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Venezuela’s Castro-Communist Economy: ‘The Money-Losing Machine in Caracas’

What happens when a country combines billions of dollars in oil revenue with a corrupt Castro-Communist economic system? The Castros and their partners in crime get richer and the country goes bankrupt.

Angel Ricardo Martinez in Foreign Policy:

The Money-Losing Machine in Caracas

Forget Chávez and his Bolivarian Revolution -- it's oil that wrecked the Venezuelan state.

It had been an unusual session for the members of the Brazilian Senate's Commission of Foreign Affairs and Defense. The woman seated before them, wearing a white blazer and a flag lapel pin, had urged them to "find solidarity" with the people of her country. Back home in Venezuela, she said, a conflict was taking place "between dictatorship and democracy, between justice and tyranny, between an oppressive regime and a people crying for freedom."

María Corina Machado, the Venezuelan opposition lawmaker recently expelled from the country's National Assembly, has become the latest high-profile advocate of a values-driven understanding of the crisis now roiling her oil-rich South American country. "How many more human right violations, murders, persecutions, and tortures must Venezuela endure for the democrats of this hemisphere to hear our voice?" she asked the lawmakers in Brazil. She delivered a similar message to the Peruvian Congress, and to a closed-door session at the Organization of American States headquarters in Washington, D.C.

While the narrative itself is anything but new, it has been gathering momentum (especially outside of Venezuela) thanks to the combination of two factors: the biggest wave of unrest the country has seen in recent years, and an effective media and social networking campaign -- embodied in the #SOSVenezuela hashtag -- that has succeeded not only in raising the specter of U.S. sanctions, but also in sending the rhetoric war all the way to the opinion pages of the New York Times.

But as the battle for Venezuela's image abroad rages on, an entire side of the story runs the risk of being pushed aside. Consider, for example, the op-ed published by jailed opposition leader Leopoldo López in the New York Times on March 25. From the very beginning, he attributes the "intolerable" situation of his country to "one of the highest murder rates in the Western Hemisphere, a 57 percent inflation rate and a scarcity of basic goods unprecedented outside of wartime." Only after this does he include an "equally oppressive political climate" among Venezuela's problems.

López's words strike a significant contrast with Machado's discourse. After all, he stands accused of several charges stemming from the nationwide protests on Feb. 12, the roots of which can be traced to an attempted rape, eight days earlier, at a university campus in San Cristóbal, the capital city of the western state of Táchira. Táchira, it turns out, is part of the Venezuela-Colombia border region, where the problems López outlined in the Times -- crime, scarcity and inflation -- have reached dramatic levels.

In many ways, understanding San Cristóbal is the key to understanding the maelstrom of political, social, and economic problems that make up the reality of modern Venezuela. There, more than in any other place in the country, scarcity is the alpha and omega. For years, this and other border regions of Venezuela have experienced problems that are only now beginning to affect the entire country -- and that are starting to produce policies so reminiscent of past failed socialist experiments. Scarcity is the latest, most powerful indicator that Venezuela has become a money-wasting machine. Its current situation is the product of its economic irrationality, the criminal structures that have flourished around it, and the powerful people that want to maintain the status quo, even if doing so brings about the epic freedom-vs.-tyranny battle that Machado passionately denounces all over the Americas.

The poster child for Venezuela's irrational economic policies is the so-called gasoline subsidy. At an average price of $0.085 per gallon, the country sells the cheapest gasoline on planet Earth. And the money-wasting starts right away: production costs run double the retail price, meaning the state incurs direct losses that in 2010 amounted to approximately $1 billion. According to economists, the opportunity cost associated with the subsidy -- the difference between selling subsidized oil in Venezuela and selling it abroad -- ranges from $25 billion to $32 billion a year.

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