In the process of changing the country from democracy to dictatorship, Venezuelan President, Nicolas Maduro has drawn a lot of attention from all around the world.
Since 2014 the United Socialist Party has bunged record keeping of public data and conducted no economic/social research whatsoever. The country thus slipped into an economic crisis, with high inflation rates, trade sanctions, and massive opposition from the US and other democratic nations. Despite this, Maduro was elected for a second term in the elections conducted on Sunday, 20th May 2018, in what was considered a landslide victory
Days after being elected, Maduro took some controversial steps with regards to the US and India. First, he ordered the expulsion of Todd Robinson, a top US diplomat in Venezuela, accusing him of involvement in a “military conspiracy” against the nation’s socialist government. Then he vocally condemned US’s sanctions calling them a “crime against humanity that impedes the rights and development of Venezuela.”
The new sanctions against the country, imposed Monday by President Trump, is aimed to make it illegal for US citizens to buy debt from Venezuela. Such purchases have formerly helped Maduro keep his government afloat. The sanctions also restrict Venezuela’s ability to liquidate its assets at bargain-basement prices.
Fearing such sanction, Venezuela recently agreed to trade with India in the rupee, to rescue their sinking economy. On Wednesday, 23rd May 2018, a Venezuelan envoy in India expressed the country’s willingness to accept oil payment from India in INR. Doing so will help both countries bypass US sanctions. Whether or not India works with Venezuela in this new trade avenue is for future to tell. But such moves reveal the desperacy of the latter’s government to restore its economy without the US help.
While we wait for that to happen, here are 4 primary reasons that 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 global oil prices directly affect the country’s revenue.
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 US. During his rule, oil prices hiked to $100 billion a barrel. The government declared farmlands as state property and abandoned those whose business and livelihood came from 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.
2. Subsidies are unsustainable but are never ending:
Maduro did not compromise on the subsidies despite the big hole in country’s reserve. Hugo Chavez till today is known as the ‘hero for the poor’ as he saved the country from a growing inequality gap in the 2000s that fumed the then lower classes against the elites. After coming to power, Chavez turned to China and Russia for loans, billions that he used in welfare programmes. There was an abundance of subsidies on all consumer/business products and all the necessary items were price controlled by the government. Post his death and by the end of his president rule in 2013, he nominated Nicholas Maduro as his successor. Maduro was Chavez’s prodigy, training under him in the ways of politics. He kept increasing subsidies even in times of economic scarcity. For example, the corn flour was subsidized so much that the revenue didn’t even cover the manufacturing cost.
This is why, gradually, subsidies became unsustainable.
3. Hostility to foreign businesses:
Maduro’s foreign business policies are very unwelcoming making corporates like Pepsi (PEP) and General Motors (GM) to either cut back or entirely dissolve their operations in the country. International business was thus contributing almost nothing to Venezuela’s GDP. This took the inflation rate to up to 400%. A bottle of water, now, costs almost 12,000 bolivars and one USD is worth over 8,000 bolivars.
Further, US President Donald Trump imposed sanctions on Venezuela after calling Maduro a dictator and accusing him of corruption over the controversial elections. Sanctions such as barring 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 this, the only step he’s taken is increasing minimum wage rate. A 67% increment in wages was mainly done in order to gain support from the public but is now a major threat for the country in long-term perspective.
Maduro is adamant on rewriting the constitution, as he now reigns with his new constituent assembly of people hand-picked by him. The country is torn between the ruling government blaming the opposition for planning a military coup and opposition leaders declaring Maduro’s rule illegitimate. Either way, the common people are suffering on a daily basis, thus giving rise to massive brain drain. People from the middle class and lower class are fleeing the country amidst fears of a soon probably refugee crisis.