Saturday, October 08, 2016

Brazil and Venezuela: from Bad to Worse

Brazil has South America’s largest economy (and the second largest in the Western Hemisphere, behind the U.S.), with an output of $3.26 trillion for its roughly 200 million citizens.

Venezuela has South America’s second largest economy, with an economic output of $953 billion for its roughly 30 million citizens.

The two Latin American nations are now facing economic situations ranging from crisis to chaos.

Brazil has been mired in recession since early 2014, its longest since the 1930s.

However, the IMF estimates the country may finally return to meager growth next year. The Brazilian economy shrank 3.8% last year and the IMF now forecasts it will fall another 3.3% this year.

If so, it will mark the first time the Brazilian economy has contracted by more than 3% for two consecutive years in more than a century.

In the second quarter, Brazil’s economy contracted 3.8% and that was after it already shrank 5.4% in the first three months of the year. This has crushed tax collections.

As a result, the government’s budget deficit was the largest ever recorded in the 12 months through February.

About 12 million Brazilians are now out of work, up from 8.8 million a year ago. The unemployment rate has soared to 11.8%, up from 8.7% a year ago and 6.8% two years ago.

Even those who have jobs are suffering; wages declined 3% in August.

The country is currently embroiled in wildly turbulent political upheaval.

Brazil’s president, Dilma Rousseff, was removed from office in August following an impeachment vote in the Senate. Her dismissal came on the heels of a corruption scandal involving the state-controlled oil company Petrobras.

An investigation found that Brazil’s biggest construction firms overcharged Petrobras for building contracts. Part of their windfall would then be handed to Petrobras executives and politicians who were in on the deal.

Billions of dollars are said to have been diverted or swindled. Former President Luiz Inacio Lula da Silva was also implicated in the scandal.

Yet, as bad as things are in Brazil, they are even worse in Venezuela, which is in the midst of a full blown economic collapse.

The plunging price of crude oil, the country’s primary export and means of income, has crippled Venezuela. The country relies on oil and gas for 95% of its export revenue. This means the nation cannot fund desperately needed imports and businesses cannot not replenish their inventories.

Venezuela is suffering through shortages of basic food and basic medicine; virtually everything is in short supply. The nation is presently facing a widespread famine. Lines at state-run supermarkets begin at 3 a.m., yet sometimes there is no food at all. The government introduced food rations at its grocery stores in 2014.

In June, the NY Times reported the following:

A staggering 87 percent of Venezuelans say they do not have money to buy enough food, the most recent assessment of living standards by Simón Bolívar University found.

About 72 percent of monthly wages are being spent just to buy food, according to the Center for Documentation and Social Analysis, a research group associated with the Venezuelan Teachers Federation.

In April, it found that a family would need the equivalent of 16 minimum-wage salaries to properly feed itself.

The nation is facing a humanitarian crisis of a magnitude that is unprecedented in the Western Hemisphere.

But the country also suffers from political corruption, which has led to widespread civil unrest.

The government refuses to accept humanitarian aid. Instead, it denies there is any economic or humanitarian crisis at all. It claims there is nothing wrong and that stories to the contrary are a plot by outside forces hoping to take down the socialist government.

For president Nicolás Maduro, to admit the existence of the crisis would be to admit that the revolución has failed.

Meanwhile, Venezuela has the highest inflation rate in the world, a staggering 470%.

The International Monetary Fund has predicted that, if current trends continue, inflation could reach 1,700% this time next year.

Though the oil price crash – from more than $100 per barrel in 2014 to roughly $50 today, after reaching a low of about $30 per barrel earlier this year – has played a role in Venezuela’s misery, the government’s policies are largely to blame.

This shouldn’t be happening in a country with the world’s largest proven oil reserves.

A new revolución appears inevitable.

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