Once the richest country in Latin America, Venezuela has the largest oil reserves in the world and was praised for it's democratic government. Despite this, Venezuela is experiencing one of the worst national emergencies in Latin American history. Hyperinflation, corruption and nation-wide public unrest has put the country on the verge of collapse.
But how did Venezuela go from riches to national crisis?
Venezuela’s economic prosperity originated with the rise of oil prices in the 2000s. With an economy reliant on petroleum, the country saw a massive economic boom under President Maduro’s predecessor, Hugo Chavez. Unlike President Maduro however, Chavez began as a popular and charismatic leader.
Chavez was elected President in 1999 out of decades of corruption and economic mismanagement. His campaign gained huge support from the poor and this helped him into power. When oil prices exploded globally in 2004, President Chavez took advantage of this and increased government spending, borrowing heavily in the process.
Chavez spent billions of dollars on social welfare problems such as healthcare, education and food subsidies. These reforms helped Chavez reduce poverty by nearly 30%. Unfortunately for the people of Venezuela, however, Chavez's need to stay in power meant the reliance on petroleum was never decreased. Massive government spending led to a growing national deficit.
The increasing reliance on petroleum meant that Chavez’ social welfare programs could not sustain if the price of oil would ever drop. After Chavez died in 2013, his hand picked successor, Nicolas Maduro was elected to office.
Untimely, just months into President Moduro's first term, the price of oil halved to just $50 a barrel, devastating the Venezuelan economy.
With a rapidly declining economy and social welfare programs that had previously subsidised food and medicine, hyperinflation meant these products and services were unaffordable to Venezuela’s poor.
In 2015, a coalition of opposition parties called the Democratic Unity Roundtable (MUD) won a majority in the National Assembly, directly threatening Moduro's rule. He very quickly replaced Supreme Court justices with individuals loyal to him.
In March 2016, the Supreme Court voted to strip away the National Assembly which would eliminate Moduro's opposition. Backlash from Venezuela's citizens forced this decision to be reversed.
Following this, in March 2017, President Moduro held a vote on the replacement of the National Assembly and would essentially place him at the head of an authoritarian regime. With citizens having no say in this decision and only having the option to vote for representatives in Moduro's new Assembly, massive protests erupted across the country.
The crisis has, so far, claimed the lives of nearly 300 people, injured 18,000 has seen 90% of the country slip below the poverty line. According to one poll, nine million Venezuelans eat only once per day. A similar number also said they eat nothing or close to nothing once a week.
Hyperinflation is a term in economics and is an extreme form of inflation, which itself is when the value of local currency is eroded as the price of all goods increase. At the moment, Venezuela’s national currency, the bolivar, stands at 24,848,800 VEF for $100.
The IMF said in 2018 that Venezuela's crisis was one of the worst cases of hyperinflation in modern history - and that it would only get worse.
Reactions from the International Community
The elections in July 2017 were condemned by over 40 countries. However, opposition to Moduro is a dividing factor for the international community.
Russia, China, Turkey, Cuba, Bolivia, Iran and Nicaragua support Moduro. Interestingly, Venezuela owes $20 billion to China and $2.3 billion to Russia. Questions over the repayment of debt should Moduro lose power is undeniably shaping the stances of China and Russia. Moreover, Maduro is believed to have offered Russia a 49.9% stake in Citgo, which is parented by PDVSA, a state-owned company of the Venezuelan government.
The US, European Union and most of Central and South America condemn Moduro and support Juan Guaido, who declared him “acting President” in January 2019.
A Future with Guaido
Juan Guaido, a longtime opposition activist and President of the National Assembly was declared the legitimate ruler by the National Assembly in 2019. This was in reaction to Moduro’s alleged false claim of victory in the 2018 Venezuelan presidential election.
Moduro’s claim was met with protests and riots by thousands of Venezuelans in January 2019, and they demanded he stepped down. For the most part, the Supreme Court is still under Moduro’s control and the military has sided with him. Yet, analysts are unsure as to how long this may last. International pressure is taking its toll, and Trump has refused to rule out US military intervention into Venezuela.
If Juan Guaido assumes presidency, the most important question will be on the debts owed by Venezuela. The IMF is surely the first to step in, and harsh structural adjustment programs (SAPs) are likely to be implemented to tackle Venezuela’s debt and hyperinflation.
On the one hand, the country’s vast oil reserves leave no doubt over the importance on both the Venezuelan economy and industries. But, on the other, countries who benefit from exploiting this natural wealth hold the brush of Venezuela’s future very tight indeed.
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