Government Failure and Venezuela’s Economy

ARI SHAPIRO: And now to one of the worst economies in the world – Venezuela. The country is suffering from food shortages and massive inflation even though it sits on one of the world’s richest deposits of oil. The economic crisis has led to a political one. Robert Smith from NPR’s Planet Money team reports on how Venezuela ran out of everything.

ROBERT SMITH: The shortages are the worst in the public hospitals. We talked to a neurosurgeon in Caracas.

UNIDENTIFIED MAN: There is essentially nothing there. There are no gloves. There are no sutures. Patients have to bring their own food, their own gauzes.

SMITH: They have to bring their own food to the hospital.

UNIDENTIFIED MAN: Absolutely. In most of the hospitals, there is not even food for them. It is as dramatic as it sounds.

SMITH: And even if the patients bring in enough supplies, there are these rolling blackouts across the city.

UNIDENTIFIED MAN: I know colleagues who actually have ended their operations with a flashlight that comes in the cellphone.

SMITH: They’ve used that for surgery.

UNIDENTIFIED MAN: Oh, yeah, at least to close the patient.

SMITH: This scene is particularly distressing because Venezuela used to have plenty of money. Even a decade ago, the oil flowed out, and dollars flowed into the country, and Venezuela could buy anything it wanted from the rest of the world. Alejandro Velasco is a history professor at NYU, and he says there was this attitude in Venezuela. Why make anything yourself?

ALEJANDRO VELASCO: When you could just buy the import with very cheap dollars.

SMITH: Yeah, why make auto parts when you can buy auto parts from abroad. Why…

VELASCO: Make shoes.

SMITH: Buy shoes, milk…

VELASCO: Anything.

SMITH: …Sheets.

VELASCO: Anything.

SMITH: Just buy it. Just buy it.

VELASCO: Absolutely – ready-made – not have to worry about having to go through all the procedures and, you know, investment domestically to have to do that. You just buy from abroad. Right, and so it makes you hugely dependent on imports.

SMITH: This is an OK strategy as long as the money keeps rolling in. But Venezuela made a critical mistake more than a decade ago. Hugo Chavez was running the country. He was a socialist, talked a lot about helping the poor. And at one point, he starts to worry about the value of his own currency, the bolivar. And so Chavez decides to fix the exchange rate between the bolivar and the dollar. Essentially Chavez says the value of Venezuela’s money is whatever I say it is.

VELASCO: So it makes financial sense. It actually makes economic sense as an emergency measure. What happened is that this measure was kept and maintained throughout even to today.

SMITH: It was an economic time bomb because when a government fixes the exchange rate, that also means that they are the only place you can exchange money. For instance, Alex Rosemburg was a clothing importer in Caracas. If he wanted dollars to import something, he had to go to the government and look at a list of approved products.

ALEX ROSEMBURG: Where you would check whether or not a particular material or a particular article of clothing had been centrally authorized by the government.

SMITH: What is this, alphabetically? You’d go down, and you’d find underwear under the system.

ROSEMBURG: You would find men’s underwear made out of polyester, cotton.

SMITH: And then you would check in the book if the government deemed this important enough to buy essentially.

ROSEMBURG: Basically.

SMITH: Now imagine this for every product that Venezuela imported. Rosemburg says businesses would spend their days getting approvals. The government of Venezuela would eventually say yes, but then in 2014, the oil price cratered. The value of oil got cut in half over six months. Velasco, the NYU professor, says all the sudden there was no way Venezuela could pay for everything.

VELASCO: This is the end of any kind of boom years, but there’s nothing that we can do now that isn’t going to hurt a tremendous amount.

SMITH: So what do they do when you see this coming?

VELASCO: Nothing – they did nothing.

SMITH: And now all those business people lining up to import products were told, no, there aren’t enough dollars to go around. And this brings us back to the hospitals. Rosemburg, the clothing importer, also brought in that blue fabric – you know, the stuff they use to drape the patient during surgery. He remembers his last shipment. He kept waiting for government approval.

ROSEMBURG: We’re still waiting to have those goods cleared, and we still owe that money to our suppliers in Asia.

SMITH: And so like a lot of business owners in Venezuela, Rosemburg stopped. He stopped his business, stopped importing. He had no choice. And that is what you see happening across Venezuela these days. If you cannot do business, there will be shortages.