The country with the world’s largest proven oil reserves was declared to be in a debt default by Standard & Poor’s this week. Like many petrostates, once-rich Venezuela has squandered its natural wealth, mainly by a poverty of democracy. To fix the debt crisis will now require that its socialist dictator, President Nicolás Maduro, return the country to democratic ideals, starting with a presidential election slated for next year.
Mr. Maduro may still find ways to delay a full default in coming months. Russia and China, both of which seek influence in the region, could offer temporary help. But with Venezuela’s red ink estimated at well over $100 billion, what’s needed is a political deal with the duly elected leaders of the National Assembly. That body was recently sidelined by Maduro.
Successful talks are the only path for curbing the misrule and corruption that have led to a decline in Venezuela’s oil production, a shrinking of its economy, mass shortages in food – and the accumulation of the world’s largest public external debt as a share of gross domestic product.
Maduro cannot stay in power long if he defaults on all foreign debt. Creditors will be able to seize the country’s assets abroad, such as cargo ships and the Citgo company in the United States. That would jeopardize the flow of oil revenues. In addition, both the US and the European Union have imposed new economic sanctions on the regime over its human rights abuses and anti-democratic tactics.
Maduro still has a chance to save his country from further ruin. A new round of internationally mediated talks is planned between the government and the opposition in coming days. The focus should be on holding well-monitored and fair elections for a new president. Then the country, under new leadership, can start to wean its economy off oil and invest in people’s skills and create useful ideas for non-oil businesses.
Norway is a good example of a petroleum-rich nation that has been prudent in recycling its natural wealth into building a non-oil economy. Saudi Arabia is only now trying to overcome the mistake of being a corrupt petrostate under dictatorial rule. As in Russia, the Saudi regime has long used oil riches to stay in power.
With a full default looming, Venezuela can now escape the so-called resource curse of petrostates. All it would take is to put power back in the hands of the people with pluralist and transparent democracy.