Venezuela is a country that is located in South America. In the early twentieth century, oil was discovered in Venezuela. Currently, Venezuela has the largest reserves of oil and is among the world's leading exporter of oil. It is ranked as the sixth largest oil producing member of Organization of Petroleum and Exporting Companies (Corrales & Penfold-Becerra, 2011). Venezuela has a mixed economic system. The economy of Venezuela has drastically dropped due to the drop in the prices in oil and now the country is faced with a number of problems such as food crisis, hyperinflation, drug shortages, starvation and political instability.
The current Catastrophe in the economy of Venezuela is thought to arise from the regime of Hugo Chavez. However, while Chavez and Maduro who is his successor deserve to be blamed for the current economic situation in Venezuela, the factors that led to the decline in the economy are attributed to systemic problems (Castillo, 2017). Various economic, political and social policies in Venezuela led to the poor state of the economy.
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Venezuela elected the late Chavez as their president in the year 1999. Chavez implemented a series of redistributive policies which were aimed at reducing the level of poverty in Venezuela. A party in Venezuela known as the United Socialist Party applied redistributive policies to decrease inequality instead of focusing on improving the overall economy. There is a possibility that the inequality would greatly have been reduced if Chavez did not interfere with the economy of the country (Corrales & Penfold-Becerra, 2011). These redistributive policies that Chavez implemented completely depended on the revenue that Venezuela acquired from the state-owned oil industry. The private owned industries were hugely affected by planned price controls by the government thus causing the shortage of basic commodities across Venezuela (Castillo, 2017). Due to lack of strategic reforms to attempt and restore the private incentives and the stability of the currency, the Venezuelan people have continued to suffer.
Although Venezuela is one of the leading producers of oil, it is literally surviving at the mercy of the prices of the oil. Policies were implemented by Chavez which aimed at expanding education, access to housing, food and medical care which were paid for from the revenue that was accrued through the exportation of oil (Nadeau, Bélanger & Didier, 2013). Chavez easily reduced the price of basic goods and services during the 2000s, when the price of oil was rising. Exports of oil from companies that were owned by the state reached ninety-five percent of the total exports of Venezuela in the recent years (Manzano & Monaldi, 2010). Total dependence on oil exports by Venezuela has left Venezuela vulnerable to price changes. In the year 2014, the prices of oil started to decline, falling from a thousand dollars during summer to a low amount of thirty-three dollars in the year 2016. Hyperinflation took over affecting the savings that individuals had made and making business investments that were productive nearly impossible.
The government took another step of implementing controls in the price, giving private businesses maximum prices that they could for a large number of commodities, from medicine to foods. The prices that the government controls set were way below those that were on the market (Castillo, 2017). This led to private business owners cutting back production and some closing the businesses since they incurred a lot of losses. Currently, this has led to the widespread shortage of food. The Venezuelan government has thus closed down many private grocery stores and has instead used the foreign currency that is decreasing to provide food that is cheap. In the hospital, the scenario is similar. There is a shortage of the drugs, gloves, and gauze since the private producers have reduced production or closed their businesses (Castillo, 2017). Venezuelan people from store to store to get what they require, and quieting in lines for hours. Those commodities that are accessible however are very expensive. This has led to most of the Venezuelan people to flee the country in search of quality life which seems to be impossible to find in Venezuela.
The move taken by the government was to fix the currency exchange rates has also affected the economy of Venezuela greatly. Many of the corporations in Venezuela need to import goods at free dollar prices (Castillo, 2017). This has posed a problem of business people not being able to convert the dollar prices to Bolivars when they sell their imported goods because the government has controlled the prices. These fixed exchange rates have also endangered Venezuela's access to the credit offered by the international markets. The Venezuela dollar reserves are declining rapidly (Bruce, 2008).
Social and economic systems characterized by democratic control and social ownership of the production means and political movements have also led to the decline in the economy of Venezuela. Rómulo Betancourt, being an ex-communist, was in favor of establishing socialism renounced his Marxist ways in 1958 (Bruce, 2008). Betancourt believed in a key role in the economic matters of the state despite being more of a social democrat. Betancourt aim was to fully nationalize the petroleum sector of Venezuela and use the revenue gotten from the petroleum sector. The belief by politicians at that particular time was that if Venezuela wanted to be independent, the government had to take complete control of the oil sector (Nadeau, Bélanger & Didier, 2013). This socialism has led to the decline in the economy since most of the people in the upper class are sending their money to the foreign accounts hence reducing the amount of cash in circulation in Venezuela.
The past government of Venezuela had Chaves as the president and Maduro as the vice-president (Nadeau, Bélanger & Didier, 2013). In the year 2013, president Chavez passed on Elections were carried out in Venezuela in the year in December 2015 went into elections and gave more support to the opposition. Maduro, who had made promises before the election, withdrew the promises he had made for building more houses by the government for the poor people since the people refused to support him (Nadeau, Bélanger & Didier, 2013). This triggered the problem of lack of housing for most of the people in Venezuela. A hired economic socialist known as Luis Salas mentioned that the inflation that was occurring was not due to the government printing a lot of money but due to the rise of prices in unison by the capitalists (Nadeau, Bélanger & Didier, 2013). This was a backward thinking in economy which has since led to shortages in food and also deterioration in the health sector
Many people in Venezuela have been involved in demonstrations and protests against the government. Most of these people are oil workers. The production of oil has thus gone down leading to the reduction in the revenue that is derived from the oil (Nadeau, Bélanger & Didier, 2013). In the course of these protests, many people have been killed and others arrested thus reducing the workmanship available to work so as to improve the country's economy. There has also been increased tension and insecurity in Venezuela due to civil unrest. This has put off potential investors and also affected the few private businesses that were still there.
Another possible cause that seems to have contributed to the decline in the economy of Venezuela is the probability of powerful interested people outside and inside of the state that is benefiting from the current system, especially the military officials that are highly ranked, who have blocked change. This has made devaluation of the currency unable to take place.
The inability of the past governments to tackle corruption seems to also be responsible for the current currency crisis that exists in Venezuela (Corrales & Penfold-Becerra, 2011). Corruption grew to greater heights after Chavez. Chavez was unable to tackle it because the corruption occurred under the military personnel. Chavez also did not question those officers who were allied with him and involved in corruption. On the other hand, Maduro failed to tackle corruption due to institutional weakness and political weakness and his desire to keep the military on his side regardless of the deteriorating situation of the country (Nadeau, Bélanger & Didier, 2013). Since these leaders did not deal with corruption, three major problems affecting the economy have resulted. There has been a great loss of the resources of the state, the public has also lost faith in the public institutions and a political opening for politicians to accuse the interim government of failing to protect the wealth of the nation and the integrity of the institutions that are public.
When military dictatorship collapsed in the year 1958 and transition to democracy occurred, the new government applied various strategies of Import Substitution Industrialization, therefore, prioritizing the social welfare. However, the debt crisis which occurred in the year 1983 led to a decade characterized by growing levels of poverty, inflation, and unemployment (Corrales & Penfold-Becerra, 2011). This led to the courting of foreign leaders and borrowing in order to maintain social spending. During the second term of President Carlos neoliberal reforms were introduced which were aimed at rallying against the international monetary fund. Carlos faced pressure from the foreign creditors to implement the IMF system. Hence Carlos dismantled the protections, cut down the social spending and also deregulated the prices.
During the duration that the late Venezuelan president, Hugo Chavez was in office, the administration proposed and applied economic socialistic policies referred to as the Bolivarian revolution. During the early 2000s, the prices of oil skyrocketed giving Chavez funds that had not been seen before the beginning of the collapse of the economy of Venezuela during the 1980s. The government of Chavez became semi-authoritarian and used its power in order to gain firm control over the large resources. As Chavez started to raise the spending by the domestic sector in order to build a political following that was loyal, currency controls, high levels of inflation, an environment that was friendly to the private businesses and the probability of a high risk of people who defaulted prevented the stronger foreign currencies from entering into Venezuela (Corrales & Penfold-Becerra, 2011). Despite the warning that the government of Chavez was given, it overspent continuously in social spending, thus lacking enough money for any future development. This led to the suffering of other industries due to the overreliance on oil, leading to a fall in the GDP. Hence shortages in Venezuela increased and the level of inflammation also rose to one of the highest in the world.
Currently, Venezuela is experiencing one of the worst crisis in the economy in the world's history. Families are struggling to earn an income so as to satisfy their daily needs and those with funds cannot access these needs due to their unavailability. There is also a steady rise in the black market as people are trying to produce poor quality or fake goods in an attempt to provide them at subsidized prices for those who cannot buy at the set prices by the government (Castillo, 2017). The immediate cause that this can be attributed to is the drop in the price of oil. Other factors that have been known to have caused this decline in the economy over a long period of time include corruption, overspending by the government and lack of infrastructure investment.
References
Bruce, I. (2008). The real Venezuela: Making socialism in the twenty-first century . Pluto Pr.
Castillo, A. D. M. (2017). The Venezuelan State intervention in Economy (1936-2016), scope and limits. Economía , 42 (43), 113-139.
Corrales, J., & Penfold-Becerra, M. (2011). Dragon in the tropics: Hugo Chávez and the political economy of revolution in Venezuela . Brookings Institution Press.
Nadeau, R., Bélanger, É., & Didier, T. (2013). The Chávez vote and the national economy in Venezuela. Electoral Studies , 32 (3), 482-488.
Manzano, O., & Monaldi, F. (2010). 12 The Political Economy of Oil Contract Renegotiation in Venezuela. The natural resources trap: Private investment without public commitment , 409 .
