Venezuela Runs Out of Other People’s Money
Things are only ever getting worse in Venezuela. Inflation rates are still in the millions per year, the economy continues to contract double-digits each year, and food becomes more and more scarce.
With extreme poverty at over 90%, Venezuelan leaders will at least soon be able to say they’ve contained that problem once it hits 100% and technically can’t get any worse.
We learned last week just how dismal the state’s finances were – only $800 million in cash on hand, and $200 million in other liquid assets. For reference, President Donald Trump personally has three-four times that much wealth (if we go by Forbes’ estimates) in net worth. Or put in even more depressing terms; Kylie Jenner has more money than the Venezuelan government.
So desperate are they that the country is on the verge of being forced the sacrifice the goose that laid the golden egg initially financing their socialist empire: their state run oil company PDVSA.
As Business Insider reported: Venezuelan President Nicolas Maduro has considered selling shares of the country’s state-owned oil company, Petroleos de Venezuela SA, according to Bloomberg report from Monday.
The sales could offer a small source of financial relief for Maduro’s government, which has struggled since facing sanctions from countries around the world. Those nations are trying to push Maduro from power after he was widely criticized for rigging the country’s presidential elections.
Selling control of the state-owned oil company would be a drastic one for Venezuela’s socialist government and its history of state-owned entities. Maduro’s government has spoken with Russian, Spanish and Italian oil companies about a possible sale, according to the report.
Chavez’s nationalization of the oil industry, creating PDVSA, is a useful case study of the follies of socialism. After taking office, Hugo Chavez fired half of PDVSA’s workforce (who opposed his overreach), 20,000 workers in total, replacing them with employees loyal to his regime. Opposition was strongest among top management, 80% of which were fired (which also included engineers, and the firm’s research arm).
Replacing those employees with others equally knowledgeable about the oil industry proved impossible because they were replaced by political allies of Chavez (a limited talent pool). In fact, it was company policy during Chavez’ reign that only his supporters would be hired – regardless of competency. While PDVSA produced 3 million barrels of oil a day before Chavez, they averaged 2 million a day in 2018. Production then fall off a cliff further to under 1 million barrels per day in 2019. While they operated a peak of over 80 rigs in the early 2010s, that fell 75% to 20 today. Their last two operating refineries in Venezuela were shut down this week.
This is despite the fact that PDVSA has since seen their workforce explode from the pre-Chavez 40,000 employees to an incredible 100,000–150,000 employees in recent years (estimates vary). More people are working to produce as little as ever.
So who should operate PDVSA? “Literally anyone other than the Venezuelan government” would be a more qualified candidate.