Venezuela’s economy is extremely struggling, and so are the people. It appears Venezuela is currently experiencing something closer to a breakdown than a typical economic downfall. As Maria Alvarez, a Venezuelan citizen, interviewed via CNN, “There is no food. There is no paper. There is no medicine. We are dying.”
The cause of such a phenomenon dates back years ago. As a socialist regime took control of Venezuela in 1999, the country became increasingly dependent on oil exports to gain revenue, while cutting down on agriculture and increasing food imports. Unfortunately, the current oil prices have spiraled down – according to CNN, a barrel of oil is currently worth $41 compared to $100 approximately two years ago.
The government is failing to make enough revenue from oil and thus, the country has went deep into debt and there aren’t enough imported supplies for citizens. In fact, Venezuela owes $5 billion in debt payments by October and November, and an extra $5 billion later on.
Inflation is also overtaking the country – IMF forecasts inflation in Venezuela will rise to 700% this year – and according to CNN, the dollar, which was worth 865 bolivars (Venezuelan currency) last year, is now worth 175 bolivars. IMF also predicted that the nation’s economy will wane 10% this year and announced Venezuela currently has the worst economy in the world.
Political instability is also an issue. People have lost trust in the current president, Nicolas Maduro, and the opposition party is now controlling 65% of the Venezuelan congress. It has been proven time and again that political instability and economic development fail to go together, which only adds concerns to Venezuela’s future.
The consequences faced by Venezuelan citizens are profound. Venezuelans are severely lacking access to basic necessities. Whether it’s in the hospital, a supermarket, or even a local McDonald’s, people are waiting in lines for hours – without even the guarantee of obtaining what they need.
Venezuelans standing in food lines
Electricity lacks to a degree that the government wants women to stop using hair dryers. McDonald’s restaurants can’t sell Big Macs because there isn’t enough bread. Coca-cola stopped producing its drinks because of a sugar shortage. The Pharmaceutical Federation of Venezuela stated the country “lacks roughly 80% of the basic medical supplies needed to treat its population.” In fact, approximately 100,000 Venezuelans went to Colombia to purchase life essentials when the border was temporarily open back in July.
Then comes the question, ‘what’s the government doing?’
To tackle food shortages, Maduro passed laws that allow the government to put citizens into forced labor. Many international humanitarian groups – where Venezuela is surprisingly seeking no assistance from – such as Amnesty International have released statements highly criticizing such a decision by the government.
According to the Swiss Federal Customs Administration, Venezuela also shipped $1.3 billion worth of gold to Switzerland earlier this year. Furthermore, Venezuela started trading oil for basic necessities, including food and medicine, with Jamaica.
Despite such efforts, experts are voicing out that Venezuela will fail to solve its economic turmoil any time soon. Goldman Sachs economist Mauro Roca said in an interview with CNN that Venezuela doesn’t have “enough dollars to pay their external debts” and that “the [Venezuela’s] economic environment is one of the worst in the word. It’s clearly unsustainable.”
LatInvest managing partner Russ Dallen also spoke through CNN that he’s “99% sure” Venezuela will “default this year.” He also added, “It’s a question of when Venezuela will default, not if,” and that Venezuela is currently “running out of options.”
Venezuelans are strongly expressing that they’ve had enough. Since 2014, Venezuelans have participated in several demonstrations as a way to push for change. The movement has progressed since and early in September this year, several hundreds of thousands of protesters gathered to demand the removal of Maduro.
Venezuelans protesting against the current regime
(source: http://www.slate.com/articles/news_and_politics/photography/2014/02/venezuela_protest_photos_police_and_protesters_clash_dur ing_demonstrations.html)
In order to evaluate the current Venezuelan situation and government actions, as well as to gain some personal insight, I interviewed two people who are familiar with contemporary economics-related issues.
When asked to assess current government decisions and what the government should do in the future, Mr. Chen – who majored in economics at the University of California, Berkeley and pursued further studies at the graduate level – replied that “the Venezuelan government should eliminate a lot of the current restrictions on the market.” He described that “the price controls and exchange rate controls” are failing the nation and added “the government should just take a step back.”
He further claimed that although “there are plenty of ways for other nations to help Venezuela” in ways such as “currency swap agreements,” making “a promise to remove trade barriers, and “aid to help the poor” in Venezuela, “the biggest issue is the Venezuelan government itself.” He also declared that “the populist policies under Maduro’s predecessor, Hugo chavez also definitely contributed” to Venezuela’s current disaster and that Venezuela reflects how “socialism, populism, mobocracy doesn’t work.”
In order to hear the voice of a different generation, I also interviewed current APIS senior, Grace Y. Kim. Having a close relationship with her father Kim Dong Hwan, a widely renowned economist in Korea, Grace has built interest in economics throughout the years and also conversed about Venezuela’s economy with her father prior to the interview.
Just as Mr. Chen did, Grace was quick to criticize the actions of the Venezuelan economy stating that although “it’s easy for the media and other outsiders to blame demonstrators and protesters for the chaos happening in Venezuela…the government is largely responsible [for the situation] — with an irresponsible agenda and an almost authoritative control over its people, such backlash is in many ways, called for.”
She also added, “If I was a current citizen of Venezuela, my gut reaction would be to join the protesters and their movement to bring about change, but it already seems like the power of citizen outcries is limited, therefore I would most likely move to another country, preferably in North America.”
It turned out, both interviewees put heavy blame on the government for the current situation in Venezuela and also agreed that leaving the country at the present stage would be the most preferable decision to make.
Byoung Joon (Daniel) Bae
Asia Pacific International School
Byoung Joon (Daniel) Bae firstname.lastname@example.org
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