“Oil is the Devil’s Excrement…. Ten years from now, twenty years from now, you will see. Oil will bring us ruin.”
– Juan Pablo Pérez Alfonzo, Venezuelan politician and co-founder of OPEC
The crisis in Venezuela is presently making headlines all around the world. The country is in a state of unrest for quite some time now. There have been numerous protests against the government and dozens of people have been killed in the violence caused by these protests.
But the crisis did not get its inception recently. It all started in 2013. The economic crisis erupted after the death of their former President Hugo Chavez (presided from 1999-2013), which divided Venezuela into two groups Chavistas, followers of Chavez and an Opposition group of those who wanted to end the power of the United Socialist Party (PSUV), the ruling party of Chavez.
After the death of their beloved leader Chavez, by a narrow victory, Nicolas Maduro took over as the President of Venezuela. This succession was welcomed with an oil crisis in the economy. This was a major setback for the newly appointed leader as the country was significantly dependent on their oil reserves for revenues.
Since then, the country has not recovered and its situation has gone downhill.
What is it all about?
The Venezuelan crisis is an accumulation & pile up of a number of factors that went wrong for the country, which have been discussed below.
The opposition in the country is against the policies of the ruling party (PSUV). The opposition argues that PSUV has disturbed & tarnished the democratic institutions and has mismanaged the economy of the country. The ruling party counters by stating that the opposition is for the elite and exploits the poor of Venezuela to increase the riches of their own leaders.
These are normal arguments that are ongoing in every country’s political space. However, the current crisis in the economy is due to one major reason that the opposition does not recognise the current President. They believe that Nicolas Maduro is moving towards a dictatorship regime.
On 29 March 2017, the Supreme Court of Venezuela passed an order dissolving the opposition controlled National Assembly. This move received criticism from all sectors of the economy. The opposition claimed that the action taken by the Supreme Court was similar to a “coup” situation, a one-man ruled country. Though the decision was soon revoked, but it started the flame for many more burning protests.
On 3rd March 2017, President Nicholas called for forming a constituent assembly to write a new constitution. This again led to a series of protests and the opposition strictly ruled out any discussion to take place to draw a new constitution.
The opposition demanded general elections, which were held on 30th July 2017. The ruling party won again, but the opposition did not accept the results and allegated that Maduro used unfair means to win. But no evidence of such discrepancy was found. Colombia, Mexico, Peru & other nations along with US, joined hands in sticking together to not recognise the results of the elections. However old mates, Bolivia, Cuba, Nicaragua and Russia stood by Nicolas Maduro.
Venezuela is the world’s 9th largest exporter of oil and according to OPEC’s 2015 figures, Venezuela has the most proven crude oil reserves in the world, with over 300 billion barrels more than that of Saudi Arabia (266 billion barrels), Iran (158 billion barrels) and Iraq (142 billion barrels). Thus, the fall in prices of oil acted as an significant factor, contributing to the existing unrest in the economy. Both, 2015 and 2016 have been tough for oil exporting countries because of Saudi Arabia’s policy of keeping oil prices deliberately low for political reasons.
Adding more to the problem was the mismanagement of oil wealth by the government in form of expropriation of the oil industry in the name of nationalization leading to the worst economic crisis in the history of Venezuela and the lowest oil production – only 2.5 million barrels a day – in 23 years.
Major chunk of revenues of the country come from oil. When Hugo Chavez was the president, price of oil reached an all time high of $100 a barrel. These revenues were put into financing food subsidies and social programmes. But with the fall in price of oil down to $40 a barrel, these programmes have become unsustainable.
The government has run out of cash with a surmounting debt of $7.2 billion. According to IMF, in 2016, country had an inflation rate of 481%, a negative growth rate of -8% and an unemployment rate of 17% ! The local currency is also totally worthless.
The fall in oil revenues along with the inability to pay for imports has led to a shortage of goods. Government tried to ration the food but that consequently led to products ending up in the black market, overpriced.
The public health sector is the worst hit where medicines and equipment in the hospitals are largely unavailable. Out of every 100 medicines needed, 85 are missing in the country.
The levels of crime, violence and poverty are at an all time high due an ongoing economic crisis stretching for over 3 years. There is no hope from the private sector either as that was destroyed by Chavez during his regime, by nationalising thousands of businesses using confiscation or expropriation.
Venezuela is undergoing the typical crisis that a country that has been subject to years of all kinds of political interventions faces. The economic imbalances accumulated over the years were till now hidden under the influx of dollars coming from oil revenues that grew in value but not in volume. Venezuela is on the verge of collapse if nothing is done soon to alleviate the problem.
To restore stability and reinstatement of democratic institutions, comprehensive reforms are required. The transition process needs to start internally with the political parties coming to terms with each other. Along with this, support from international community towards rebuilding the nation would be essential.