People die because there is a lack of food and medication everywhere. The economy is on the floor. The mood among Venezuela’s poor, who previously supported President Maduro, is heating up. But why is Venezuela In Crisis? Let’s Clear that.
Venezuela’s economy is devastated. In the country with the largest oil reserves in the world, more than 80 percent of the people today live in poverty, many are starving, and state health care has collapsed. Venezuelans under Maduro lost an average of eight kilograms of body weight. The Venezuelans cynically call this the Maduro Diet. But why Is Venezuela In crisis in the first place?
Venezuela’s Fate is Linked to Global Oil Prices
Venezuela has always been oil-dependent. For years, Maduro’s predecessor and mentor, Hugo Chavez, had funded social programs from the then sparkling oil revenues and drastically reduced poverty in Venezuela. He also supported friendly countries like Cuba and Bolivia. All this worked well as long as the oil price rose after the turn of the millennium.
But after Chavez’s death in 2013, the course slid dramatically. As a result, national debt and unemployment rose to record levels, and the economy shrank by two-thirds compared to Chavez. This is not only the fault of the drop in oil prices. The politicization of the state-owned oil company PDVSA(Petróleos de Venezuela) also proved fatal.
In 2017, the entire PDVSA leadership was dismissed and replaced by the military. The military had no idea about the business, and within the next six months, the oil production volume fell again by a third, which illustrates the collapse.
PDVSA is seriously ill as the former black gold mine only produces a third as much oil as it did 20 years ago. Billions have disappeared as a result of corruption, and the investment systems are failing due to a lack of investment. There are also other economic decisions from the Chavez era.
Chavez introduced exchange rate controls and began nationalizing companies in the steel and cement sector in telecommunications and in the banking sector. On the grounds that the rich made money abroad and entrepreneurs tried to sabotage the socialist project. Improvement is not in sight.
No Hope for Entrepreneurs
The private sector no longer has any interest in investing in Venezuela because of the lack of incentive and profit. The entrepreneurs either have to sell their property to the state, or their companies are expropriated. The inefficient state of Venezuela has become an entrepreneurial graveyard.
The capable people have left Venezuela because they were not in line with the Bolivarian Revolution, and many who were in charge after the revolution are corrupt.
The Army Can’t Control the Businesses.
Maduro has been expanding the army’s influence on the economy since 2013. Dozens of state-owned companies and hundreds of private companies are headed by present and former military leaders. He did not respond to the drop in revenues caused by the crumbling oil price with a saving course of action but had the central bank print fresh money.
Maduro attempted to fight the following hyperinflation by simply deleting five zeros from the rapidly falling national currency, the bolivar. The previous government, under Chavez, deleted three zeros in 2008, and it didn’t work.
The effect quickly evaporated because government spending remained extremely high, and the central bank simply reprinted money to plug the holes in the budget.
No Lesson learned from the past.
It is not the first time that Venezuela’s economy is threatened with collapse. Almost exactly 30 years ago, at the end of February 1989, the poor rose in Venezuela. A fall in oil prices and corruption scandals had brought the then market economy to the brink of collapse and led to rapidly increasing inflation and unemployment leaving Venezuela in crisis.
The brutally suppressed uprising called Caracazo indicated the end of decades of stable bipartisan democracy and justified the rise of a new politician named Hugo Chavez.