How did Venezuela go from riches to rags?

Venezuela is facing a downward spiral of economic and social deterioration due to the incompetence of its new dictator

Image: Marquinam

Today, Venezuela is associated mainly with its ongoing economic and political crisis. Hyperinflation, hunger and a high crime rate paired with the increasingly autocratic regime of Venezuelan president Nicolas Maduro has put the country into a deadly spiral of ongoing violent protests which could escalate into a civil war.

The state is close to bankruptcy and many people have already decided to leave the country. However, the situation in Venezuela was not always that bad. In fact, it started to significantly deteriorate only a few years ago. Last century, the country was seen as a stable democracy with good living standards and optimistic forecasts. What has happened since then that has changed the situation so drastically?

There was one thing that distinguished Venezuela from other countries in the region – its possession of oil. This acted both as a blessing and a curse. On the one hand it has helped the state to become one of the richest in Latin America, but on the other, Venezuela has a considerable dependence on it. It is estimated that the sale of petroleum accounts for more than 50 per cent of the country’s GDP and around 95 per cent of its exports. This has always had a profound effect on the country’s political situation.

Initially, it was very positive, however things started to complicate with the presidential election of 1999 and the ascent to power of the United Socialist Party Hugo Chavez. He quickly started to implement populist policies including generous social programmes.

It cannot be denied that to some extent this helped the poorest as it is estimated that poverty was cut in half.

However, it was mainly done by artificially creating jobs in newly nationalised industries, which did not lead to greater productivity. The country was further dependent on imports from abroad as subsidised national companies could not compete. The bubble burst after Chavez’s death and the beginning of Nicolas Maduro’s presidency. He decided to continue the risky policies of his predecessor, even extending them. After the drop in oil prices in 2014 this was no longer possible.

Furthermore, he devalued the national currency and exploited its exchange system. As a result of this, the country suffered; hyperinflation reached over 7000 per cent, the poverty index hit 82 per cent, there was a GDP decline of 35 per cent (sharper than the one during Great Depression in the USA), and the severe shortage of food has led to the population’s malnutrition.

Simultaneously, the political situation is not much better as Maduro fills legislative positions with his loyal supporters and severely represses the opposition. It is no wonder that Venezuela is now filled with violent protests. This crisis is also affecting other nations within the region. Over 600,000 people have fled Venezuela to escape the conflict.

Is there any possible solution to the problem? The US already tried to convince Venezuela to restore democracy and has offered this country humanitarian aid. Maduro’s government declined it, seeing it as a “foreign invasion”. For the whole situation the president blames the capitalists and rather than concentrating on reforms he tries to hold onto power.

Sadly, it seems that without radical change (e.g. fixing the currency problem, diversification or power sharing), the situation in Venezuela will continue to deteriorate.

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