Venezuela's history is one armed rebellion after another. It illustrates Simon Bolivar's worry that Latin peoples may be ungovernable, having an irresistible tendency to disorder and chaos. Venezuela's oil exports provide a growing income - the price of oil has rised 150% in the last five year. But all that wealth is producing misery.
As the gap between the official exchange rate and the black market rate has increased, so has the incentive to exploit rules, such as a regulation that allows people to spend $5,000 a year on their credit cards while traveling abroad. Venezuelans travel to nearby Curacao, where they buy $5,000 of casino poker chips with their credit cards, exchange the chips for cash and then sell the dollars in the black market back in Caracas.
Government-set prices on many products are fantasy prices below production costs. Milk, chicken, coffee and flour have disappeared from store shelves in Caracas. The government has responded by giving importers more dollars at the official exchange rate. Imports soared 43 percent in the first half to a record $20 billion after tripling in the previous three years. The growth in imports is so out of whack that it's choking off the local sector. The growth in public spending has been so rapid that the government needs oil prices to keep rising to hold its deficit in check. For the macroeconomic house of cards not to come crashing down, the price of oil has to go up at double digit growth rates.