Venezuela began exporting oil in the beginning of the 20th century, and since then has built its economy on the revenue from its oil exports. Supported by its vast oil reserves, Venezuela rose to the position of the richest country in Latin America in 1970, but its economy was vulnerable to fluctuating oil prices. In the 1980s and 1990s, Venezuela sat on 60 billion barrels of oil. By 2010, it had 297 billion barrels in reserve, making it the country with the world’s largest crude oil reserves. However, when oil prices fell in the 1980s, Venezuela’s economy suffered greatly, due to 90 percent of its export revenue consisting of oil exports. When Hugo Chavez came into power in 1991, he brought with him a socialist revolution. To restore economic development, Chavez nationalized the country’s oil, healthcare, and food industries. He used oil export revenue to fund social programs as well as food subsidies for the poor, and supplied essential goods at low prices by importing them. Combined with high international oil prices during that period, Chavez’s economic system functioned well.
In 2001, Venezuela rose again to the richest country in Latin America, and had GDP growth of 3.39 percent. However, there was global concern about the nation’s high inflation rate of 12.5 percent, and uncertainty existed about what a fall in oil prices would do to the country’s economy. In the years following 2001, Venezuela’s economy grew, but so did its inflation. Today, soaring inflation and negative economic growth have led to food shortages and decreased development. Venezuela is in a severe economic and humanitarian crisis that is caused by decreases price and international demand for oil, and is only furthered by President Nicolas Maduro’s denial of the seriousness of the problem.
Oil prices and international demand for oil today have dropped by a factor of 3. The severity of the crisis is largely due to the economic system Chavez established. By nationalizing the nation’s oil industry and subsidizing essential consumer items, Chavez priced domestic producers out of the market and utilized imports to supply food and medicine to Venezuelans. Now, due to a decrease in oil export revenue, the government can no longer afford to import food and medicine, and there are no domestic industries established to supply such goods to citizens. Venezuela is suffering from immense shortages, and black markets have formed in response, which have inflated prices for essential items and are causing people to starve.
The current situation in Venezuela illustrates a country suffering from poor economic development, which has caused civilians to fall back into poverty. In today’s integrated economy, the evaluation of a country’s level of development is crucial to how the nation is considered on the global scale. According to development economists, international development is based on three core objectives: increased availability of life-sustaining goods, increased levels of living, and expanded range of economic and social choices within a society. However, in Venezuela today, shortages have caused a decrease in availability of life-sustaining goods and in living quality, and the selection of economic and social choices citizens have is limited. In response to the current situation, Maduro has denied the severity and made every action he can to reinforce his power. As Venezuelans suffer, Maduro clings to hope that oil prices will rise again and that the opposition will not find a unified leader, all while refusing to reform the failing system.
Shortages are forcing Venezuelans to live without basic levels of food and medicine, which were available when oil export revenue allowed the country to prosper. Citizens in need of basic medicines are denied access, or priced out of the black market. Daniela Chacón, a 14-year old Venezuelan girl diagnosed with cancer, was forced to have her leg amputated in order to save her life, because her family could not afford chemotherapy. Prior to this economic crisis, amputating her leg would not have been an option, as she would have had access medication and chemotherapy. Similarly, families struggle to find enough food due to the scarcity, and resort to unequal sharing of resources to maximize household incomes. When families follow the model of unequal sharing, children are often not given adequate levels of food and clothing, as available resources go to adults who can bring income into the household. In addition to the shortages, Venezuela’s critical situation is seen through the minimal economic statistics available.
Maduro has not allowed new economic data to be taken since 2014, but the available data and estimates highlight the severity of the crisis. In 2014, GDP growth was -3.9 percent and inflation had increased to 62.2 percent. It is predicted that in 2016, GDP growth fell to -8 percent and inflation rose to 481 percent. A country’s level of development can also be measured through its GDP growth, and Venezuela’s negative GDP growth represents decreasing development. The declining growth rates are largely caused by the reduction in the country’s savings rate, which fell from 36.5 percent in 2008 to 19 percent in 2014. Development economics states that increasing savings will fuel growth, and Venezuela’s economy supports this model, as the declining growth rates mirror decreasing savings rates. Additionally, foreign investors halted investment in Venezuela, and investors with existing operations have since ceased them. Currently, Venezuela’s international reserves are the lowest in 15 years at $10 billion USD. With no foreign investment and dwindling savings, Venezuela is running out of foreign reserves as well as ways to fund social programs and provide essential goods to its citizens.
When oil prices are high, Venezuela’s system of nationalized healthcare and food distribution functions well. However, this economic system was not designed to withstand falling oil prices, and now the country finds itself in crisis. Economists have spoken out, claiming that in order to restore economic development to Venezuela, the government must remove price controls, improve investment, and open access to foreign currency. While these policies would allow the nation’s economy to recover slowly, they are not sufficient to sustain long-term development. International demand for oil is decreasing as new, more environmentally friendly forms of energy are discovered. Therefore, Venezuela cannot return to economic dependence on oil exports and it must diversify its economy. Maduro holds onto hope that oil prices will recover and bring economic prosperity again, but even if prices bounce back, the decreased international demand for oil will not allow full economic recovery. For that reason, the Venezuelan government must also take steps to restore domestic industries to provide food, medicine, and other essential items to citizens. Venezuela should move away from oil production and embrace other sectors, such as manufacturing and agriculture. Restoring economic stability and sustaining long-term development will take time, but these goals cannot be achieved without government reformation of the existing economic system.
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