How To Read The Defeat Speech of Venezuela’s President

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After Venezuelans voted overwhelmingly on December 6 to give the opposition a solid congressional majority, President Nicolas Maduro, the heir of the late Hugo Chavez, gave a speech admitting defeat. This is what his words really mean for the country’s economic future:

  1. “I can say today that the economic war has triumphed.” Meaning: The country’s economic woes are someone else’s fault – it’s an economic war launched by the government’s enemies. It’s the fault of companies that refused to produce goods at a loss, and of thousands of Venezuelans who smuggled food, gasoline and US dollars for a living, making them scarce. Chavistas – as Maduro’s allies are known – don’t believe in economic incentives. They believe in ideology and managing the economy by decree. Overspending should not lead to inflation and shortages of basic consumer goods should not lead to a black market for them, because the law says so. The president’s words suggest he doesn’t see the need to eliminate the widespread price controls that ruin producers, and the capital controls and excess state spending that have made the local currency worthless.
  1. “Need in Venezuelans has been created by a policy of savage capitalism.” Meaning: Ambition is anathema to the Chavista credo. In the eyes of Chavistas the desire to improve one’s economic situation is part of a sick capitalist ethos. But Chavismo’s price and capital controls have turned the US dollar and something as banal as toilet paper into speculative items that can be sold for a profit in the streets. Paradoxically, laws meant to protect the poor have turned everyday Venezuelans into speculators and insatiable consumers that buy inordinate amounts of toilet paper or shampoo because they may not find them in stores tomorrow. High demand for unrealistically cheap goods makes shortages more likely. In Venezuela, 21st Century Socialism has fostered the purest and most primitive form of capitalism.
  1. “Nothing will stop. Everything that depends on our effort will continue, like the missions.” Meaning: Chavismo’s strategy of spending billions of dollars in social programs popular with poor voters will continue. The missions have prompted the spending of large amounts of money at the president’s whim with little accountability. Much of it has been lost to corruption. In the face of low oil revenues, the government has turned to printing money to sustain the state’s largesse. Chavistas fail to see the link between such generosity, money printing and runaway inflation. Maduro’s vow suggests state overspending and the world’s highest inflation levels will continue to plague the oil rich country in the future. Maduro may be tempted to print even more money in a bid to regain the popularity Chavismo has lost.
  1. “I am totally at peace with my soul because we have done all we could do to protect the people.” Meaning: Maduro appears to genuinely believe that improving the lot of the poor is an issue of redistributing oil riches, instead of soundly managing the country’s vast oil wealth. Chavismo’s brand of populism calls for giving immediate solutions to short-term problems with little thought for the long-term consequences. Giving free homes away to the poor solves the problem of a minority of families and helps the government’s popularity in the short term. But generous social spending has meant the neglect of infrastructure, deficient power and water services, and a declining oil production. And the excess money printing needed to address spending emergencies causes prices to rise and the bolivar to lose its value. A government that fails to see its own mistakes is condemned to repeat them.
  1. “The fight for the construction of socialism and a new society now begins.” Meaning: Under Chavismo, the government is unlikely to adopt the painful economic reforms the country needs to move on. Chavistas are trapped by a rhetoric of economic redistribution where saving oil revenue and investing to strengthen the country’s productive infrastructure is almost impossible. The bet of Chavismo is that oil prices will soon rise high enough to rescue their dream of a socialist nation.

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