The earthquakes that struck Venezuela exacerbated the largest economic crisis witnessed this century

Bottom lines in front

On the evening of June 24, Venezuela experienced a devastating “double whammy”: two devastating earthquakes struck less than a minute apart, with their epicenters in towns less than two hundred miles west of Caracas. The earthquakes were among the strongest in more than 125 years.

As of July 8, the death toll reached 3,811, and the number of wounded was 16,740. This number is expected to rise. US Geological Survey modeling in the days following the quakes indicated a 44 percent chance that the total number of casualties would exceed ten thousand. La Guaira, just north of Caracas and home to Venezuela’s main port and international airport, has absorbed the worst of it. Videos show settlement of entire blocks. NASA’s satellite radar estimates that approximately 69,400 buildings were damaged or destroyed throughout the affected area.

The economic losses are still in the spotlight. A preliminary assessment by the United Nations Office for Disaster Risk Reduction estimates losses from direct physical damage to buildings and infrastructure at approximately $37 billion, although this figure does not include economic consequences such as disruption to economic activities and supply chains, emergency response costs, and costs associated with structural modernization and reconstruction.

This issue of Economic Pulse of the Americas examines what the earthquakes mean for Venezuela’s economy and the country’s prospects for recovery after more than two decades of mismanagement.

The earthquake came after years of decline

What makes Venezuela’s situation so bad is the economic collapse that preceded this disaster. As a previous article in this series revealed, Venezuela under Hugo Chavez and Nicolas Maduro suffered one of the most dramatic collapses in per capita GDP in modern history, erasing decades of economic progress. At pre-earthquake growth rates, it would have taken Venezuela nearly half a century to reach the average income level of the rest of the region. This collapse has also destroyed Venezuela’s physical capital stock, including its electrical grids, water treatment facilities, public education, multimodal transportation networks, and oil extraction machinery—the basic infrastructure that supports any economy. Without this physical capital stock, hospitals would not have the energy they need to operate, water systems would fail without maintenance, and buildings would lack the reinforcement needed to withstand the shock of such earthquakes.

This is not the first time this region has faced devastation. In 1999, heavy rains in La Guaira (then known as Vargas State) caused landslides and debris flows that killed thousands and destroyed large parts of the coast. In the decades that followed, lack of investment, nationalization of key industries, and chronic neglect crippled the region’s and the country’s infrastructure.

When a country’s capital stock is exhausted more quickly than it can be replaced or upgraded, its ability to promote economic activity collapses and assets become more vulnerable to damage. The decline, which occurred long before this summer’s earthquakes, has degraded critical infrastructure, industry and even residential buildings, exacerbating the devastation caused by the quakes.

In constant terms, the value of Venezuelan capital in 2023 was roughly the same as in 1999, when Chavez took power. In contrast, the percentage in the entire region increased by more than 50 percent. In addition, before the earthquakes, the value of physical capital available to the average Venezuelan citizen was the lowest in the entire region.

For a more specific illustration of the deterioration of the country’s infrastructure before the earthquake, look at building elements such as cement, iron and steel. The decline in Venezuela’s capital stock follows the collapse of its production of these materials, which today has reached its lowest levels in history. Cement imports failed to compensate for this decline in production, which is evidence of weak demand for cement in light of poor management of the economy. Given the lack of quality indicators showing the state of infrastructure in Venezuela, these data on construction materials help show the material effects of the economic crisis on investment. Every ton of cement the country failed to produce, and every piece of steel it stopped smelting, was a lost opportunity to repair or strengthen roads and buildings, leaving them vulnerable to collapse.

Pre-existing degradation is precisely why the economic impact of earthquakes extends beyond the physical damage itself. The earthquakes did not cause the economic crisis in Venezuela. They turned an already bad situation into a disaster. Before June 24, Venezuela was already facing one of the most complex economic reconstruction challenges of modern times. In one evening, earthquakes pushed solutions to this challenge beyond reach.

The earthquakes also disrupt the central narrative of Venezuela’s potential recovery: a large-scale push for investment in oil, gas and electricity.

Initial reports indicate that the oil infrastructure escaped the worst of the damage. But analysts at Columbia University’s Center for Global Energy Policy estimate that adding up to 1 million barrels per day (to the 120,000 barrels Venezuela was producing at the time of Maduro’s arrest in January) would require investments of more than $10 billion over two to three years. Reaching the production levels achieved by Venezuela in early 2010, about 2.5 million barrels per day, will require between eighty and ninety billion dollars over six to seven years. Other cost projections are even higher. The Council on Foreign Relations estimates that increasing production beyond 1.5 million barrels per day, which requires developing entirely new fields, could cost $100 billion over ten years.

The electricity sector is equally underfunded and equally important. Generation capacity has fallen to less than 40% of what was installed, as chronic lack of maintenance and fuel shortages have crippled the thermal plants and hydropower facilities on which the country depends. The transportation network has deteriorated across the board, and the network infrastructure has not seen meaningful investment in decades.

Energy is a prerequisite for the production of heavy crude oil in Venezuela. Electricity plays a role at every stage of the process, from the pumping systems that lift oil from the ground to the development facilities that turn it into something exportable. In the absence of an effective network, the oil investments that were supposed to support Venezuela’s economic recovery will not bear fruit. Experts estimated the cost of returning the energy sector to acceptable performance at about thirteen billion dollars in the first three years. This estimate was made before the earthquake.

There are other factors that are difficult to quantify. Up to 6.76 million people could be affected in one way or another by the earthquake, according to preliminary estimates by the International Organization for Migration, including up to two million people in Caracas alone. According to authorities, at least 17,900 people are now homeless, although the real number is likely higher. Given the shortage of available housing, there is a strong possibility that the country will see another wave of out-migration, given the scale of the devastation, and it is difficult to determine the economic impact it is having on the recovery. A greater influx of working-age Venezuelans abroad would make the recovery challenge more difficult by reducing the workforce needed to rebuild.

The earthquake also raises financing challenges. The investment case in the oil and energy sectors has been built primarily around private capital and bilateral partners willing to accept political risks in Venezuela in exchange for long-term returns. On the other hand, disaster reconstruction is dominated by grants, multilateral lending and humanitarian financing. Whether money that would normally go to oil and gas instead goes to earthquake recovery efforts, or whether the humanitarian crisis opens the door to multilateral financing that was not previously available, will determine how quickly both tracks move.

The scale of the disaster may also test Washington’s stance on sanctions. More than a hundred economic experts, referring to the scale of the humanitarian disaster, have asked the United States to lift the sanctions imposed on Venezuela to mitigate the impact of the earthquakes. The economists called for the easing of “the wide-ranging economic sanctions imposed on Venezuela, including any sanctions that may affect the Central Bank of Venezuela (BCV), government institutions, Petroleum Venezuela, SA (PDVSA), public financial institutions, the oil and mining sectors, banking, transportation, shipping, communications, travel, and all related activities.”

The United States is unlikely to lift such a wide range of sanctions, but the earthquakes could accelerate talks in Washington about granting US companies targeted licenses to carry out reconstruction-related activities in Venezuela, particularly those related to construction materials and heavy equipment, even as the broader sanctions structure remains a subject of political negotiations.

For interim leader Delcy Rodriguez, international donors, and multilateral lenders, the first priority must be disaster response and housing reconstruction. Greater Caracas, which includes La Guaira, is the most densely populated region in the country. Rebuilding homes and restoring basic services is a political and humanitarian imperative that must come before anything else.

Colombia’s response to the 1999 earthquake, which struck the coffee region and destroyed more than 100,000 buildings in twenty-eight municipalities, provides a useful model. The government established the Coffee Region Reconstruction Fund, which channeled multilateral financing, such as loans from the Inter-American Development Bank, through a decentralized structure that worked directly with municipalities and civil society organizations rather than through a single central bureaucracy. It has been cited by the World Bank and international experts as a reliable and agile model for post-disaster reconstruction. A similar structure, with the United States partnering alongside the Inter-American Development Bank, the World Bank, and other multilateral lenders, could provide a model for financing and coordinating Venezuela’s recovery.

The case for Venezuela’s recovery has not collapsed. But the earthquake adds another layer of risk to a process that already required investors to accept extraordinary uncertainty in exchange for what could be an extraordinary uptrend. Venezuela’s road to recovery has been a long one indeed. After June 24, it became longer, more expensive, and more ambiguous.

This article is part of The Economic Pulse of the Americas, a series of explainers on overlooked economic and trade trends in Latin America and the Caribbean, written by Adrienne Arsht of the Atlantic Council’s Latin America Center. To receive notifications about future releases and other related works in the region, register here.

What Are The Main Benefits Of Comparing Car Insurance Quotes Online

LOS ANGELES, CA / ACCESSWIRE / June 24, 2020, / Compare-autoinsurance.Org has launched a new blog post that presents the main benefits of comparing multiple car insurance quotes. For more info and free online quotes, please visit https://compare-autoinsurance.Org/the-advantages-of-comparing-prices-with-car-insurance-quotes-online/ The modern society has numerous technological advantages. One important advantage is the speed at which information is sent and received. With the help of the internet, the shopping habits of many persons have drastically changed. The car insurance industry hasn't remained untouched by these changes. On the internet, drivers can compare insurance prices and find out which sellers have the best offers. View photos The advantages of comparing online car insurance quotes are the following: Online quotes can be obtained from anywhere and at any time. Unlike physical insurance agencies, websites don't have a specific schedule and they are available at any time. Drivers that have busy working schedules, can compare quotes from anywhere and at any time, even at midnight. Multiple choices. Almost all insurance providers, no matter if they are well-known brands or just local insurers, have an online presence. Online quotes will allow policyholders the chance to discover multiple insurance companies and check their prices. Drivers are no longer required to get quotes from just a few known insurance companies. Also, local and regional insurers can provide lower insurance rates for the same services. Accurate insurance estimates. Online quotes can only be accurate if the customers provide accurate and real info about their car models and driving history. Lying about past driving incidents can make the price estimates to be lower, but when dealing with an insurance company lying to them is useless. Usually, insurance companies will do research about a potential customer before granting him coverage. Online quotes can be sorted easily. Although drivers are recommended to not choose a policy just based on its price, drivers can easily sort quotes by insurance price. Using brokerage websites will allow drivers to get quotes from multiple insurers, thus making the comparison faster and easier. For additional info, money-saving tips, and free car insurance quotes, visit https://compare-autoinsurance.Org/ Compare-autoinsurance.Org is an online provider of life, home, health, and auto insurance quotes. This website is unique because it does not simply stick to one kind of insurance provider, but brings the clients the best deals from many different online insurance carriers. In this way, clients have access to offers from multiple carriers all in one place: this website. On this site, customers have access to quotes for insurance plans from various agencies, such as local or nationwide agencies, brand names insurance companies, etc. "Online quotes can easily help drivers obtain better car insurance deals. All they have to do is to complete an online form with accurate and real info, then compare prices", said Russell Rabichev, Marketing Director of Internet Marketing Company. CONTACT: Company Name: Internet Marketing CompanyPerson for contact Name: Gurgu CPhone Number: (818) 359-3898Email: [email protected]: https://compare-autoinsurance.Org/ SOURCE: Compare-autoinsurance.Org View source version on accesswire.Com:https://www.Accesswire.Com/595055/What-Are-The-Main-Benefits-Of-Comparing-Car-Insurance-Quotes-Online View photos