82. Venezuelan Crisis - How it could have been Prevented

Updated: Oct 6, 2020

What is Venezuelan Crisis ?


The Venezuelan Crisis is an ongoing socioeconomic and political crisis that began in Venezuela in June 2010 during the presidency of Hugo Chávez and has continued into the presidency of Nicolás Maduro. It is marked by hyperinflation, escalating starvation,disease, crime and mortality rates, resulting in massive emigration from the country.


According to economists interviewed by The New York Times, the situation is the worst economic crisis in Venezuela's history and the worst facing a country that is not experiencing war since the mid-20th century, and is more severe than that of the United States during the Great Depression, of Brazil's 1985–1994 economic crisis, or of Zimbabwe's 2008–2009 hyperinflation crisis.


Watch the Video:


From riches to rags: Venezuela's economic crisis | The Big Picture

https://www.youtube.com/watch?v=mL8d91vdR9g



Other American writers have also compared aspects of the crisis, such as unemployment and GDP contraction, to post-war Bosnia and Russia, Cuba and Albania following the collapse of the Soviet Union.


On 2 June 2010, Chávez declared an "economic war" due to increasing shortages in Venezuela. The crisis intensified under the Maduro government, growing more severe as a result of low oil prices in early 2015, and a drop in Venezuela's oil production from lack of maintenance and investment.The government failed to cut spending in the face of falling oil revenues, and has dealt with the crisis by denying its existence and violently repressing opposition.


Pic : Venezuelan Economy


What is Extent of Venezuelan Crisis ?


Extrajudicial killings by the Venezuelan government became common, with the U.N. reporting 5,287 killings by the Special Action Forces in 2017, with at least another 1,569 killings recorded in the first six months of 2019; the U.N. had "reasonable grounds to believe that many of these killings constitute extrajudicial executions", and characterized the security operations as "aimed at neutralizing, repressing and criminalizing political opponents and people critical of the government."


The U.N. also stated that the Special Action Forces "would plant arms and drugs and fire their weapons against the walls or in the air to suggest a confrontation and to show the victim had resisted authority" and that some of the killings were "done as a reprisal for [the victims'] participation in anti-government demonstrations."


Pic : Chavez


I. What is happening today and What went wrong in Venezuela ?


The Crisis in Venezuela has been taken place due to high dependance on Oil Exports and following Factors further worsened the Crisis.


1. Political corruption,

2. Chronic shortages of food and medicine,

3. Closure of companies,

4. Unemployment,

5. Deterioration of productivity,

6. Authoritarianism,

7. Human rights violations,

8. Gross economic mismanagement and

9. Lack of Private Enterprise.


Supporters of Chávez and Maduro say that the problems result from an "economic war" on Venezuela and "falling oil prices, international sanctions, and the country's business elite"; critics of the government say the cause is "years of economic mismanagement, and corruption". Most critics cite anti-democratic governance, corruption and mismanagement of the economy as causes of the crisis. Others attribute the crisis to the "socialist", "populist" or "hyper-populist" nature of the regime's policies and the use of these policies to maintain political power.


In 2018, the United Nations High Commissioner for Human Rights (OHCHR) documented that "information gathered indicates that the socioeconomic crisis had been unfolding for several years" before international sanctions, with Michelle Bachelet saying in 2019 that the social and economic crisis was dramatically deteriorating, the government had not acknowledged or addressed the extent of the crisis, and she expressed concern that although the "pervasive and devastating economic and social crisis began before the imposition of the first economic sanctions", the sanctions could worsen the situation.


National and international analysts and economists stated that the crisis is not the result of a conflict, natural disaster or sanctions but the consequences of populist policies and corrupt practices that began under the Chávez administration's Bolivarian Revolution and continued under the Maduro administration.


Pic : President Nicolás Maduro


II. The crisis has affected the life of the average Venezuelan on all levels.


By 2017,


1.Hunger had escalated to the point where almost seventy-five percent of the population had lost an average of over 8 kg (over 19 lbs) in weight, and


2. More than half did not have enough income to meet their basic food needs.


3. Reuters reported that a UN report estimated in March 2019 that 94% of Venezuelans live in poverty, and more than ten percent of Venezuelans (3.4 million) have left their country.


4. The UN analysis estimates in 2019 that 25% of Venezuelans need some form of humanitarian assistance.


5. Venezuela led the world in murder rates, with 81.4 per 100,000 people killed in 2018, making it the third most violent country in the world.


Following increased international sanctions throughout 2019, the Maduro government abandoned policies established by Chávez such as price and currency controls, which resulted in the country seeing a temporary rebound from economic decline before COVID-19 entered Venezuela the following year. In an interview with José Vicente Rangel, President Nicolás Maduro described dollarization as an "escape valve" that helps the recovery of the country, the spread of productive forces in the country and the economy. However, Maduro said that the Venezuelan bolívar remains as the national currency.



III. Venezuela is edging closer every day to its breaking point.


A massive nationwide protest against President Nicolas Maduro is expected and His critics are declaring that Venezuela's democracy is nearing collapse after Maduro quashed a referendum vote seeking to remove him from office.


"Only dictatorships deprive their citizens of rights," Luis Almagro, secretary general of the Organization of American States, said , "Today we are more convinced than ever of the breakdown of the democratic system."


Maduro's supporters attempted to storm the National Assembly, which is controlled by the opposition party. Lawmakers from the opposition responded Tuesday by calling on Maduro to testify before them to determine whether he should be removed from office.


All this is happening in a year when its citizens have battled with food and medicine shortages, sky high inflation and dwindling options.




Pic : Venezuelan People migrating to Neighbouring and Other Countries.


Watch the Video :


Why Colombia has taken in 1 million Venezuelans


https://www.youtube.com/watch?v=NU0RqwweuWY


IV. How did it get so desperate in Venezuela -- a country sitting on more oil than any other in the world?


Here are 4 reasons why it's diving deeper into crisis mode.


1. Economic crisis: three years of recession


Venezuela is in its third year of recession. Its economy is expected to contract 10% this year, according to the International Monetary Fund. The IMF forecasts Venezuela will be in recession until at least 2019.


While the economy shrinks, the price of goods is skyrocketing. This year, inflation is expected to rise 475%, according to the IMF.


Venezuela's currency has plummeted in value. Consider this: one dollar equaled 100 bolivars exactly two years ago. Today, a dollar gets you 1,262 bolivars, according to DolarToday.com, which tracks the popular, unofficial rate.


Years of excessive government spending on welfare programs, poorly managed facilities and dilapidated farms set the stage for the crisis.


2. Venezuela's broken engine: oil


Things got really bad when oil prices started to plunge in 2014. Venezuela has the world's largest oil reserves, but the problem is that oil is the only game in town. It makes up over 95% of Venezuela's revenue from its exports. If it doesn't sell oil, the country doesn't have money to spend.


Oil prices were over $100 a barrel in 2014. Today, they hover around $50 a barrel, after dropping as low as $26 earlier this year.


The problem is that Venezuela has not taken care of its cash cow -- squandering opportunities to invest in its oilfields when times were good. Because the country has neglected with the upkeep of its oil facilities, production has dropped to a 13-year low.

Venezuela's state-run oil company, PDVSA, hasn't paid the companies that help extract its oil, such as Schlumberger (SLB). In the spring, Schlumberger and other companies dramatically reduced operations with PDVSA, citing unpaid bills.


PDVSA warned last week that it could default on its debt if bondholders didn't accept new payment terms. Just enough investors accepted a new deal that will allow PDVSA to likely avoid default this year. However, experts say it's only delayed a default by a few months.


Pic : Venezuelan Migration Data


3. Soaring food prices & broken hospitals


Venezuela's food shortages became extremely severe this year. Venezuelans went weeks, in some cases months, without basics like milk, eggs, flour, soap and toilet paper.


Despite a crashing currency and falling oil revenue, the government continued enforcing strict price controls on goods sold in the supermarkets. It forced food importers to stop bringing in virtually everything because they would have had to sell it for a major loss.

In the first half of 2016, food imports were down by nearly 50% from the same time a year ago, according to several estimates.


Only recently has the government stopped enforcing price controls, and food has returned to supermarket shelves. However, prices are so high that few Venezuelans can afford the food.


Medicine remains in short supply too. Venezuelans hunt for penicillin and other remedies at pharmacies everywhere, often without any success. The country's public hospitals have fallen apart, causing people, even infants, to die due to the scarcity of basic medical care.


4. Running out of cash and gold


Venezuela is running out of cash quickly. It doesn't have enough money to pay its bills for too long.


The math just doesn't add up: It owes $15 billion between now and the end of 2017, while the nation's central bank only has $11.8 billion in reserves. At the same time, Venezuela's only other cash source, PDVSA, is pumping less oil and risking default.


Most of its reserves are in the form of gold. So, to make debt payments this year, Venezuela has shipped gold bars to Switzerland.


China used to bail out Venezuela and loan it billions of dollars. But even China has stopped giving its Latin American ally more cash.


Very regular protests are a stark reminder that Venezuela is running out of time, money and options very quickly.


"Tempers are getting hot in Venezuela," says Eric Farnsworth, vice president at Council of the Americas. "All the indicators are that the situation is deteriorating fast and it's not going to get better anytime soon."


Pic : Venezuelan Migration Crisis


V. Whether American Sanctions impacted Venezuelan Crisis ?


Do Sanctions Do the Job?


The U.S. sanctions on Venezuela, in force since March 2015, could cripple the Venezuelan economy further should the U.S. decide to add more restrictions, the experts said. On Monday, U.S. Vice President Mike Pence slapped U.S. sanctions on four Venezuelan governors who are close to Maduro. He also called upon leaders in the region to restrict Maduro’s sources of funds by freezing the assets of Venezuela’s oil company PDVSA.


“Maduro’s efforts to blame the economic crisis on intervention from the U.S. gains more credibility as the U.S. imposes sanctions and takes other actions to put pressure on the Venezuelan economy.” Dorothy Kronick

Yet more sanctions could prove to be a devastating blow. “As abysmal as the state of the Venezuelan economy is, the reality is it can get worse,” said Dorothy Kronick, University of Pennsylvania. She noted that Venezuela’s import bill this year is an estimated $11 billion, which is nearly as much as the $12 billion it spent on imports last year.


She added that “famine and deaths from malnutrition are a very realistic scenario that we need to work to try to avert.” Velasco agreed, adding, “It’s baffling why there is this tremendous push towards an all-or-nothing strategy which is so short-termist and relies on increasing the suffering of Venezuelans on the ground as a way to be able to further legitimize increasing action.”


Pic : Venezuelan Inflation Crisis


Reinforcing Maduro’s Narrative


U.S. moves to push Maduro into a corner with sanctions may be backfiring, because such actions lend credibility to Maduro’s claim that the U.S. is responsible for much of Venezuela’s problems.


According to Velasco, “all [Maduro] really needs is to have somebody to be able to blame.” He said Maduro is able to spread fears that the U.S. wants to intervene in Venezuela and convert that into support for him within the country. “Unfortunately the U.S. is doing everything in its power to make that blame increasingly realistic,” he added.

Kronick sees Maduro enjoying “wide support” within the country. “Maduro’s efforts to deny the existence of an economic crisis or blame all the economic problems on the U.S. have not convinced the vast majority of the Venezuelan people,” she said. “[However], Maduro’s efforts to blame the economic crisis on intervention from the U.S. gains more credibility as the U.S. imposes sanctions and takes other actions to put pressure on the Venezuelan economy.”

VI. What are the Possible Ways of Economic Recovery and Establishment of Political Order.


1. First and foremost, opportunity has to be distributed in an equal way,” he said. “If the exigencies of Venezuela are used as an excuse to return to the economic structures of old, Venezuela will collapse again. The people of Venezuela are not likely to long support a return to ‘the good old days’ when only a handful of Venezuelans controlled most of the country’s wealth.”


2. Next , a new regime should use oil revenues to tame inflation “long enough to allow markets to kick in,” so that food and medicine can start coming in through regular channels.


3. Third, legal foundations must be set up allowing for the return of some of the means of production to private hands, so that, Market Economy Prevails.


4. It is going to take a while to rebuild Venezuela. “Perhaps the best path the new government could take would be to position themselves as a caretaker government and to very transparently prepare the country for new elections — and to refrain from running for any elections themselves,.


5. The new government could also prepare critical industries for a transition but should refrain from disposing of any of them, perhaps placing them in a collective trust managed by experienced outsiders. It should definitely refrain from taking retributive actions.”


6. The new government should embrace a caretaker role and simply ask bureaucrats to commit to free and open elections so that the people of Venezuela can express their wishes.


7. The new government could also take advantage of its window as a caretaker to create a permanent, independent and empowered anti-corruption agency. Such an agency would be a great legacy from the caretaker government’s time in office. The new government should earn a mandate from the people, not just claim it by fiat.”


Pic : Lima Group seeks global pressure on Venezuela's Maduro


How to Solve Venezuelan Crisis - Aljazeera- Please watch this Video..


https://www.aljazeera.com/news/2019/07/lima-group-seeks-global-pressure-venezuela-maduro-190724093025924.html


VII. How This Venezuelan Crisis Could have been Prevented ?


What makes the current conflict so sad is that it could have easily have been prevented with necessary Measures in both Political and Economic Space well in advance


1. Political Space


1. Minimal spaces for dialogue between opponents had been safeguarded.

2.The crisis, it seems, is institutional.


The recent violence has taken place against a backdrop absolute institutional decay. The rock-bottom-basic institutions a modern country needs—the high school civics triad of the executive, the legislature, and the courts—have just plain stopped operating in anything like a recognizable form.


3. Power should been decentralised , instead of rlying on of a presidential system with overload of legitimacy on a single human being and his or her agenda.


4. Election Process should be transparent one instead of what happened in Venezuela- Take this example: a president that gets elected by a narrow margin, say by 1.49 points. In this example 20 percent of the voters abstain. That 50.61 percent (out of the 80 percent that voted) who elected the president did so because they favor something like 75 percent of his agenda, while the others that didn’t vote for him, supported only a fraction of that. And yet, the president feels he can legitimately push 100 percent of his agenda.

Sound familiar? That is Nicolás Maduro for you.


2. Economic Space


  1. Necessary Checks and Balances should have been installed to measure the Performance and Health of Economy well in advance,when Economic deterioration started.

  2. Overdepence on Oil destroyed the Economy,other Industries too might have been given priority and nurtured as well.

  3. Government might have been allowed the Private Enterprise to function at certain level, if not like China.

  4. Must have been ensured Self-reliance of Food , Medicines and Basic Daily Commodities,instead of relying on Imports.

  5. Venezuela might have been created Growth Engines like IT, Tourissm, Financial Sectors, Manufacturing and with Special Focus on Agriculture etc.

  6. They would have been avoided Freebies to Citizens as they never delivered almost anywhere in the world except to keep the Politicians in the Power Chairs.

  7. Central Bank, Monetary Policy and Fiscal Policies should have been handled by Technocrats instead of henchmen of Politicians.


Conclusion


Venezuela is in full-blown crisis mode. The violence has been in the making for years. It’s not a social or economic crisisthe economy is in shambles, but it’s not yet at its worst. Crime is stratospheric, but then, it has been high for years. The crisis, it seems, goes beyond this.


That is current state of Venezuela, One of the Oil rich countries in the World.

Millions and Millions of people leaving and going to neighbouring countries just for basic food and survial, leave the prosperity aside.


Oil Wealth in recent decades destroyed the Private Enterprise and country completely relied on Imports and people on State's freebies.


When Oil Prices Collapsed, Everything went to disorder coupled with Mismanagement of Global Geopolitics and particulary Sanctions from US have severely impacted the Country.


This entire Crisis could have been prevented with Institutional Building in both Political and Economic Space with Proper Checks and Balances in Economy and Decentralisation of Power in Political Space.


Lets hope and wish this Crisis will end soon and better days will return to Venezuela soonest possible time......!!



MM Rao

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Sources :

https://money.cnn.com/2016/10/25/news/economy/venezuela-breaking-point/index.html

https://www.aljazeera.com/news/2019/07/lima-group-seeks-global-pressure-venezuela-maduro-190724093025924.html

https://knowledge.wharton.upenn.edu/article/venezuela-extricate-crisis-recover/

https://en.wikipedia.org/wiki/Crisis_in_Venezuela

https://newrepublic.com/article/116744/caracaschronicles.com

https://www.google.com/search?q=venezuela+crisis&rlz=1C1CHBF_enIN786IN786&sxsrf=ALeKk02KvxcNDsUsf1A4ZUzhRWG8NBFp3Q

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