What Happened to Venezuela?

In the two year period from the beginning of 2016 to the end of 2017, three Venezuelan Universities undertook surveys of living conditions in the country. These ENCOVI studies (as they’re known in Spanish) returned dismal results. Through 2016 75% of the population lost 8kg due to inadequate nutrition. Results merely worsened the following year with citizens, 90% of whom were now living in poverty, losing 11kg on average. So desperate is the situation regarding child mortality that the publishing of statistics has been repressed if not outright banned by the government. Regardless, studies from the New York Times showing increased child death rates and illegal reports of tripling rates from doctors within the country have communicated the message adequately to the world. Unable to stand the conditions any longer, the International Crisis Group has reported, 4 million have fled the country. Beyond statistics however some of the most damning images of a country in disrepair can be found on social media. Some videos show citizens protesting food shortages and looting local stores while others show mobs chasing livestock to slaughter them. In the worst, desperate people eat dogs and cats in the streets of Caracas. Of particular interest in the Venezuelan case is that such a situation has developed in the absence of war seemingly being precipitated by an economic collapse alone.

The Venezuelan economy is not doing well by anyone’s standards. In 2016, according to its central bank, consumer prices rose 800% and this year the IMF estimates inflation will hit 13,000%. Accompanying this ballooning rate has been continuous years of negative economic growth with a 40% drop in oil income in 2015 and a 60% drop in imports since 2012. So this illuminates the problem of food shortages but is nowhere near an all encompassing explanation. To truly understand the situation, we must explore the cause of its failing economy. At the centre of this is a fraught relationship between former leader of Venezuela Hugo Chávez and his country’s oil reserves. From 1998, the year of his election, to the present export revenue from oil increased from 68.7% to 96%, a worrying dependence in itself which proved disastrous when the price dropped in 2014. Factor in Chávez’s lack of technical knowledge in the area and his view of the oil industry as a cash cow to fund social programs and the foundations of the crisis can be sketched out. Chávez mistrusted the PDVSA, the state run oil monopoly, in the early years of his presidency seeing it’s leadership as threats to his power. This distrust led, in 2002, to the high profile firing of many of its high ranking members and the instillation of a president with views favourable to his own. When opposition coalesced against him in the form of organised strikes he took the drastic move of firing 18,000 workers bleeding the PDVSA of both its managerial and technological know-how, a blow which it has never recovered from.  Oil wells produce less over time requiring increased investment to extract barrels at a steady rate, an investment which Chávez and his successor Maduro have been unwilling to make as it would detract from their social programs. To top this off, 20 billion a year is spent on shipping oil to countries at a reduced rate in exchange for diplomatic benevolence and to subsidise Venezuelan drivers. So in a country almost singularly dependent on oil revenue, its leadership refuses to pursue oil production with long term goals in mind and the oil that it does produce is sold at a reduced rate.

Another important aspect of the crisis is the two headed snake of currency mismanagement and executive branch corruption. An official exchange rate between the bolívar and the dollar was put in place to prevent capital leaving the country. Those with access to this rate, mainly Maduro’s associates and wealthy business people, can take advantage of the system by selling those dollars on the black market at a more agreeable rate. As the crisis worsens, the black market rate rises and the system becomes more profitable. In 2015 Transparency International listed Venezuela as the tenth most corrupt country in the world and for good reason. Looking past just the exchange controls further currency controls also illustrate the ineptitude and ideological rigidity of the current government. While most economists agree that Venezuela should devalue its currency and let its price float against the dollar Maduro has chosen to keep exchange rates low. He justifies this as a measure helping to prevent inflation but this has happened regardless and the low rate discourages what would be unprofitable outward investment. Predictably the government denies allegations of wrongdoing and subpar economic policy-making attempting to frame the crisis as the result of a concerted economic war waged by the US.

While such government claims are expedient and propagandistic, without a doubt outside forces have played a role in this tragedy. At many important points throughout Venezuela’s recent history, the 2002 – 2003 oil strikes and the 2007 constitutional referendum for example, coordinated hoarding of basic goods by companies opposed to the government has taken place. In 2015 Obama signed an executive order placing sanctions on seven high ranking Venezuelan government officials and claiming unfairly that the country was an ‘unusual and extraordinary threat to the national security and foreign policy of the United States’. More recently measures have been taken to discourage US and European banks from dealing with Venezuela. While such sanctions have clear direct effects they also indirectly make the situation worse by deterring would be investors with badly needed money. The US has also openly advocated for regime change and supported an internal opposition who have not shied away from using violence. This group immediately rejected Maduro’s victory in 2013 despite any evidence of fraud fostering a toxic political environment. In the aftermath of that election some opposition members targeted state run health clinics killing at least 7. More recently in a wave of violence beginning February 2014 43 were killed, half of these deaths can be attributed to opposition actions. Depressingly, among the chaos of recent years Maduro’s government has taken an, unnecessary if we look at poll numbers, authoritarian turn with the most recent elections being widely panned as fraudulent.

The situation in Venezuela is complex with a multitude of interlinked factors contributing to its severity. Monolithic media narratives attributing the crisis to merely ‘socialism’ or ‘US imperialism’ alone do little to illuminate the actual reality on the ground nor do they bring us any closer to a comprehensive solution to the country’s woes.