What Happened To Venezuela? An Explanation Of The Current Crisis

 

You may have seen some crazy shit on the Internet recently about Venezuela.

Mass protests, moves by President Maduro to rewrite the constitution and, of course, the perpetual food and medical shortages, crime waves and violence.

So, how did all this happen to a country that was once among the richest in Latin America? 

 

How It All Started

Hugo Chavez was elected in 1999, at the beginning of a global oil boom. During his presidency, oil was far and away the country's biggest export and, with Venezuela sitting on the world's largest oil reserves, this commodity alone was enough to cover most of Venezuela's bills. There was very little incentive to develop any other industry, since the country could simply purchase anything they didn't produce with all that sweet, sweet, oil money.

In short, Venezuela was doing just fine.

However, in late 2002/early 2003, the country's oil workers went on strike, crippling the nation's major (only) cash cow. In response, Chavez fixes the exchange rate between the Bolivar, Venezuela's currency, and the US dollar. This limits access to foreign currency and means that anyone who wants US dollars has to go through the government.

In other words, if you were a Venezuelan businessman importing kitchen appliances, you would have to prove that the items you were importing were essential items simply to change your own money to dollars in order to pay your suppliers.

Now, although this was annoying as fuck, as long as your business/products were approved by the regime, eventually you'd be able to get your dollars and conduct business. 

That is until 2013.

 

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Venezuela: 2013-2017

In 2013, Hugo Chavez dies and his foreign minister Nicolas Maduro takes over. 

Soon after, the oil price drops. Like a rock. Around 50% in 6 months.

The government starts freaking out. Since it had been spending all of that oil money on fat salaries, food subsidies and, to be fair, some social programs for the poor, it soon found that if this slump in oil prices continued, it wouldn't have a pot to piss in.

Whereas other oil producing countries had saved their money, Venezuela had splashed out. There was nothing left.

Its fixed exchange rate also meant that there was little access to US dollars, so people were willing to pay a premium to get their hands on greenbacks. And because the government insisted on keeping this pre-oil collapse exchange rate (about 6 Bolivars to 1 US dollar) to avoid price increases, a black market sprung up.

Then the obvious happened. People started buying US dollars for cheap from the government, and trading them on the black market for profit. Some people were able to make A LOT of money doing this.

This totally fucked the exchange rate. Now, what normally happens when a country finds itself in this situation is that it admits it blew it, lets the exchange rate go back to normal and watches uncomfortably as prices rise.

But not Venezuela!

The government was so desperate to hang on to the "socialist utopia" that it believed it had built, it was unwilling to accept reality. If it had simply acknowledged that the economy was in shambles and attempted to build up its industry over time, things would have improved and perhaps the country wouldn't be in such a mess today.

But no. Instead, it doubles down. It decides to print more money and inflation skyrockets (expected to rise to 1,660% this year).

What did the government do when prices start going insane?

It brought in price controls. In other words, it told businesses how much profit they were allowed to make.

This, accompanied by increasing inflation, basically made running a business impossible.

Since Venezuela had neglected its domestic industry during the oil boom years, it relied heavily on import businesses to supply people with basic goods. Now that these businesses weren't profitable and had to shut down, Venezuela faced massive shortages from everything from medical supplies to toilet paper.

A worthless currency. Lack of basic goods and services. A corrupt government. No way to make a living.

People aren't going to happy for long.

And now we're seeing it come to a head.

 

The Most Recent Protests

Throughout April and May, Venezuela has seen its biggest protests in recent history. Opposition leaders and anti-government protesters are demanding that Maduro step down. The president has continued to shoot down any attempts of a referendum, and is delaying both local and state elections. 

If his government couldn't be called a dictatorship before, it almost certainly can now.

The protests seem to be growing larger and more violent with each passing day. They are demanding a date for local elections as well as an early presidential vote.

There seems little doubt that the citizens will not rest until Maduro is ousted from power.

 

 

What is next for Venezuela?

Unfortunately, even if Venezuela manages to drive Maduro from power and elect a different government, its troubles are far from over. If the opposition gains power it will have to completely rebuild the country's political system and economy from scratch. Not to mention the fact that Venezuela is quickly running out of cash and is dangerously close to defaulting on its creditors. If this happens under the current government, things could get even worse for Venezuela (on international terms at least...the citizens have basically reached maximum suffering).

Even if we see a new government as early as 2017/2018, it will be - at the very least - another 15 years before things return to any kind of normality. 

 

I hope to return within the next five years, but as things stand now, I'm not getting my hopes up.

 

Prayers to all the lovely people of Venezuela.