By Ignacio Portes, formerly the economy editor of the English-speaking daily Buenos Aires Herald. He has also published at Pando Daily and NSFWcorp. See Part I in this series here

The approach of Venezuela’s left was quite different to that of Brazil’s. Hugo Chávez’s government got into a frontal conflict with the country’s historical ruling classes early into his first presidential term. Things got nasty quickly. Boycotts, threats of disobedience, even a full-on military coup in 2002 backed by much of the opposition, told him and his people that nothing in the system could be trusted. So borrowing out ideas or negotiating moves with the elite was much more of a no-go, and opposing them was the first instinct whenever something came up.

Thus, when Chávez was challenged, say, by the management of the state-owned oil giant PDVSA firm, who refused to accept the new government’s reforms in the summer of 2003, he didn’t back down and appease them. Why would he do so when they were part of the same elite that had supported a coup against him just months ago?

PDVSA’s top officials wanted to paralyze the country’s most vital industry, and Venezuela massively depended on oil exports to afford importing the many goods that weren’t locally produced. In the two months that their boycott lasted, the local currency plunged from 1,300 bolívares per US dollar to 1,900 each, making Venezuelans struggle to afford the basics, while the Central Bank was also bled of foreign bills amid the draught in exports and additional capital flight away from the country.

In that context, the prudent advice might have been: “hey, this is something too vital to mess up with, the economy needs the oil dollars to survive, we can’t take these risks. Give some pro-market concessions to the PDVSA people, get their drills back to work and keep that hard foreign currency flowing, even if the government doesn’t control as much of it as we would want.”

But that could never sit well with the Chavistas, who had seen enough of their country’s elites to distrust the idea of making concessions at such time. So they went about things their way, challenging the oil managers first and then embarking in more unorthodox economic reforms as a shield against future attacks.

Eventually, the government got a big win, regaining control of the country’s oil and putting some friendly directors and middle-managers in place of the previous hostile ones. While doing so, Chávez also A) fixed the country’s exchange rate at 1,600 bolívares per dollar, cushioning the blow of the devaluation on Venezuelan’s purchasing power, and B) established currency controls to stop the central bank from leaking so many of US dollars again, giving priority to purchase them to importers of basic goods over, say, citizens willing to go on holidays abroad or firms looking to store their savings in hard currency. This, he believed, would protect the country’s foreign sector from being newly targetted.

A year later, PDVSA was up and running again, and after a devastating 2002 and 2003 in which the country’s economic output had plunged by almost 9 and 8 percent respectively, the lost ground was recovered in a year, with GDP bouncing back by 18 percent in 2004.

Chávez’s bold approach seemed to be paying off, and that was only the beginning. With international oil prices now skyrocketing, those incredible growth rates continued beyond that one-year bounce back: 10% in 2005 and 2006, 9% in 2007, 5% in 2008. Venezuela was having a boom of its own, all while distributing income and turning the country’s political landscape on its head.

But the country was also planting the seeds of its own downfall during those times of success, even if they were different to Brazil’s.

Hidden under the boom-time euphoria, a couple of basic dangers loomed. They were being brushed off by a combination of the US$100+ per oil barrel euphoria and a growing confidence in one simple idea that began to underlie almost every political debate: that questions to the government’s economic policies ultimately amounted to a defence of the traditional powers that be.

Almost any economist, be it a leftist modern monetary theorist, a more centrist liberal or a hard-line right-wing Austrian, would spot trouble if presented with the scenario that began to grow in Venezuela after the foreign sector reforms of 2003: high inflation combined with a fixed exchange rate. Things get a bit technical here, but they can be understood in practical terms.

What happens is that, for anyone who holds part of the increasing amount of local currency (in this case, Venezuela’s bolívares), everything else in the economy is getting nominally more expensive except the foreign bills that the Central Bank holds and sells at a fixed price. So buying that foreign currency (or any imported product) becomes the best business of the land, more so with every day that passes.

That leads to two dire consequences. First, local production becomes unsustainable, as it can’t compete with increasingly cheap foreign imports. Next, the Central Bank runs out of foreign currency reserves, after giving them away at what in real, inflation-adjusted terms is an increasingly cheap price. That means that importing becomes less and less viable too, as the country has nothing to pay for it.

Those problems started becoming increasingly obvious in Venezuela, but the government’s mindset — that criticism from trained economists amounted to attacks from enemies of the people’s will — put it in denial about how this time it was mostly their own policies that were causing them.

So while the government mocked and demonized anyone pointing out that the policies were backfiring, officials tried alternative solutions. Businesses big and small were sanctioned or expensively nationalized after accusations of boycotting the economy. But they did no better post-nationalization, as the base problems kept worsening. More restrictions were placed on what could be imported, but even banning everything minus food and medicine proved insufficient to contain the demand for the few remaining Central Bank dollars. The military was put in charge of eliminating import black markets, but the profits were so good and the bribes so big that the generals ended up running them. In a nutshell, none of them really worked.

Today, Venezuela’s economy is in ruins. Leaked government documents show GDP contracting by a staggering 19 percent last year, the third consecutive of recession. With local production collapsing, non-oil exports plunged from 35 to 10 percent, making the country even more dependant on the ups and downs of global crude markets than it already was. Local prices, meanwhile, are now in hyperinflation territory, rising by 800 percent last year, as various subsidies and stimulus programmes aimed at re-starting local production fail on their purpose and even backfire.

But hyperinflation, as crazy and damaging as it can be, is not even the country’s main problem. The real enemy is scarcity. With local production collapsed, growing limits on imports and very little foreign currency in public or private hands to afford them anyway, hunger is growing widespread ( http://www.bbc.com/news/magazine-36913991 ). Crime and lootings are the order of the day, and only get worse with moves such as India-style overnight bans on cash (supposedly aimed at stopping flimsily-evidenced economic conspiracies), which have just added to the chaos.

All in all, a thoroughly depressing scenario. The challenge that Venezuela’s left began against establishment economics ended up with its government harassing and threatening its own economic dissidents with jail ( http://rodrik.typepad.com/dani_rodriks_weblog/2016/11/scholars-letter-of-support-for-ricardo-hausmann.html ) when it ran out of answers, and proving that economic failures outside of the mainstream are just as possible as inside it.

The much more resounding institutional abuses seen in the last few days, including a shortly-lived ruling which passed the lawmaking powers of the opposition-controlled National Assembly to the government-friendly Supreme Tribunal, stem from the same economic impotence: that move came as the legislative branch refused to approve a proposal to sell oil rights to Russia, in a bid to raise some hard cash days before a looming foreign debt payment that would further deplete the country of dollars. With two and a half years still to go on Maduro’s term, there’s room for more authoritarian moves as long as the lack of economic answers continues to make the government focus on scapegoats.

But as we’ll see in Part III, the consequences of Venezuela’s crisis are also spreading beyond the country. After the collapse of 1990s neo-liberalism, the initial victories of chavismo helped push a continental turn to the left, up unto the inaugurations of hydrocarbons-nationalizing Evo Morales in Bolivia (2006) and foreign debt re-negotiator Rafael Correa in Ecuador (2007). A decade later, it is now the right-of-centre parties across Latin America that are gaining ground helped by variations of one simple slogan: “would you rather we became Venezuela?”