Crude Nation | Raúl Gallegos

Summary of: Crude Nation: How Oil Riches Ruined Venezuela
By: Raúl Gallegos

Introduction

Immerse yourself in the astounding world of Venezuela’s eccentric economy as the book ‘Crude Nation: How Oil Riches Ruined Venezuela’ by Raúl Gallegos unfolds the dizzying reality of a petrostate gone haywire. Discover the extraordinary economic scenarios fueled by oil wealth, currency controls, and import restrictions, evolving into a truly bizarre market that makes Venezuela an exceptionally peculiar nation. Explore the peculiarities of absurdly cheap fuel, extravagant spending habits, and distorted currency dynamics that ultimately led this oil-rich nation into an economic abyss.

Venezuela’s Paradoxical Economy

Venezuela’s oil wealth and economic woes have created a unique financial landscape where secondhand cars are a savings account and breast implants are a bank loan.

In the United States, the average consumer may not have heard much about Venezuela beyond the fact that their gas comes from this South American oil producer. However, behind the scenes lies a nation with a complicated economy that is highly dependent on its petroleum exports. The state-owned Citgo Petroleum Corporation is a well-known brand, but citizens struggle to find basic consumer staples like milk, toilet paper, or tampons in the nation’s capital, Caracas.

Due to strict currency controls and import restrictions, Venezuela has a financial market that operates in a bizarre way. New cars are scarce and expensive while used cars are more costly than in the United States. Yet, buying an old car can be a savvy move. Cars have become a “savings account on wheels” and a hedge against inflation and the constant weakening of the currency against the dollar.

In this environment, it’s no surprise that banks are willing to make personal loans to low-income borrowers for extravagances such as breast implants for teenage girls. The desire to live like the middle class is strong among the poor, resulting in shantytowns full of DirecTV satellite dishes.

Despite the oddities of the economy, gas prices remain absurdly cheap thanks to state subsidies. The super-rich indulge in luxury items while the majority of Venezuelans stand in long lines, turn to the black market, or even steal basic necessities. Venezuela is a nation whose oil wealth has not translated into economic common sense. The result has been catastrophic, making it a fascinating case study of a paradoxical economy.

The Quirky World of Venezuelan Currency

Venezuela’s currency controls allow citizens the option to purchase goods and amenities at one of three official exchange rates or through an off-market rate. The result is a perplexing system where the price of goods varies drastically based on the exchange rate used. For example, a hotel room in Caracas Marriott would cost $1,503 at the highest rate, $789 at the second-highest rate, and $190 at the third-tier rate. However, the fourth option, exchanging dollars for bolívars with a black-market currency trader, could bring the price down to as low as $53. Expats paid in dollars could live luxuriously in Caracas, while a Big Mac would cost just $1.50, a can of Coke would cost 29 cents, and renting a car and driver would cost $50 a day. On the other hand, Venezuela’s locals earning in bolívars face a daunting financial reality. They might pay $6,667 for a flat-screen TV – more than an average annual salary, and an iPhone 6 would cost a staggering $17,000.

Currency Speculation in Venezuela

Navigating Venezuela’s surreal economy is a challenging feat that requires the services of a black-market currency dealer. The socialist regime sees currency speculators as enemies of the state, so the practice of buying and selling dollars moved underground. Despite bringing in $100 billion a year in oil sales, Venezuela’s economy is plagued by a rapidly depreciating bolívar, which has created “a perverse incentive” for doctors and lawyers to trade currency instead of focusing on their professions. In May 2015, the black market price of a dollar was 400 bolívars, soaring to 1,200 bolívars by March 2016, causing the value of Venezuela’s 100-bolívar note to plummet from 55 cents to just 8 cents. In this environment, author Francisco Toro met with an illicit money dealer who saved him over $2,900 on his three-week stay by using a subterfuge to cover his tracks and exchange currency. The book delivers a scathing critique of the country’s history of dictatorship, corruption, coups, and economic dysfunction.

Venezuela’s Currency Woes

The Venezuelan government has imposed restrictions on the sale of foreign currency by foreign companies operating in the country, leading to the closure of factories and a collapse of the bolívar. Despite forbidding websites from posting any details on the currency trade, websites like dolartoday.com continue to publish black-market prices. In 2013, Maduro even sued dolartoday.com claiming they were responsible for the bolívar’s collapse. Despite its currency policies resulting in disastrous consequences, the Venezuelan government continues to pursue them.

Venezuela’s Inflationary Spiral

Venezuela’s economy is in a state of chaos due to its irrational fiscal policies and inflationary spiral. Foreign corporations are taking advantage of Venezuela’s inflated exchange rate, leading to unrealistic revenue figures. As the value of the Bolivar declines, Venezuelans are struggling to make ends meet as their purchasing power decreases rapidly. The government lacks transparency and blames retailers for the chronic shortages of goods. Despite these issues, Venezuelans pay for large purchases with credit cards, hoping to take advantage of a 20% discount due to inflation. The country’s gas remains the cheapest in the world, but the feelings generated by the low price are short-lived. The economy’s chaos has shaped the spending habits, political beliefs and tastes of generations of Venezuelans.

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