Can Political Instability lead to the downfall of a Country? (Venezuela)
(Part 1)
Venezuela, since 1999 officially called Bolivarian Republic of Venezuela, is located on the Northern Coast of South America. In the north on the coastline, the country is limited by the Caribbean Sea and the Atlantic Ocean, in the south Venezuela shares its borders with Brazil and Guyana and in the west with Colombia. It is considered to be one of the world’s most ecologically diverse countries.
In 2019, Venezuela had a total population of 28,887,118. Santiago de León de Caracas, or just Caracas, is the capital. Taken as a whole, the country has one of the highest urbanization rates in Latin America with 89% of the population living in cities, which are mostly located in the North.
By 1950, as the rest of the world was struggling to recover from World War II, Venezuela had the fourth-richest GDP per capita on Earth. The country was 2x richer than Chile, 4x richer than Japan, and 12x richer than China!
Potentials of Venezuela:
Venezuela’s economic fortunes are closely related with the oil industry and the development of the world market prices for it. It was proven that the country has internationally the most massive oil reserves
A) Natural Resources: This South American country has an estimated $14.3 trillion worth of natural resources. It is the leading exporter of bauxite, coal, gold, iron ore, and oil. The country’s oil reserves are greater than those of the United States, Canada, and Mexico combined. Venezuela have the largest oil reserves in the world, estimated 299,953,000,000 barrels in 2016. Venezuela is the third-largest producer of coal after Brazil and Colombia. It also has the eighth-largest reserves of natural gas accounting for 2.7% of the global supply. Venezuela also has the second-largest reserves of gold deposits.
B) Tourism spot: Venezuela benefits from huge natural diversity, boasting jungles, snow-capped mountains, a vast Caribbean coastline, as well as South America’s largest lake and the world’s highest waterfall. Venezuela is one of 17 mega-diverse countries, habitats range from river deltas, Caribbean coast and extensive plains to rainforest, cloud forest, Andes mountains and Angel Falls.
C) Agricultural land: According to 2011 survey, Venezuela ranks 49th out of 206 countries in Agricultural Land. The country has about 3.4 million hectares of land which are perfect for agriculture, but only 0.7 million hectares are utilized in agriculture.
Venezuela Collapse:
Venezuela, at one-point Latin America’s wealthiest country, has faced one of worst economic crisis in mankind history and still continuing to face the same. The poor governance, corruption and misguided policies of President Nicolás Maduro and his predecessor, Hugo Chávez, have fuelled runaway inflation, shuttered businesses and brought the country to its knees. And in recent months, the Trump administration has imposed stiff sanctions to try to cripple it further. The economy has collapsed, and an uprising of political opposition to President Nicolas Maduro has put the country’s leadership in question. About 5 million Venezuelan people have left the country seeking food, work, and a better life.
Latin America’s largest migration in recent years is driven by hyperinflation, violence, and food and medicine shortages stemming from recent years of political turmoil. Once-eradicated diseases like cholera and malaria have returned, and children increasingly, are dying of causes related to hunger and malnutrition.
The reasons Venezuela is in crisis are years of hyperinflation, violence, and food and medicine shortages. The country was once considered the richest in Latin America, thanks to having the largest oil reserves in the world. But more than a decade of declining oil revenue and poor governance led to the collapse of the national economy, and the government has not been able to provide adequate social services.
Venezuela — The Political Facet:
The Venezuelan Crisis was not just a consequence of fall in oil prices, but also due an amalgamation of multiple factors such as mismanagement of funds, unrealistic public policies, corruption, decades of reckless spending on socialist schemes, political instability.
In 1998, Hugo Chavez came to power as the President of Venezuela.
Situation At home:
In the early 2000s, due to the boom in oil prices, Chávez’s government with socialist ideas became popular and consolidated its power over the economy, subsequently generating greater revenues and gaining control of large amounts of resources.
Major Policy decisions
1)As a result of increased funds, the administration introduced the “Bolivarian Missions” which consisted of several welfare policies such as redistribution of wealth and land reforms were introduced in order to improve the economic, cultural, and social conditions.
2)He also adopted various socialist measures and tried to control most of the production and manufacturing units in the country by undertaking widespread nationalization of private industries.
3)Further many sectors like agriculture, electricity, water, oil, banks construction etc. were also nationalized with low cost services and high payrolls.
4)Price Ceilings on basic amenities such as beef, milk etc. led to unbelievably low prices on these essentials.
5)In an attempt to stabilise the economy and control prices of essential goods, Chávez introduced strict controls on foreign currency exchange, but the mechanism soon became a tool for corruption.
On 2 June 2010, Chávez declared an “economic war” due to increasing shortages
Positive outcomes of Chavez Admin:
1) Venezuela’s poverty rate decreased between 1999 and 2013 from 48.7% to 32.1%
2) Mission Habitat, a Venezuelan government program to construct new housing units for the poor.
3) Low cost of staple products and high wages for the poor
Negative outcomes of Chavez Admin:
1)Many projects have remained incomplete and have experienced difficulties due to funding issues, political costs, corruption and bad execution
2)Nationalization financially distressed many industries since the government was incapable of efficiently managing such a large number of industries and generate a profit out of them
3)Low cost services and products seconded by high wages led to many difficulties such as blackouts, irregular water supply, failing oil production and bankrupt public sector undertakings
4)Decline of private industries as a result of low-priced amenities
5)Shortage of goods for the poor due to lobbying and corruption
The Government overspent in enforcing social welfare schemes, however, did not save enough money for any future economic difficulties.
Situation Elsewhere:
The Chávez administration used oil production as leverage to gain autonomy from the United States and European governments.
They used the revenue generated from oil to assert their dominance, promote economic and political interaction with other Latin American nations.
Chávez announced Venezuela’s withdrawal from the IMF and World Bank after paying back all his country’s debts to both institutions; he charged them with being an imperial tool that aims to exploit poor countries (however as of 2008, Venezuela is still a part of both the institutions)
Nicolas Maduro
Nicolas succeeded Hugo Chavez as President after being elected in 2013 and soon found himself staring in the face of a plethora of problems such as economic turmoil, inefficient industries, shortage of supplies, escalating starvation, disease, crime and mortality rates
Major Policies
Maduro continued most of the economic policies of Chavez
The economic war crisis intensified under the Maduro government as a result of a slump is oil prices in 2004. The government, instead of cutting spending in the face of falling oil revenues, resorted to denying the very existence of such a crisis, violently repressing opposition, extrajudicial killings
Maduro disavowed the National Assembly in 2017 leading to the Venezuelan constitutional crisis of 2018. Human Rights Organizations considered the National Assembly the only “legitimate” institution left in the country and said there were no independent institutional checks on presidential power.
Such actions paired with the existing economic crisis, resulted in widespread protests throughout the country. During the protests, the “Mother of all Marches” had between 2.5 million and 6 million protesters.
He eventually went on to ban all opposition and effectively made himself a dictator
Outcomes of Maduro Admin:
1) Purchasing power for those with minimum wage jobs had dramatically decreased tremendously, supposedly due to the high inflation rate and the multiple devaluations of Venezuela’s currency
2) Hunger had escalated to the point where almost seventy-five percent of the population had lost an average of over 8 kg in weight and more than half did not have enough income to meet their basic food needs due to food shortages
3) Increased poverty, shortage of essential supplies, political instability etc worsened the situation
4) Excessive foreign debt along with US Sanctions
5) Inadequate medical facilities and supplies
Present Scenario:
1)Corruption is endemic, with Venezuela ranking 169th out of 180 countries assessed in Transparency International’s latest Corruption Perceptions Index
2)Hyperinflation: In 2016, Venezuela entered hyperinflation. The inflation rate reached 274% in 2016, 863% in 2017, 130,060% in 2018 and 9,586% in 2019. Since 2016, the overall inflation rate has increased to 53,798,500%.
Recently, Venezuela bought security paper and is considering printing 100,000-bolivar notes to keep up with 2,400 percent inflation.
3)Migration: Venezuela Government used out-migration as pressure realising mechanism. Venezuelan migration is the largest human mobilization in region’s recent years, largest in the western hemisphere. According to UNHCR, between 4000 to 5000 Venezuelans leave the country every day.
5)Sanctions by different countries:
Governments of the United States, the European Union, Canada, Mexico, Panama and Switzerland applied individual sanctions against people associated with the administration of Nicolás Maduro.
6)Crime rate: According to World Bank, Venezuela had the highest homicide rate (84.49) in world. And Caracas, capital of Venezuela, is the most dangerous city in the world with a recorded 119.87 homicides per 100000 residents. For comparison, India’s homicide rate is 3.2 and Patna having the highest homicide rate in India is 8.9. Criminality is too extensive that leading media houses used “Venezuela: A Mafia state” to refer Venezuela.
Its of course as horrifying as it seems to hear that a country with vast potential like Venezuela could end up in this way but the bigger question still remains…
Is it too late or is there still a way to overcome the Humanitarian crisis in Venezuela?
We will be bringing you our analysis on this very shortly :)
Until then, let us know your views by commenting below!
(Business club Blog team)
