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Economic Crisis and Political Deadlock: Is Venezuela a Failed State?

Venezuela Protest economic crisis Political Deadlock
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Strikes, protests, demonstrations and, at times, violent actions  orchestrated by the chavistas and the antichavistas, have trapped Venezuela in a political deadlock with no sign of recovery. Venezuela’s government is solely responsible for the dire state of its economy with world’s highest inflation rate that is predicted by the IMF to reach 1,666% next year. Falling oil prices in the global market, relentless violence by the opposition party, and Washington’s overt policies preventing foreign investments in the country as well as the Maduro administration’s lack of long-term plans to support the dying economy have resulted in the collapse of the once oil-rich nation. Ridiculous government subsidies on welfare programs for years and largely ignored agricultural sector are two of the major causes behind the current recession that is likely to stretch beyond the 2020s.

Venezuelan Crisis and the Falling Oil Market

The Venezuelan crisis started in 2014 when crude oil price fell from $100 to $50 a barrel. The situation went out of control when crude oil price hit a mere $26 a barrel in 2016. Venezuela generates 95% of its revenue from oil export, and import 30% of its food. To cope up with the falling oil price OPEC countries increased output by 1% whereas Venezuela barely pumped 2.4 million barrel per day in 2016 which is the lowest in the last 13 years. The oil industry that sustains the entire economy has been totally ignored by the government and the revenues it generates have been spent on welfare programs. The dilapidated oil fields with backdated technologies badly needed investment and maintenance. Moreover, power outages due to power rationing together with corruption and mismanagement further deteriorated the production. Muduro’s predecessor Chávez manipulated the oil industry and foreign debt to popularize himself as a benevolent leader and nationalize more than 1000 private companies that actually never work for public interests. Mudaro inherited the reckless public spending from his political guru Chávez and rapidly made Venezuela a high-risk debtor with no access to international capital. The oil industry needs investment, but no one is interested in financing as the risks outweigh the benefits.

Venezuelan Crisis and Inflation

Without adjusting the imbalances in the economy, the Maduro government took the shortest but misleading route to solve the problem: it printed more money to fuel inflation. Prices jumped 800% in 2016 leading to a severe recession and food shortage. As Luke Graham reports, the inflation rate is likely to hit 1500% in 2017. The recession, which has been crippling the economy for the last three years in a row, is likely to continue till the end of 2019. In the beginning of 2014, one US dollar could be exchanged for 100 bolivars, now one can easily get 1300 bolivars for the same one dollar bill, although the government rate is 9.99. The Venezuelan government literally does not have any money and two months ago it decided to remove money from circulation, as Tim Worstall reports. “The president said the aim was to tackle transnational gangs which hoard the Venezuelan notes abroad, a move he has in the past described as part of the “economic war” being waged against his government.” This is the latest strategy by president Maduro to fight inflation and to restore the value of the bolivar. He tried both, pumping money to the market and draining money from the market, to recover the economy.

Venezuelan Crisis and Politics

Divided between the chavistas and the antichavistas, the political spectrum in Venezuela is often ravaged by anti-democratic and anti-government protests and strikes. Nicolás Maduro, who was Hugo Chávez’s Vice-President, represents himself as “the son of Chávez” for the approval of the chvistas. Chavistas are ardent follower of the late president Hugo Chávez and supporter of the left-wing political ideology called Chavismo. As Elias Jaua explains, “Being Chavista means feeling a connection of love toward a political leader who hasn’t betrayed us, it means recognising ourselves as a people who are the descendants of a historical hero (Simón Bolívar) who belongs to us and who has become the present and the future. The Chavistas support the United Socialist Party of Venezuela (PSUV) led by President Nicolás Maduro.  On the other hand, anti-chavistas are followers of the Democratic Unity Roundtable (MUD), a coalition of both left and right-wing political parties and social organizations. The MUD secured overwhelming majority in the parliamentary elections in December, 2015. The anti-chavistas as well as the MUD accuse president Maduro and his party PSUV for the economic crisis and demand his removal from office. The anti-chavistas oppose socialist policies that they are instrumental to the spiralling inflation, food shortages, lack of medical supplies, and power cuts Venezuelans have to endure. However, the chavistas think that the anti-chavistas are elitists who would exploit the poor Venezuelans for their own benefits. Moreover, chavistas also claim that the anti-chavistas are funded by the US government and would execute the US neoliberal agendas once rise to power. However, more than 75% of Venezuelans, as a recent poll by Datanalysis claims that more than 75% of Venezuelans were unhappy with the way Mr. Maduro governed the country.

Venezuelan Crisis and the U.S.

The United States overtly oppose the Maduro administration as it considers Venezuela’s social democracy a threat to the region. Last year the U.S. Senate renewed economic sanctions originally imposed in 2014, and through an executive order former president Obama declared Venezuela a threat to U.S. national security. US involvement in Venezuelan internal affairs got exposed through a failed coup that it organized against the Chávez government in 2002 and since has distributed tens of millions of dollars to opposition groups, as W. T. Whitney reports.

Instead of resolving the economic crisis through spending cuts and other measures, president Maduro created a political deadlock by ignoring the demands of the opposition. His repressive policies have already made Venezuela an authoritarian state where political dissenters are brutally controlled by the law enforcement. The government disregards dialogue as a viable solution to the problem, and the opposition sees it as a delaying technique by the government, and hence efforts by the neighboring countries to work as intermediaries in resolving the deadlock led to nowhere. Civil resistance by the anti-chavistas and counter-violence by the chavistas have taken the mass as collateral in reaching respective political goal. Venezuelan crisis seems not to end anytime soon!

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About the author

Sam

Business and technology have always been Sam's areas of interest, and he transformed that interest into a passion through his regular contributions on issues related to these. As an IT specialist Sam is well versed in the most up-to-date trends in the field of computer technology. He earned his Master's in Information Science from Penn State University. He writes on technology, science, business, nature, and contemporary issues.

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