Editorial Board

New Year's Wishes for Venezuela

Photographer: Juan Barreto/AFP/Getty Images

Venezuela had a banner year in 2014: the world's highest misery index (inflation plus unemployment), a fresh recession, and a currency whose black-market value plunged faster than even the Russian ruble. As if that weren't enough, Venezuela's homicide rate has risen to second highest in the world.

Unfortunately, President Nicolas Maduro doesn't seem to have any good ideas -- any ideas at all, really -- for improving things. In his year-end review, he used the phrase "economic war" more than 60 times but offered no concrete plans for waging it. At any rate, with Maduro's popularity at an all-time low, and parliamentary elections later this year, bold economic initiatives will be hard to pull off. His only option is to build consensus for some difficult economic reforms.

Maduro said he plans "to perfect the currency system," but he should instead junk the controls already in place that, along with a multi-tiered exchange system, have raised black-market currency rates to 27 times higher than official ones. In a nation that imports three-fourths of its goods, this would greatly reduce the shortages of everything from medicines to milk and toilet paper.

Despite having the world's largest oil reserves, Venezuela can no longer afford to provide its citizens with the world's cheapest gasoline, a subsidy that costs the government more than $12 billion a year and benefits Venezuela's rich more than its poor. Better to phase the subsidy out, with cash payments to blunt the impact on the poorest. 

Maduro said he would also trim unnecessary spending, hinting at cuts to Venezuela's diplomatic presence. Why not cut military spending instead? From 2009 to 2013, Venezuela was the largest arms importer in South America and the 17th largest in the world. Venezuelans need less guns, more butter.

To achieve these and other reforms, Maduro will have to work with his political opponents -- and he might start by, say, letting them out of jail. Opposition leader Leopoldo Lopez, in particular, needs to be released from prison, and Maduro should drop his far-fetched allegations against other opposition members. To preserve the integrity of this December's parliamentary vote, he also needs to stop monkeying with Venezuela's election processes.

This won't happen without some quiet but firm pressure from Maduro's fellow Latin American leaders, whose economies have also been hurt by Venezuela's economic dysfunction, beginning with its failure to pay for imports.

Happily, President Barack Obama's gambit to normalize relations with Cuba has given these leaders more ideological room to apply such pressure. Even before Obama's Cuban surprise, Venezuelans already preferred the U.S. to Cuba. Now, with oil prices low, store shelves barren and no Castros in his corner, Maduro's brand of Chavismo is beginning to look more and more like an empty red beret.

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.