.63 homicides per 100,000 residents The 30 most dangerous cities in the world 13. Natal, Brazil Natal had 60.66 homicides per 100,000 residents The 30 most dangerous cities in the world 12. Fortaleza, Brazil Fortaleza had 60.77 homicides per 100,000 residents The 30 most dangerous cities in the world 11. Ciudad Guayana, Venezuela Ciudad Guayana had 62.33 homicides per 100,000 residents The 30 most dangerous cities in the world 10. Cali, Colombia Cali had 64.27 homicides per 100,000 residents The 30 most dangerous cities in the world 9. Cape Town, South Africa Cape Town had 65.53 homicides per 100,000 residents The 30 most dangerous cities in the world 8. Palmira, Colombia Palmira had 70.88 homicides per 100,000 residents The 30 most dangerous cities in the world 7. Valencia, Venezuela Valencia had 72.31 homicides per 100,000 residents AFP/Getty Images The 30 most dangerous cities in the world 6. Distrito Central, Honduras Distrito Central had 73.51 homicides per 100,000 residents. The 30 most dangerous cities in the world 5. Maturin, Venezuela Maturin had 86.45 homicides per 100,000 residents The 30 most dangerous cities in the world 4. Acapulco, Mexico Acapulco had 104.73 homicides per 100,000 resident The 30 most dangerous cities in the world 3. San Salvador, El Salvador San Salvador had 108.54 homicides per 100,000 residents The 30 most dangerous cities in the world 2. San Pedro Sula, Honduras San Pedro Sula had 111.03 homicides per 100,000 residents The 30 most dangerous cities in the world 1. Caracas, Venezuela Caracas had 119.87 homicides per 100,000 residents

Why not? The answer is that Chávez turned the state-owned oil company from being professionally run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn't go in. That last part was particularly bad, because Venezuela's extra-heavy crude needs to be blended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn't been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.

The rest is a familiar tale of fiscal woe. Even triple-digit oil prices, as Justin Fox points out, weren't enough to keep Venezuela out of the red when it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more. And by "some," I mean a lot, a lot more. That, in turn, became more "a lots" than you can count once oil started collapsing in mid-2014. The result of all this money-printing, as you can see below, is that Venezuela's currency has, by black market rates, lost 93 percent of its value in the past two years.

It turns out Lenin was wrong. Debauching the currency is actually the best way to destroy the socialist, not the capitalist, system.

The spectre of failed economic policies is haunting Venezuela (AFP/Getty) (AFP/Getty Images)

Now you might have noticed that I talked about Venezuela's black market exchange rate. There's a good reason for that. Venezuela's government has tried to deny economic reality with price and currency controls. The idea was that it could stop inflation without having to stop printing money by telling businesses what they were allowed to charge, and then giving them dollars on cheap enough terms that they could actually afford to sell at those prices. The problem with that idea is that it's not profitable for unsubsidized companies to stock their shelves, and not profitable enough for subsidized ones to do so either when they can just sell their dollars in the black market instead of using them to import things. That's left Venezuela's supermarkets without enough food, its breweries without enough hops to make beer, and its factories without enough pulp to produce toilet paper. The only thing Venezuela is well-supplied with are lines.

Although the government has even started rationing those, kicking people out of line based on the last digit of their national ID card.

And it's only going to get worse. That's because Socialist president Nicolás Maduro has changed the law so the opposition-controlled National Assembly can't remove the central bank governor or appoint a new one. Not only that, but Maduro has picked someone who doesn't even believe there's such a thing as inflation to be the country's economic czar. "When a person goes to a shop and finds that prices have gone up," the new minister wrote, "they are not in the presence of 'inflation,' " but rather "parasitic" businesses that are trying to push up profits as much as possible. According to this — let me be clear — "theory," printing too much money never causes inflation. And so Venezuela will continue to do so. If past hyperinflations are any guide, this will keep going until Venezuela can't even afford to run its printing presses anymore — unless Maduro gets kicked out first.

But for now, at least, a spectre is haunting Venezuela — the spectre of failed economic policies.

© Washington Post