The Venezuelan crisis

The Venezuelan crisis

   Venezuela has been experiencing an economic crisis since 2013, after Chavez’s death and Maduro’s new election. This economic crisis, known as « the Venezuelan great depression » leads to a drop in the main macroeconomic indicators. In 2018, inflation peaked 14,000% and the 2019 forecast is worse, with 10,000,000%. Economic growth decreased by 18% in 2018 and this fall in GDP is set to be bigger with a 25% fall in 2019.

Since 2013, a political crisis has been added to the economic one after a controversial election won by the new President, Nicolas Maduro. In 2013, he was elected with 50.61% of votes and he was reelected in 2018. Consequently, Chavez successor’s elections are not considered by the local population to be legitimate and lawful. Nowadays, riots and violent scenes are the daily routine of Venezuela, a hunger crisis hits the country owing to food scarcity. How has the healthiest country of  Latin America in the 70s and with the biggest proven oil reserve in the world achieved to be on the brink of bankruptcy ?

Venezuela has always been a country dependent on oil and all their policies were based on oil exports. When Chavez came to power in 1999, his goal was to reduce poverty and to redistribute Venezuelan abundance to the whole population. Chavez’s term was marked by the implementation of « social missions » to reduce inequalities. Many citizens has benefited from social helps and to schemes focused on health and education. For instance, the Milagro mission permits setting up free of charge ophthalmologist services in the whole country and especially for the poorest people living in rural areas. Nevertheless, these policies were only achievable thanks to oil.

Chavez’s main aim was to develop the industry sector to permit Venezuela to diversify its wealth, but he failed. In 2012, about 95% of Venezuelan exports were coming from oil extraction, therefore all Chavez’s policies of redistribution were dependent on the oil sector. In other words, Venezuela was affected by the Dutch disease : which means  that raw material exportation leads to the rise of exchange rates, which deteriorate the competitiveness of the industry sector and thus, lead to Venezuelan de-industrialisation. Venezuelan growth is directly led to oil prices, if oil prices are high, Venezuela has more resources and can afford its policies while importing products that the country does not produce (almost everything, from food to manufactured goods).

Unfortunately for Venezuela, since 2015 oil prices have collapsed, which also has brought Venezuela to collapse. Moreover, due to the lack of investment in oil production, the latter reached its lowest level with only the production of 1.2 million barrels per day in October 2018. Oil production has been halved in 5 years because at the beginning of the crisis, PDVSA (the national company of oil) produced 2.4 million barrels per day.

In 2017, more than 70% of Venezuelan people lived below the poverty line and Maduro’s popularity suffered. At present, the population still can not buy basic foods, not only because the Bolivar (the local currency) is not worth a jot, but also because they do not have income (more than 30% of active population unemployed). The critical situation led to violence and Venezuela has become one of the most dangerous countries in the world. This status also has led to the escape of the population, which cannot envisage a glimmer of hope by staying in their home country. According to the United Nations, more than 2 million Venezuelan have left the country since the beginning of the crisis, which represents 7% of the population.

As it stands, few changes are predicted for the future in a political point of view. Nicolas Maduro is still hanging on his seat despite the dissatisfaction from a big part of the population, but also from the major parts of the country. The former major economic partner of Venezuela, which is the United States, diriged by Donald Trump turned their back to Nicolas Maduro. Venezuela seems to be more isolated than ever.

Amin R.