Frankly, I'm dubious about anything the Venezuelan government says, as are my Venezuelan friends.
Seems much more likely that this is a classic case of a oil export dependent government being hit by low oil prices and being unable to implement spending cuts (understandable given the political consequences).
However, if you put yourself if Maduro's shoes, what would you do differently? We're not going to make things better until we start thinking of the problems in that way.
That's a little hard to do when you're currently facing hyperinflation.
Okay, then how are you going to "borrow and spend on public infrastructure"? Where is that money going to come from? If you're not going to print it now, you can float a bond, but that bond is going to be backed buy the promise of future solvency. And investors have very little reason to have faith in the future solvency of that government, which means we're back to either printing money to fulfill the bond or defaulting.
Countries suffering from hyperinflation don't borrow and spend on public infrastructure. They run the printing presses to make money so they pay off the military, police and their high level supporters to stay in power.
> If you're not going to print it now, you can float a bond, but that bond is going to be backed buy the promise of future solvency.
No one is buying bonds from a country suffering from hyperinflation. That would be crazy.
Unfortunately for Maduro, the only way to solve this problem is to replace the government, introduce a new currency and stop running the printing presses.
Okay, it's not THAT simple, but it is a good start.
Yes, that's what I'm saying. Which is why the "solution" isn't as simple as "borrow and spend on public infrastructure".
They could also apologize to the likes of Maria Lourdes Afiuni and try to reinstate rule of law and return some of the confiscated businesses to their owners.
Venezuela used to be the richest country in South America and has possibly the worlds largest oil reserves. It's taken some impressively bad governance to get it to its present state.
http://www.npr.org/sections/money/2010/10/04/130329523/how-f...
PS.
Moreover, remove all regulations and restrictions which are not vitally important. It's equivalent of turn off of all consumers of electricity when starting of a car engine.
Maduro and his friends are sticking to power by any means, and we've seen this before in other countries (like Zimbabwe) and we'll see it again elsewhere. Fortunately not in that many countries.
Start with curbing hyperinflation. That's been done before several times. Do what is known to work. There are some macroeconomic PhDs whose wet dream is to have a case so clear cut like this where they can make a difference. Put them in your central bank and have them get to work.
Remove price controls right away on just about everything that is price controlled. Same for supply control/management.
Get the minimum wage back down. Hell put it too low until you have a partial equilibrium to intuit a "correct" MW level to base it on.
First, stop all attempts to control the exchange rate. The moment you have an "official" and "unofficial" exchange rate for a currency, you're going to have a black market cashing in on the difference. Just leave the rate to stabilize by itself, at whatever level the market is willing to pay for it.
Second, stop regulating prices for any goods for which there is a deficit. If the price is artificially low, that causes a deficit, because the aforementioned black market will use all means available to buy products at those low prices, and resell them at the real prices.
And none of this is rocket science. These two things are exactly what had to be done in the USSR to get anywhere (and, like Venezuela, they persisted in refusing to do them for a long time, making the problem worse and worse).
Of course, the root cause here is definitely getting dependent on that in the first place.
This is not Venezuela's problem. The problem is that Maduro is trying to control capital flight by fixing the exchange rate. The currency is not free floating and when companies want to buy goods overseas, they have to go to the government and ask permission to exchange their Bolivars to Dollars. This causes two problems, the government is really slow to approve the conversion of Bolivars to Dollars and the exchange rate does not reflect the real world value of Bolivars. Every time someone exchanges Bolivars to Dollars, the government loses a lot of money. The government does not want this to happen so they are not approving a lot of outbound capital. The import business has ground to a halt because of this.
Citation?
I wonder whether there was an earlier situation like that for Venezuela that got resolved beforehand, which would explain why I remember differently, but I found no source for that. Maybe the ISDS rulings against it. I'd delete the comment above if I could.
I think you may be thinking of Argentina? (Not that you're describing events in Argentina correctly either, but at least some of the bits are right.)