From its tumultuous conception in 1830, Venezuela has never reached a state of complete economic stability. However, the country is currently facing its worst crisis yet, triggered by falling oil prices worldwide. Oil prices have fallen by more than 70 per cent since June 2014, and petroleum revenue accounts for roughly 95 per cent of Venezuelan exports. To avoid panic, government officials have refused to publish timely economic data; the most recent publication in January of this year was the first for more than a year. Meanwhile, authoritarian and populist president Nicolas Maduro is struggling to hold on to power.
Since Maduro’s election in April 2013 following the death of dictator Hugo Chavez, Venezuela’s economic woes have significantly worsened. Chavez used oil money to fund an extensive healthcare system, as well as to fund plans to elevate the country out of poverty. With the drop in oil revenue, Venezuela has no safety net. While its problems with inflation date back to the 1980s, inflation rates are expected to skyrocket from 2015’s record high of 275 per cent up to 720 per cent in 2016, according to the International Monetary Fund.
The economic collapse has already led to massive shortages of medicine, toilet paper, contraception, and food in Venezuela, which already relies heavily on food imports having significantly cut down its agricultural productivity to make way for oil profits in the 20th century. These conditions have consequently provoked massive protests and political strife. The opposition party United Democratic Roundtable, (MUD) has seized parliament for the first time in more than a decade, miraculously managing a perfect two-thirds supermajority (although the pro-government Supreme Court has threatened to block several MPs from taking up office), and has vowed in recent days to move up the timeline of its plan to oust the president, which could happen as early as April of this year. However, the resulting confusion could topple the remnants of Venezuela’s democracy.
Brazil, Mexico, and Argentina all have experienced similar financial crises at various points in the last thirty years. Mexico was salvaged via the North American Free Trade Agreement, allowing them to receive a loan from the US. Brazil’s downturn in 1999 rebounded relatively quickly, but its currency devaluation and dominance in the region as the world’s eighth-largest economy caused Argentina to topple. By 1998, Argentina entered its second depression in less than a decade. Argentina’s depression was triggered by an overreliance on foreign governments and industries, namely Brazil and Russia. The country spiraled, defaulting on its loans of $132 billion U.S. dollars in December of 2001. Argentina’s default made up more than one seventh of money loaned to third-world nations worldwide at the time.
Many economists have compared Venezuela’s current troubles with those of Argentina before its default, but Venezuela could devolve to become a lot worse. Argentina’s default was essentially political, rather than economic. Argentinians had the opportunity to tighten their belts and ride out the economic downturn, but instead incited riots and ousted the government under President Fernando de la Rua. This led to immense political uncertainty and a lack of action from a government rocked to its core, directly resulting in the credit default.
Unfortunately for Venezuela, while its problems are both economic and political, its rising deficit and rampant inflation are primarily a result of the plummeting price of oil worldwide. Venezuela’s issues are not problems even the most effective government could easily solve, and Maduro’s government is far from effective. The socialist minister in charge of Venezuela’s overall economy, Luis Salas, rejects the idea that printing too much money causes inflation, instead arguing that Venezuela’s misfortunes are the result of an American-backed attempt to incite a coup against socialism and Hugo Chavez’s legacy. Although the country is prioritising paying off foreign debts, under Salas the question isn’t whether Venezuela will default, but when.
The Venezuelan Violence Observatory, an independent research group, as well as the attorney general report that the murder rate is currently higher than 62 per 100,000 people, ten times the global average, and 90% of murders go unsolved. Government corruption means that only those with official connections can obtain bolivars (the national currency) at the official rate. On the black market, bolivars are worth 130 times less than in officially sanctioned stores, and even when they try to obtain goods legitimately, citizens wait in line for hours simply to browse empty shelves. To discourage hoarding and panic buying amid food shortages, in 2015 the government installed fingerprint scanners in many supermarkets, supposedly tracking who went in and out and what they purchased. Recently, the leader of Venezuela’s pharmaceutical association appealed to the World Health Organisation for aid, arguing that 70 per cent of basic medicines have disappeared. The scarcity of medicine and food is shaping Venezuela into a potential humanitarian crisis. These shortages mean that the people of Venezuela, already impoverished, are on the brink of disease outbreaks, medical crises, and outright starvation.
If Venezuela’s two parties can overcome their enmity and make an appeal to the International Monetary Fund, with which Venezuela broke relations decades ago, the nation has a chance at recovery. However, between political rivalries, an ineffective government, and few exports unrelated to petroleum, Venezuela is currently heading not only towards default, from which Argentina proved South American nations can recover, but towards complete disaster.