Recovery from ‘economic implosion’ could take decades: IMF

Alejandro Werner, head of the IMF’s Western Hemisphere Department, said the country with the largest proven oil reserves in the world was suffering a catastrophe that resembled those of post-war countries.

Below is an interview he gave to AFP on plans to help rebuild the Caribbean nation, which the IMF projects will contract another 25 percent this year — for a total of 61 percent since 2013, with hyperinflation of 10 million percent and unemployment of over 40 percent.

Question: The IMF’s forecasts for Venezuela are catastrophic. How do you see the oil industry?

We have seen an economic implosion that is even bigger than we anticipated, with all the humanitarian consequences that that implies, including the mass migration in the region. In addition, crude oil production will continue falling precipitously. The forecast is that it will fall to 600,000 barrels a day.

Q: What is the IMF doing about it?

We’re working, thinking about the economic policy components, for the time when Venezuela has a government that will look for help from the international community. This can be part of the effort to help in the reconstruction.

The first step will be humanitarian aid to address the main deficiencies of health, food, water supply and electricity. And after that would be the even greater effort to rebuild this economy.

We see a humanitarian problem, destruction of the economic system, of production, distribution of goods, hyperinflation and obviously debt.

Q: How long will it take for the economy to recover?

In the range of a decade or decades. Based on experiences with countries that have suffered similar collapses, due to armed conflicts, civil wars or natural disasters, for most of them to recover living standards similar to what they had before the collapse it has been a question of a decade or decades.

Q: There has been talk of a loan for Venezuela of around $80 billion. Is that accurate?

There are people talking about figures like that. But first there have to be authorities in Venezuela who are in control of economic policy to know exactly what the needs are.

Q: What was the cause of the debacle?

The destruction of the economic system, the productive system, of the institutions, caused the economy to begin to implode, independent of the drop in oil prices in 2014. That obviously accelerated the collapse, but the economy stopped growing and inflation began to rise before that. Other economies with high dependency on oil have managed the issue much better.

Q: Has oil been a curse for Venezuela?

It could be that the abundance of resources has been one of the reasons they are where they are, but it’s also true that Venezuela has a wealth of resources for its recovery. So to the extent that Venezuela can reestablish the petroleum sector, that can be a lever that maybe countries that suffered similar collapses did not have.

The rise of raw material prices clearly created important challenges for those countries that generated economic imbalances during that boom.