Getting Venezuela out of the deep crisis requires a credible and sensible macroeconomic program that, among other things, counts on a huge contribution of U.S. dollars by the international financial system. But why does Venezuela need such amount of dollars to exit the crisis? We will try to provide some reflections on that matter.
Dollars are needed to acquire inputs and raw materials abroad for the domestic industry to produce and achieve higher levels of utilization of the idle installed capacity and also to import end-consumer products, such as medicines, flour, meat and other goods that contribute to alleviate the hunger and abandonment levels the entire country is suffering. But nobody is going to give away or lend those dollars to Venezuela just for pure generosity. The international financial system comprised of multilateral banks such as the World Bank, IDB or International Monetary Fund, and private banks comprised of the largest banks and international investment funds only lends money if it has a reasonable prospect of getting that money back some day.
And to get that money back the country needs to produce dollars in higher amounts than it currently does. To produce dollars, in turn, it needs to export oil or non-oil assets. Making the oil industry productive again requires a significant amount of dollars for repair, maintenance, exploration and investment purposes which could come from loans, which is difficult, because the bonds issued by the Government or the national oil industry are no longer placed in the international market.
Also the capital needed by the oil industry can come from foreign direct investment, in case the Government decides to generate policies and set rules of the game in order to provide security and profitability to these potential investors.
No one is going to lend dollars if these are going to be stolen or squandered, as has happened in the past. That is why together with a credit application a program that ensures the recovery of production, the future generation of dollars and payment of the debt contracted in the present has to be presented to the international financial system. This type of program usually contemplates oversight mechanisms to ensure compliance.
Another possible source for obtaining foreign currency are non-oil exports, which can come from major state-run companies such as iron, steel, aluminum or petrochemicals or from private companies producing a series of assets with which Venezuela has managed to stay competitive at international level. But none of this will happen spontaneously without credible and technically supported rescue policies for basic companies and the promotion of non-oil exports.
Moreover, dollars are needed so that the national industry itself can produce dollars. A lack of international support represents falling into some sort of vicious circle: dollars are needed to put the national industry into production and export goods, but in the absence of such dollars it wont be able to produce, export, or generate dollars.
The current crisis also requires the Government to give grants and carry out basic social programs reaching the entire population, which also requires external financing. But no one is going to lend money for giving handouts to those people supporting the government, or social programs that are not serious and lack viability.
For all of the above and for many other arguments that cannot be developed in depth in the few lines of a newspaper article dollars are needed to exit the humanitarian and economic crisis and to make the country produce the dollars it needs without having to continue requesting loans for ever and ever.