Venezuela used to be the toast of the progressives when Hugo Chavez, a self-proclaimed Leftist, won the presidency by what he described as a “socialist revolution.” In 2012, Chavez died and left the presidency to the care of his vice president Nicolas Maduro. Maduro, who claims that his administration is the continuation of the Bolivarian-inspired “Socialist” revolution of Chavez, faces a huge oppositionist-led National Assembly backed by protesters, affected by the worsening economic crisis.
Why is it that the Venezuelan economy dived when it is the fourth biggest oil producer in the world? The country sits under a treasuve trove of natural gas and oil. Last 2016, the New York Times explained that the economy suffered when the Maduro administration sold their main export oil well below market prices, getting US$ 25 per barrel, a far cry to the US$100 per barrel of oil when Chavez was still president.
Drought affected agricultural production and also stopped the country’s ability to generate hydroelectric power, causing extreme outtages and lack of electricity services to major centers of trade and business.
With a shorter volume of oil revenues, the Maduro government had no choice but to enter into loans, most of them onerous, that affected dollar reserves. Worst, limits on dollar purchases affected production and food importation. This explains the high rate of inflation and availability of food stuffs into Venezuela. The currency exchange rate also worsened, with the Bolivar being exchanged to the dollar, 1000:1.
If you look closely, these things happened because of the hodge-podge socialism introduced by Chavez during his presidential reign. His “socialism” is predicated on the nationalisation of industries, and turning the state into a welfare state. During his time, Chavez gobbled up major companies, using petrodollars in buying them and turning them into government assets. Most Venezuelan corporations are now being run by government officials who were mostly underqualified for the jobs they were appointed into. Hence, mismanaged firms were unable to raise revenues for government. Without revenues, firms were unable to grow and provide jobs. Unemployment rose to 25%
Without jobs, people began to militate and most turn to crime to survive. Criminality rose and became widespread. The middle class slowly became disenchanted and withdrew support from the government. This explains why the National Assembly right now are peopled by Chavez’s oppositionist forces.
Maduro knows what is happening and for him, his political survival hinges on his hold of the military and the courts. However, US economic sanctions could affect Maduro’s hold of the presidency, as overinflation has kicked in. With the US pressing and commenting negatively on the suspicious outcome of the recent “confidence vote” for Maduro, this could spell the end of the Maduro presidency which many describe as “despotic” and “dictatorial.” Since his assumption as Chief Executive, Maduro has largely ruled Venezuela by decree. He has been accused of nepotism, but due to the lack of check and balance mechanism in the government, Maduro has remained largely unopposed politically.
Maduro’s predecessor, Hugo Chavez, managed to wiggle his way out of the economic rut because back then, oil was selling above the US$ 100 per barrel mark. The steady stream of petrodollars kept him afloat.
Now, in Maduro’s time, oil prices have shrunk so low, it is now trading within US$ 20-25 per barrel levels. With governmental expenses and loan interests reaching alarming levels, the Maduro administration is clueless as to how to source additional funds to close the gap.