Japan's debt to GDP is over 200%, while Venezuela's is around 50%. Why is it that Venezuela is in the middle of a cash crisis but Japan is not yet? A few facts on the Venezuelan economy:
- Accuracy: Exact numbers on debt, GDP, and inflation do not have high confidence. Negative impact.
- Debt to GDP: Estimates of debt to GDP put it around 50%-65%. This can be positive (low) or negative (high) depending on the other factors.
- Propensity: The government has defaulted five times in the last twenty-five years. Negative impact.
- Collateral: Overseas seizable assets. Positive impact.
- Budget deficit: Venezuela's budget deficit zeroes out only when oil is above $117.
- National Account Theory: Budget Deficit = Savings + Trade Deficit - Investment. Savings are low in a high inflation environment. Investments have been historically low as well. In order to run a trade deficit, a capital inflow is needed.
- Oil: Oil has accounted for 96% of its export revenue, and the price of oil has dropped by nearly half over the last year. Negative impact.
- Cutting spending: There are a few options, many of which have historically led to coups and unrest. Negative impact.
On net, this is why Venezuela's government is in dire straits. There are some holding out, believing that the upside is there, but the consensus is heavily in the default camp barring a dramatic increase in oil prices in the near-term.
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