Venezuela February 2019

There is a lot of talk about Venezuela currently with people making many erroneous claims. This is meant to be a relatively in depth study of Venezuela’s economy, political structure, and history.

History

Pre-History

Venezuela has been inhabited by people for thousands of years.

Colonialization

Venezuela was conquered by the Spaniards in the 16th century, like most of the Americas.

Independence and Gran Colombia (1812-1827)

Venezuela was part of the Bolivarian Republic.

Early Independent Venezuela (1827-1948)

Venezuela had a democracy for most of its early history.

Military Dictatorship (1948-1958)

Venezuela was ruled by a military dictatorship for 10 years.

Republic of Venezuela (1953-1999)

The Republic of Venezuela saw a regular transition between the Democratic Action and Copei Parties. Economically it was a petrostate, but it maintained democratic traditions during these 46 years. The last President was Rafael Caldera who saw steady economic growth and invested in education and infrastructure during his Presidency. He opened the oil industry to foreign companies, and this helped economic growth.

Hugo Chavez and Nicolas Maduro (1999-2019)

Hugo Chavez won the Presidency in December 1998. during his presidency the economy boomed during his time in office, mostly as the result of soaring oil prices. His response to this good fortune was to nationalize multiple industries, financed by the rents on exporting oil during the high oil prices of the 2000s.
Due to this circumstantial good fortune of being the leader of a country sitting on massive oil reserves in an era where oil prices only went up with an exception of the Great Recession, he was able to maintain popularity as people had everything they needed. Chavez died on 5 March 2013, leaving Maduro as President. The first year was smooth for Maduro, as the price of oil continued to hover around 100 USD per barrel. This good fortune ended in June 2014, by January 2016 the price hit a trough of $35 per barrel. This was to no fault of Maduro by himself. However, the consequences of a highly centralized economy, with being the third lowest score in the Ease of Doing Business in the world, has prevented their economy from being flexible to a rapidly changing situation. the oil rents which funded the services provided by the Venezuelan government gone, Maduro was faced with a choice, he could either liberalize the economy and allow the invisible hand to allocate resources, or he could clamp down on an economy with massive shortages and literal famine as a result of his policies. this has been documented in a 400 page report by the Organization of American States which is viewable here, and worth reading. In short, they have called on Nicolas Maduro to be charged by the ICC for crimes against humanity which the document outlines, which is highly unusual.

I do not care if a dictator calls himself socialist or fascist. I just care that Nicolas Maduro has violated the human rights of his people, which is always inexcusable. Venezuela has the largest refugee crisis from a non-war zone since the partition of India. It is the 6th or 7th largest refugee crisis in recorded history. The lack of food and economic devastation over the last couple of years has devastated the Venezuelan economy.

Economics

Venezuela sits on the largest proven oil reserves in the world. The government has used the rents from exporting oil to finance projects, particularly under the Chavez regime.

Venezuela has seen significant economic collapse over the last few years, with two years in a row with a -14% GDP growth rate, and a poverty rate which has skyrocketed from 19.7% in 2015 to 87% in 2017. Inflation has soared to over 2 million percent this year. A significant reduction in GDP and a significant increase in prices is massive stagflation, a significant shrinking of supply over a short period of time. With government corporations no longer getting the oil rents they were funded with, this should surprise no one.

They say to never put all your eggs in one basket, and Venezuela gives an incredible example of why this is true, for that is exactly what Chavez did.

References

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