Hyperinflation, shortages, corruption … For several years the country has been experiencing an unprecedented economic and social crisis, despite its oil reserves, which are the largest in the world.
Venezuela’s political crisis is rooted in a series of economic evils that have plunged the country into a disastrous humanitarian and social situation for several years. Today, Venezuela is left with two presidents and hundreds of thousands of Venezuelans go out on the streets to express their weariness. Back on the origins of this marasmus.
• Increasing hyperinflation
The bolivar, the national currency, is worthless. Since 2013, the country is facing rising inflation. According to the International Monetary Fund (IMF), it reached 1,350,000% in 2018. With a minimum wage – which was increased at the end of November 4,500 Bolivars, or about 50 dollars at the official rate – a Venezuelan can only buy himself two kilos of meat.
At the end of June, a university professor made a sensation on Twitter, saying that he needed four months’ salary to repair the soles of his old shoes. “Venezuela is in a situation comparable to that of Germany in the 1920s”, when bread was paid in a wheelbarrow of notes, says Christopher Dembik, chief economist of Saxo Bank and good connoisseur of the South American country. The situation is not going well.
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• Shortage of basic necessities
This galloping inflation makes Venezuelans’ everyday lives very difficult. Every day, they struggle more to feed themselves and to heal themselves. “Hygiene products, soap, laundry are also no longer available, according to Christopher Dembik. Those who have family abroad buy on the black market, with dollars.
As a result, “forgotten” diseases such as measles and diphtheria have returned , as poor people can no longer afford vaccines. And those who can flee en masse the country. According to the UN, some three million Venezuelans are now living abroad , of whom at least 2.3 million have left Venezuela since 2015. Most of them travel to Colombia and Peru.
• A badly exploited oil rent
The country has the largest oil reserves in the world. The country’s economic dependence on this resource is considerable and has even increased in recent years. Today, oil accounts for more than 90% of state revenue. This windfall allowed former President Hugo Chavez, who died in 2013, to finance massive social programs with millions of petrodollars, which certainly contributed to lowering the poverty rate of the population between 2003 and 2010, but detriment of oil infrastructure maintenance.
As a result, they are in very bad condition today. Another element that explains this lack of maintenance: “In 2004-2005, Chavez massively dismissed the engineers of the national oil company PDVSA, to quell a massive strike of employees,” said Christopher Dembik. “Today, Venezuela is forced to refine its oil in the United States, which is viscous and must be processed to be exploitable. And even to import from the United States “to honor his orders. A shame for a Chavan country.
• The problem of oil dependence
“The government has never sought to diversify its economy. In 1998, just before the arrival of Hugo Chavez in power, oil accounted for 74% of the country’s exports against about 95% today. As oil prices began to fall in 2014, the country’s economic situation deteriorated rapidly despite significant financial support from China and Russia, ” said Saxo Bank economist. “Chavez controlled everything and did what he wanted.
As soon as a foreign investor wanted to set up in the country, he nationalized the company. What scares them, “continues Christopher Dembik. “And he was wrong not to invest in other areas.” The electrical infrastructure, for example, is not maintained. In Caracas, the capital, there are very regularly power outages. Some neighborhoods are staggered.
• Endemic corruption
Venezuela’s crisis is also rooted in a system where corruption is almost institutionalized. Upon coming to power in 2013, Chavez’s successor Nicolas Maduro left control of the economy and the national oil company PDVSA to the generals. “Instead of improving, the situation has worsened. Inexperienced, the generals accelerated the fall of PDVSA “and thus the economy of the country heavily dependent on this company, says Christopher Dembik.
The corruption was notably updated through the tax evasion scandal of the Panama Papers and the Odebrecht scandal, this Brazilian construction giant, who for lucrative construction contracts, has generously distributed bribes to leaders of Latin America, including Chavez.