How often have you attended a Model UN conference that discussed “the Venezuelan crisis”? Quite often recently, isn’t it? But have you ever questioned the agenda’s implicit repercussions in the modern world? Rest assured, we’ll help you do just that. Venezuela, which was once Latin America’s one of leading economic powerhouses and a regional diplomatic heavyweight, is now reeling under a severe economic crisis, one that has spilled over into its basic roots. In definition, the domains of the Venezuelan crisis are often restricted to an economic or a political quagmire. However, its analytics better define it as a criminal act without precedent in Latin America. The capture and systematic looting of a state, through mass mobilization and bureaucratic machinations, then increasing control of the state through military force, as the criminal nature of the act and its consequences become apparent to the nation’s citizens, are just common principles to base this definition upon.
The beginning of an end
With, inflation reaching 14,000 percent, Caracas and other cities becoming terrifying zones of lawlessness – with some of the highest murder rates on Earth – people are fleeing the country at rapid rates, defining it as the largest flow of refugees in the Western Hemisphere’s history. Widespread allegations of corruption and the government’s hostile attitude towards private businesses have also alienated potential foreign investors. Massive protests have erupted against President Nicolás Maduro with growing demands for his ouster through fresh elections. The president has called the protests an “economic war” waged by elite business interests, but much of Venezuela’s problems are the doing of its own leaders, as confirmed by history.
The history of boiling up of this economic crisis can be dated back to 2013 when Nicolás Maduro succeeded Hugo Chávez in power. The former socialist President Hugo Chávez was in power from February 1999 until his death in March 2013. During his tenure, he financed generous social programs to reduce inequality and poverty, but when oil prices dropped sharply in 2014, the government was suddenly faced with a gaping hole in its finances and had to cut back on some of its most popular programs.
A huge chunk of policies introduced by Hugo Chávez backfired. As an attempt to make basic goods more affordable to the poor, his administration introduced price controls to cap the money people pay for such staples as flour, cooking oil and toiletries. But this meant that many companies would no longer found it profitable to produce these items, driving them out of business. This, combined with a lack of foreign currency to import the staples, led to serious shortages.
Another reason for the inflation spiraling out of control can be credited to the Chávez administration’s decision to take control of the foreign currency exchange in 2003. Since then, Venezuelans wanting to exchange the local currency, the Bolivar, for dollars have had to apply to a government-run currency agency. However, only those deemed to have valid reasons to buy dollars, for example, to import goods, have been allowed to change their bolivars at a fixed rate set by the government. With many Venezuelans unable to freely buy dollars, the black market flourished and inflation rose.
Going into the roots
The dent that widened the crack in the Venezuelan economy is its over-dependence on its oil revenue, which amounts to – approximately – 95 percent of the economy, took a severe hit owing to low oil prices. The average income per person has dipped down to two third of what it was three years ago, whereas the country’s major source of food and medicines – imports – dropped down to a quarter of what it was five years ago. Speaking economically, government policies, including expropriations, price controls, and currency controls, coupled with rampant corruption and mismanagement in government enterprises, has left the Venezuelan economy incapable to produce even the essential services. Despite the international oil prices recently trending up, the poor petroleum output, high production costs and increasing reluctance of creditors to lend new money are restricting Venezuela from its access to hard currency to buy goods from abroad.
The food shortage has added to the misery. Venezuela produces only 30 percent of the food it needs to feed its population. Owing to high prices on imported food it costs the average family a fortune to afford a month’s grocery bill. To top the crisis within Venezuela, the collapse of its economy and the escalating criminal and political violence have resulted in a massive outflow of refugees to neighboring Colombia and Brazil, to the nearby Caribbean islands of Trinidad and Tobago, Aruba, and Curaçao, and to other locales throughout the region. Venezuela’s neighbors watch the unfolding drama not only with concern for the Venezuelan people but also from the perspective of how that crisis could affect them as it deepens and possibly becomes more violent.
Can the turmoil be toiled up?
For globally concerned states, politically and conventionally acceptable alternatives appear to be few. With the current status quo, the United States or organizations such as the United Nations or the Organization of American States (OAS), will decide against physically intervening or act in a manner sufficiently impactful to alter the current trajectory of Venezuela toward a broader and more violent internal crisis. Nevertheless, both the United States and multilateral institutions have plausible alternatives that may still have the ability to play a decisive role in managing the consequences of the crisis for the region without direct intervention.
Theoretically, to tackle the crisis, damage must be directed towards the government’s ideologies, assuming a change in attitude towards rational economics. This must be directed through the currency exchange rate and price controls, which would deal with the problem of scarce goods. Contrary to popular belief, whether giving up the national currency and adopting the dollar is the right move is still subject to ambiguity. Keeping in check the diminishing viability in importing goods, we should make it easy for producers to export and generate foreign currency. For the time being, Venezuelan products are dirt cheap in the international market and it is nearly impossible to export due to the laws. The current model is one of control. The government is the only one that wants to produce foreign currency and have the private sector depending on them.
All this points out to the worrying omens for the president as well as the economy’s future. With Mr.Maduro making a hundred promises for a ‘promising’ future of the nation, the revival of the oil industry still remains as their first precursor to salvation. Let’s see how things turn up in the due course of time. Venezuelans need a real vision for their economy’s future.
“A vision that does not simply embraces prosperity, but guarantees it .”