Editor’s note: This is the first of a multi-part series about the Venezuelan crisis. Part two will focus on Venezuelan immigrants in Ecuador and the hardships they face re-making their lives.
By Robert Bradley
When President Hugo Chavez died in March of 2013, Venezuela mourned his passing while looking toward to a future fueled by oil and a government committed to a series of social programs aimed at reducing poverty and increasing home ownership.
Misión Vivienda (Housing Mission), had already built over two million houses, agricultural reforms continued to be a high government priority, and the most impoverished inner-city dwellers were occasionally given lavish presents, handed out by the president himself.
What did not matter, apparently, was the cost of the programs and gifts.
Venezuela is one of the five founding members of the Organization of the Petroleum Exporting Countries (OPEC), created in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, in addition to Venezuela. Today, OPEC is a cartel of 12 countries, including Ecuador, which produce 41 percent of the world’s oil, with the stated objective of unifying petroleum policies to secure fair and stable prices for producers.
2013 was a mixed year for oil-producing nations. Escalating social unrest in many parts of the world affected both supply and demand, although the market remained relatively stable.
The situation changed abruptly in mid-2014, due to an oversupply of oil, and prices began a disastrous drop.
March 2014 was the first anniversary of the death of Chavez. In the coming year, the price of oil would tumble and fall to depths not contemplated by forecasters or politicians. Global panic increased, and rapidly shifting monetary conditions became a reality-shaking economic fact that cut to the heart of many countries.
Few, however, suffered greater devastation than Venezuela. Caracas was pummeled. 95% of the country’s economy was dependent on oil. All that was left was the acrid smell of stagnant projects and equipment, and pulverized dreams.
Within a matter of years, Venezuela, which had been Latin America’s most prosperous country in the 1980s, was one of the poorest.
In an attempt to stabilize the economy, newly elected president, Nicolas Maduro, initiated a series of programs that failed spectacularly.
To make essential goods more affordable to the poor, the Maduro administration introduced price controls — capping what people pay for such staples as flour, cooking oil and toiletries. But the cap meant that many companies that produced these goods were no longer profitable and they went out of business or shut their doors. This led to shortages of basic commodities, food, and medicine that fueled an annual inflation rate that is, today, the world’s highest. And there seems to be no respite in sight.
Venezuela’s Central Bank has not published inflation figures since 2015 but economist Steve Hanke from Johns Hopkins University calculated that it rose to almost 18,000 percent in 2017.
The government is increasingly struggling to get credit since it defaulted on some of its bonds. With creditors less likely to take the risk of investing in Venezuela, the government has taken to printing more money, further undermining its value and creating even more inflation.
Oil prices have been rising slowly since late 2015 and should inject much-needed cash into the government’s coffers, but a lack of investment in infrastructure means the state-owned oil company, PDVSA, has reduced its output potential, making it harder for the economy to recover.
Add to that the fact that nearly one million Venezuelans have left the country and more appear ready to leave.
Widespread allegations of corruption and the government’s hostile attitude towards private businesses has also alienated foreign investors. So has the recent re-election of Maduro to a second six-year term amid allegations by the international community and Venezuela’s opposition that the polls were neither free nor fair.
A number of countries have already said they do not recognize the new government, among them the U.S., Brazil, Canada, Chile, Colombia, Peru and Panama.