What comes to your mind on mention of an Oil exporting Country?
A filthy rich Gulf state?
A country dominating international politics with Oil Power?
Well, Venezuela has the largest crude oil reserves in the world and it is also one of the poorest countries in Latin America! Venezuela is the story of riches to rags!
Let’s have a look at some facts below to get an idea of just how bad is the situation in Venezuela:
- Venezuelan currency has undergone a massive devaluation in the last few years. So much so that one of the motives of an economic plan launched in August 2018 is to remove five zeroes from the currency!
- Inflation has reached One million percent during the dictatorship of Maduro and IMF has estimated that it will reach 10,000,000% in 2019!
- Extreme poverty was 23.6% in 2014 and 61.2% in 2017. Meaning, total poverty rise by 87% in 2017!
- According to the latest survey conducted by ‘ENCOVI’ (Encuesta Sobre Condiciones de Vida en Venezuela), Venezuela is one of the poorest and the most unequal country in Latin America. Survey has also shown more than 1 million children aged 3-17 years are out of school in Venezuela!
Above statistics give a hint of a grave Venezuelan crisis. Venezuelan currency, Bolivar has lost 98% of its value. The currency has become next to worthless. So worthless, that you would not even get a single dollar in exchange of millions of Bolivars. Imagine paying a million bucks for a cup of coffee!! Venezuela used to be one of the richest countries in Latin America Once! What happened to this country then?
Well, what happened to Venezuela is not just a disaster or a fateful coincidence, it is socialism! It all started with the disastrous policies of the ‘Maduro-Chavez’ regime spanned over the last Two decades. Two decades of misguided, populist policies have sent Venezuela to the gallows.
Three failures which loom large amongst the causes of this crisis are :
- Nationalization of Industries
- Government’s excessive interference in the state-owned oil giant ‘PdVSA’ (Petróleos de Venezuela)
- Mismanagement on Macroeconomic front
Nationalization of Industries –
According to the estimate of the ‘Centre for the Dissemination of Economic Knowledge (Cedice), more than 2,500 companies have been expropriated (acquired) by the Chavez-Maduro regime. Most of these companies are now bankrupt and their production capabilities are destroyed to a scary extent by the socialist mismanagement.
Government’s Interference in ‘PdVSA’ –
Another mistake was to decapitalize state-owned oil-company ‘PdVSA’. PdVSA used to be one of the most efficient Oil producers in the world. It produced 3.5 million barrels per day in 1998 but today it is unable to produce even 1.3 million barrels. This drastic reduction in productivity is caused due to extreme interference of government in the company’s day-to-day function. After 1999, many excellent Venezuelan engineers were fired and the company was filled with the crony political supporters of ‘Chavez’. Employee strength of the company increased from 25,000 employees in 1998 to 140,000 in 2017! All the while production kept on decreasing.
The extent of ‘PDVSA’s’ mismanagement can be seen by the below graph. Till 1998, under the direction of ‘Luis Giusti’, PDVSA’s production was soaring. Bur this boom did not last long. In 1999, the socialist rabble-rouser ‘Hugo Chavez’ became Venezuela’s president and introduced Chavismo! Chavismo is also known as Chavism or Chavezism. It is a left-wing political ideology based on the ideas, programs and a government style associated with the former Venezuelan President ‘Hugo Chávez’. It combines elements of socialism and left-wing populism. With the introduction of ‘Chavismo’, PDVSA’s oil output took a downward plunge (See the chart below). ‘PdVSA’ used to account for virtually all of Venezuela’s foreign exchange earnings. No wonder such a drastic downfall in Company’s earnings took its toll on Venezuelan economy.
Dwindling production of PDVSA in the socialist regime of Hugo Chavez
Mismanagement on Macroeconomic Front –
The third major reason behind the Venezuelan economic crisis is the misled macroeconomic policies. The government increased the local currency printing to fund its subsidies and public employment expenditure. This massive currency printing did not have the backing of a real production or significant foreign exchange reserves. Ultimately, it resulted in rising hyperinflation.
Many argue that the crisis in Venezuela is not really due to socialistic policies but due to fall in Oil prices. But this argument does not hold any ground as Venezuela is the only ‘OPEC’ country in economic depression and hyperinflation. ‘OPEC’ is a group of Oil exporting countries. All the other oil-producing countries were able to adapt their economies without falling into economic destruction like Venezuela. Hence, roots of a catastrophe in Venezuela are not really in temporary fluctuations in Oil prices but in Two decades of disastrous policies.
‘Chavez-Maduro’s socialist regime’ has by an example shown the world how to turn a country from riches to rags! Expropriate private companies, use the state-owned companies to serve political motives, interfere in the market to distort the price and lastly print the local currency as much as you want! Well, this is the ‘Step by Step Venezuelan Guide’ to destroy a country! Only way out of this situation for Venezuela is farsighted macroeconomic reforms, diversifying the revenue sources and parting with the extreme leftist ideology. Meanwhile, the world has a lot to learn from the example of Venezuela!