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  • Destroyed by socialism! Savaged by a dictator that  doomed the poor! Drowned in their own dependence  

  • on oil! We're sure by now you've heardlot of reasons why Venezuela is in crisis,  

  • and noticed the reasons tend to differ based on  the speaker's political orientation. In fact, the  

  • current terrible situation in Venezuela has a lot  of complex causes. Pinning them down can be hard  

  • because people use the crisis to support their own  political agenda on both sides. So, we sent our  

  • most non-partisan researchers into the mix to find  out...what actually went wrong with Venezuela?

  • If you had told South Americans 50 years ago that  one of the most unstable and poverty-stricken  

  • nations on the continent in the early 21st century  would be Venezuela, they would have laughed. Why?

  • Since the country overthrew its military  dictatorship in 1958, Venezuela had been one  

  • of the wealthiest countries in Latin Americathanks in part to its large oil reserves.

  • Forget Saudi Arabia and Texas...Venezuela actually  has the largest oil deposits in the world;  

  • as of 2016, about 18.2% of the  world's entire oil reserves.

  • Leaning on its oil industry and exports, Venezuela  became richer and richer during the 1960s,  

  • and insanely wealthy during the 1970s, when an  OPEC embargo against the US and other countries  

  • caused the price of oil to quadruple  in a ridiculously short time span.

  • But because of its resource wealth, Venezuela  fell into what some economists term theresource  

  • curse”, orDutch disease”. Basically, the country  failed to diversify its economy or its exports,  

  • making it incredibly reliant on oilInstead of further developing its  

  • agriculture or other manufacturing and industries,  

  • the country imported most of what it needed  and used its oil money to pay for it.

  • Unfortunately, here's what happens when  a country concentrates all its efforts,  

  • infrastructure, and manpower onresource-dependent industry; that nation's  

  • entire economy and future becomes dependent  on the price, and demand for, that resource.

  • This became a problem for Venezuela way before  Hugo Chavez's government ever touched the country.

  • In the 1970s, economic and energy crises around  the world severely decreased the demand for oil,  

  • at a time when oil prices were at a peakfurther discouraging oil demand. This caused a)  

  • people to exchange their block-long Cadillacs  for compacts and b) the 1980s oil glut.

  • In 1980, the world price of oil had peaked at  around $35 per barrel - $110 per barrel in 2020  

  • dollars. By 1986, that price would fall to below  10 dollars per barrel - about $24 in 2020 prices.

  • That meant Venezuela's oil went  from making them live like royalty  

  • to a relatively worthless product  in the span of just a few years.  

  • It signaled the beginning of the  end for Venezuela's prosperity.

  • With no money left in its reserves and no  projected profits coming in for a while,  

  • the Venezuelan government  found itself deeply in debt.  

  • $33 billion worth of it, to  be exact. What could it do?

  • Well, what it did was turn to the  IMF. Which, as many other countries  

  • who have pursued the same tactic foundended up hurting more than it helped.

  • The IMF, especially at the peak of neoliberal  economic ideology in the Reagan era,  

  • had pretty much one prescription  for every country's economic woes:  

  • deregulate, cut welfare, and privatize everything.

  • If any country wanted an IMF loan,  

  • it would have to follow its rulesAnd that's what Venezuela did.

  • The government removed price controls on  gas, transportation, and other utilities,  

  • and slashed social programs to the bare minimumif that. The Venezuelan people reacted...poorly.

  • As just one example, when the government slashed  gas subsidies, the fare for buses rose 30% almost  

  • overnight. Daily life in Venezuela in general  suddenly became much more difficult and expensive.

  • Further aggravating the population  was a loss of trust in their elected  

  • leadership. As Francisco Rodriguez, a  Venezuelan college student at the time  

  • who is currently Chief Economist  with Torino Economics said,  

  • You either had to tell voters what you were  going to do and face the prospect of losing the  

  • election, or not tell them what you were going  to do and then do it once you gained power.”

  • Politicians lying about their intentions  and then delivering brutal austerity  

  • measures to the people caused a lot of  anger. So people took to the streets.

  • Riots and clashes broke out in 1989,  starting in Guarenas on February 27,  

  • and spreading to the capital  of Caracas and the surrounding  

  • country. This period of protests and  looting was known as theCaracazo”.

  • With the trust between people  and government already frayed,  

  • the brutal police crackdown of the riots broke  whatever thread was binding the population  

  • and the authority of the state togetherHundreds of Venezuelans - some sources  

  • estimate the number could be up to thousandsdied at the hands of police and military forces.

  • The government, continuing its proud  tradition of mounting the worst possible  

  • response to every crisis, decided that  to appease people and boost the economy,  

  • they would artificially inflate the  value of the Venezuelan bolivar.

  • With this financial move, imported  goods would be significantly cheaper,  

  • which leaders hoped would boost their support.

  • What happened instead is that Venezuela's rich  got a nice little bubble in which to protect  

  • themselves from the ongoing economic  fallout, and everyone else got pissed.

  • The bolivar being artificially high led  to a phenomenon called capital flight:  

  • the rich bought up US dollars and set up foreign  bank accounts for their money. This meant their  

  • wealth was now protected from the fluctuating  inflation rates and ongoing economic crisis  

  • back home. It also meant their wealth was...no  longer in Venezuela, or serving it in any way.

  • To top it off, the cheapness of imported goods  further stifled domestic industry and growth,  

  • as domestic businesses couldn't competeIn an economy that exceedingly relied on  

  • oil and hadn't diversified its economy this  exacerbated a very real existing problem.

  • Deepening the resentment of the Venezuelan  people was the rampant corruption within  

  • Venezuelan politics. As Michael Shifter, president  of the Inter-American Dialogue think tank put it,  

  • corruption taintedeverything, everybodyThe system was that they would take  

  • off the top of these huge profitsThey would not distribute that to  

  • public funds and public spendingbut would be used for private use.”

  • This rapidly worsening political and financial  situation defined Venezuela through the 1990s.  

  • Even when the economy stabilized a bittoo much had already been destroyed;  

  • the country's inequality was immeasurably  worse than in earlier decades, and the  

  • middle class and poor were even poorerwithout many prospects for improvement.

  • Enter Hugo Chávez. A former lieutenant  colonel in the military, Chávez was not an  

  • unknown entity in Venezuelan politics. In factVenezuelans had caught wind of him a whole six  

  • years earlier, when he tried to overthrow  the government in a failed coup attempt.

  • This time, he realized that he could tap into  the anger and resentment of the Venezuelan  

  • poor and working-class to legitimately rise to  power. And so in 1998, this third-party outsider  

  • candidate was surprisingly elected  to the highest office in the land.

  • Using leftist rhetoric and policies, Chávez  proceeded to go on a massive spending spree  

  • on social programs. To do this, he  had to use the country's oil profits;  

  • thereby indirectly creating an  even bigger dependence on oil  

  • for Venezuela - sensing a theme yet? Goodbecause Venezuela's leaders sure didn't.

  • So even though there was a fair  amount of cronyism and ineptitude  

  • in Chávez's administration, his  policies did, in the short-term,  

  • benefit the poor - poverty was cut by 20% between  2002 and 2008. And the people loved him for it.

  • The problems started showing slowly. First off,  

  • though Chávez created a public economy  that absolutely depended on the oil sector,  

  • he didn't spend money upgrading or even  maintaining oil facilities, leading to an  

  • eventual decline in production. Why? Well, he  knew nothing about oil, and refused to learn.  

  • When your whole country's economy is based  on oil that decision seems...ill-advised.

  • Former Petroleos de Venezuela board member Pedro  Burelli gave a blunt assessment of Chávez's  

  • shortcomings: “he was ignorant about everything  to do with oil, everything to do with geology,  

  • engineering, the economics of oil. His  was a completely encyclopedic ignorance.”

  • That seems to be the closest oil executives can  get to calling someone an idiot in the media.

  • Second, as pretty much every Venezuelan leader had  before him, he failed to diversify the economy.  

  • A country cannot depend on only one resource  or industry for its entire survival,  

  • a lesson that Venezuelan leaders  apparently kept forgetting.

  • Then again, the US still thinks that  trickle-down economics will work after  

  • fifty years of being proven wrong on  that front, so who are we to judge?

  • Third, as usually happens when charismatic  leaders with autocratic tendencies enjoy broad  

  • popular support, Chávez decided he had supreme  power and could start doing whatever he wanted.

  • He started seizing private wealth, especially from  individuals and companies who didn't support him,  

  • put friends and supporters in positions  of power - regardless of their expertise  

  • or ability - and expanded the  military's powers and control.

  • On June 2, 2010, looking around at his country  and apparently deciding things weren't falling  

  • apart fast enough, Chávez made one last horrible  financial move. Noticing a drop in the global  

  • price of oil and noticing the shortages it was  starting to cause in the Venezuelan economy,  

  • Chávez declared aneconomic war”  against private companies and the rich.

  • He devalued the bolivar to  attempt to slow capital flight  

  • and close the budget deficit. What actually  happened, as many economists had predicted  

  • and Chávez had refused to hearwas massive hyperinflation.

  • Consumer prices skyrocketed, shortages  affected the whole economy, and poverty  

  • gripped the nation even more tightly. Rampant  inflation made the bolivar essentially worthless.  

  • People in Venezuela, previously one of the  wealthiest nations in Latin America, had to  

  • resort to using a barter economy and often went  hungry. Remember that most of Venezuela's food was  

  • imported; and that import system collapsedexacerbated by eventual sanctions on the country.

  • Before he could reap what he sowed, Chávez ducked  any consequences by dying of cancer in 2013,  

  • leaving a disaster in his wake.

  • Nicolas Maduro, his successorstepped into his place...and  

  • proceeded to obliterate whatever  was left of the country.

  • With oil prices continuing to drop and rampant  corruption and economic mismanagement in the  

  • country, the Venezuelan economy entered freefallMaduro, sensing the population's unrest,  

  • started to act more and more like a dictatorHe ruled by decree, arrested opposition leaders  

  • and journalists, shut down sites critical of  him, and promoted the theory that his political  

  • opponents were behind an international economic  conspiracy to wreck Venezuela. We can't make  

  • a joke here because all of this is sounding  more and more common in our world nowadays.

  • By 2016, inflation in  Venezuela was at around 800%,  

  • the highest in its history. A study  done that same year found that 75%  

  • of Venezuela's population had experienced  “involuntary weight lossdue to famine. Violence  

  • was rampant throughout the country due to peoplesdesperation and brutal authoritarian crackdowns.

  • With society in chaos and  poverty at an all-time high,  

  • outside observers assumed Maduro would lose  the next election of May 2018 in a landslide.  

  • Shockingly...or...what's the right  word...suspiciously!...he won.

  • This was even more confusing since  the first time Maduro was elected,  

  • he won by just 1.6 percentage pointsHow did he manage to get re-elected  

  • after presiding over one of the most  disastrous eras in Venezuelan history?

  • Well, because, as the US mission to the United  Nations tweeted right after Madurowon”,  

  • theso-called 'election' in  Venezuela is an insult to democracy”.

  • Maduro banned opposition  parties from participating,  

  • jailed opponents, and his party intimidated  voters across the country. It's easy to win  

  • a race when all the other candidates are in  prison. At this point it should be mentioned  

  • that Venezuelan security forces have been found  guilty of thousands of extrajudicial killings  

  • by international bodies. The Venezuelan  people lived, and live, in hunger and terror.

  • Over forty countries around the  world pressured Maduro to abdicate,  

  • but he would not heed the calldoubling down on his conspiracy theories  

  • about how the world was out to get VenezuelaIn 2019, the National Assembly, one of the few  

  • political bodies left to check presidential power  in Venezuela, declared the 2018 elections invalid.  

  • They declared the president of the National  Assembly, Juan Guaidó, as acting president.

  • Though Guaidó enjoys support  from countries around the world,  

  • and from many people within the country, it is  not enough to put him in power in Venezuela.

  • As you can see, Venezuela's collapse was caused  by many factors. It started from the country's  

  • extreme dependence on oil - theresource  curse”. Political and economic mismanagement,  

  • a failure to diversify the economy,  

  • coupled with corruption and plummeting oil  prices worsened the situation immensely.

  • Then the arrival of charismatic strongmen  appealing to a trodden-down population,  

  • passing unsustainable policies while  completely mismanaging their economies,  

  • without proper knowledge of their own  industries, suppressing journalists,  

  • opposition, and all checks on powerdecimated Venezuelan society entirely.

  • At the end of the day, no matter what the  reasons for Venezuela's current situation,  

  • the price is paid by the people. Most Venezuelans  go to bed hungry every night. Those who could  

  • leave the country have left, and those left  behind barely have access to food, medicine,  

  • and other essentials. This is why it's always  important to remember, while arguing about  

  • politics and economics, that the results of  these policies have real effects on real people.

  • What do you think of why Venezuela  finds itself in its current crisis?  

  • Comment below! In the meantime, check out a more  fun, distracting video here, or right over there!

Destroyed by socialism! Savaged by a dictator that  doomed the poor! Drowned in their own dependence  

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What Actually Went Wrong With Venezuela

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    Summer posted on 2021/08/14
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