In the process of changing the country from democracy to dictatorship, Nicolas Maduro, President of Venezuela has drawn a lot of attraction towards himself from all over the world, especially the U.S. He’s now on a killing spree of anyone protesting against him, carried out by his military. Since 2014 government has stopped making any records and data public and no research has been done to estimate the crisis or to keep a track on the inflation rate.
Here are 4 reasons that have led to the worst socio-economic crisis in Venezuela:
1. Global oil prices crashed down leading to oil crisis:
Venezuela has a nationalised oil sector and the country’s economy is solely dependent on oil trade. Therefore, fluctuations in the global oil prices directly affect the country’s revenue.
The world’s largest oil reserve got a sudden blow when globally the oil rate came crashing down. Venezuela at one time used to be a paradise nation sitting on the world’s largest crude oil reserves with the highest standard of living in South America. In 1999, the country turned socialist with Hugo Chavez as the president and cut its ties from the U.S. During his rule, oil prices hiked to $100 billion a barrel. The government declared farmlands as state property and abandoned those who were completely depending on the oil imports. So the crisis started when the country’s only source of major income started to crumble.
This gave rise to the second factor involved in the process.
2. Subsidies are unsustainable but are never ending:
Maduro did not compromise on the substitutes despite the big hole in country’s reserve. Hugo Chavez till today is known as ‘hero for the poor’ as he saved the country from growing inequality gap in the 2000s that fumed the then lower class against the elites. After coming to power, Chavez turned to China and Russia and they loaned in billions which he used in welfare programs. There was an abundance of subsidies and all the necessary items were price controlled by the government. Post his death and end of his president rule in 2013 he nominated Nicholas Maduro. Following the regime, Maduro kept increasing the subsidies even in the time of economic scarcity. For example, the corn flour is subsidized far too much that it does not even cover the manufacturing cost of the flour hence the subsidies became unsustainable.
3. Hostility to foreign businesses:
Maduro’s foreign business policies are very unwelcoming that has made corporate like Pepsi (PEP) and General Motors (GM) among others to either cut back or entirely dissolve themselves. So the international business is contributing almost nothing to its GDP. This plunged the economic crisis and inflation is raging at the rate of 400% on this day. A bottle of water is almost 12,000 bolivars and one American dollar is now worth over 8,000 bolivars which earlier used to be around 8 bolivars.
Further, U.S. President Donald Trump imposed sanctions on Venezuela after calling Maduro a dictator and accusing him of corruption over the controversial elections. The sanctions, such as barring the import of Venezuelan oil, or banning American companies from working in Venezuela’s oil industry, will only add to the South American country’s economic problems.
4. President’s willingness to rewrite the constitution:
The aforementioned points are reasons for economic mayhem in the country but the President’s obstinacy to cling to power and overlook the problems faced by Venezuelans is fuming the protestors all the more. Unemployment has reached almost 23% and to combat the only step taken by him is increased minimum wage rate. 67% increment was mainly done in order to gain support from the public but is a major threat for the country in long-term perspective.
Maduro is adamant on rewriting the constitution as he is now immune with his new Constituent Assembly of people hand-picked by him. The country is torn between government blaming the opposition for coup and opposition blaming the government of self-coup. Either way, the people are suffering on a daily basis and gave rise to massive brain drain. The middle class and lower class are fleeing the country which can soon result in a refugee crisis.