A time honored Venezuelan tradition: botching the oil cycle
06.10.05 | Between 1936 and 1978, the Venezuelan economy grew faster than any
other anywhere on earth. From 1978 onward, it shrunk faster than almost
any other in the world. What happened?
The standard explanation is all about corruption.
economists, however, see it differently. The wonkish take centers on
the instability of the world oil market. Starting with the 1973 oil
crisis, what had been a relatively stable energy market went all out of
whack. Prices became much more variable.
For oil exporters,
the result was dizzying macroeconomic instability. Money would flood
into the country during booms, internal consumption would grow fast,
and in time, the economy would overheat. When the bubble burst, demand
would collapse and severe recessions followed. Each turn of this
merry-go-round would leave people poorer than the last.
fault is not just with impersonal global forces, though. Since the
1970s, every government Venezuela has had has mismanaged the oil cycle,
and all in the same way. Instead of evening out the highs and lows,
they accentuated them. Instead of saving during booms, they went into
debt to spend even more than they were taking in. Instead of going into
debt during busts to stimulate the economy out of crisis, they were
forced to spend less because, by then, they had tapped out their
Lots of petrostates have suffered through this kind of mismanagement, and all have ended up poorer than they started.
Now, it's happening again.
Once again oil prices are sky high. Once again the government is
rushing to spend every dollar it gets its hands on, and then some. Once
again the economy is overheating.
For now, times are good -
just like they were in 73, 79, and 91. GDP is way up. Nothing
surprising about that. The question is, what happens when the bust
comes? Care to hazard a guess?
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