#Venezuela: Failed states are not confined to the Middle East & Africa @DLansberg

Venezuela's neighbours will feel its pain

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Human cost: A father and daughter rest while someone holds their place in a food queue in San Cristobal, Venezuela, amid shortages of basic goods

In 1812, scarcely a year into Venezuela's independence, an earthquake leveled Caracas, spurring panicked survivors to expel the republican army and return the colony to Spanish rule. Simón Bolívar remained unbowed: "If nature opposes us," the revolutionary leader declared, "we shall fight nature and force her to obey us." Two centuries later, the new "revolutionary" government that has co-opted Bolívar's name has also adopted his obdurate attitude, while perhaps eschewing other qualities — adaptability, diplomacy, competence — that allowed him eventually to reconquer Caracas and liberate five other Andean nations.

Despite an economy in free fall, harrowing shortages of medicines and foodstuffs, rock-bottom oil prices, nearly depleted foreign exchange reserves, and the worst inflation on earth, the government of Nicolás Maduro has steadfastly refused to come up with even the most rudimentary policy response. The currency remains officially pegged at over 100 times the black market rate and untenable subsidies keep domestic petrol prices at pennies on the gallon. The government has even failed to introduce larger bill denominations, leaving Venezuelans with a currency that tops out at a ludicrous $0.15.

As Bolivarian tenacity has devolved into a self-destructive political paralysis, if not a complete break with reality, the country is fast on its way to becoming a failed state. Indeed, by some metrics — homicide and violent crime rates, broken supply chains, number of high regime officials currently under investigation by the US Treasury for narcotrafficking — it has already arrived.

At first blush, the global economic risks posed by a Venezuelan collapse may seem limited — China, the country's biggest creditor, is paid off in oil, not dollars, while US imports of Venezuelan crude have nearly halved since the 1990s and Brazil's language barrier and forbidding Amazon border would probably shield the country from the worst of the humanitarian consequences. But, even so, the fallout for the region — and beyond — could be severe.

The Obama administration's rapprochement with Cuba is a direct result of Havana's perception that Venezuela, which replaced the Soviet Union as the island's chief benefactor in the 2000s, can no longer be relied upon. Elsewhere in the neighbourhood, former beneficiaries of Venezuela's petro-largesse such as Jamaica, Haiti and the Dominican Republic are scrambling to retool their economies for its absence. For Guyana, the mainland former British colony embroiled in a centuries-old territorial dispute with Venezuela, the stakes are even higher. As Mr Maduro's popularity has plummeted, he has leaned increasingly hard on his eastern neighbour, in an apparent bid for nationalist support.

Perhaps most at risk is Colombia, which has emerged as a superstar economic performer. The collapse of Venezuela's import sector, Bogota's second-largest market, is already hurting it economically. For a decade it has received the bulk of Venezuela's fleeing educated class, even while its own surplus of unskilled labour has headed in the opposite direction. The return of such emigrants to Colombia, alongside fleeing Venezuelans, could worsen the security crisis at the countries' porous border — where smuggling and narcotrafficking are already rife and guerrilla groups operate with impunity.

In the end, should Venezuela's leaders continue with the untenable economic policies they inherited from Hugo Chávez, the country's late leader, the results will be dire. In refusing to bend, they will eventually break. And while globally the short-term economic effects may seem limited, a failed state at the heart of a region already undermined by corruption scandals, domestic instability and economic malaise, would be a recipe for disaster: like Bolivar's earthquake, only transnational, and imminently avoidable.

The writer teaches Latin American business at the Kellogg School of Management

Read the article online here: http://www.ft.com/intl/cms/s/0/757586a2-44c5-11e5-af2f-4d6e0e5eda22.html#axzz3jisgIdKq