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.