Venezuela, once the richest country in Latin America, has spiraled into a state of political and economic turmoil. The country’s recent history serves as a cautionary tale, warning against the dangers of the mismanaged petrostate.
The country is home to the globe’s largest supply of crude oil, yet decades of poor governance has led to its economic collapse. In 1991, the people elected the charismatic populist and socialist Hugo Chavez. With the boom of oil prices that coincided with Chavez’s election, the country became awash with oil money. Labor and capital shifted from agriculture and manufacturing to the oil industry (which was nationalized with the establishment of PDVSA in 1976), creating a dependence on the oil sector. When Chavez died in 2013, oil accounted for 95% of the country’s exports, and 48.1% of the country’s GDP.
In 2014, due to an overproduction of oil in the global market, oil prices plummeted. Maduro, Chavez’s hand-picked successor, saw oil prices drop from approximately $100 to $26 per barrel. Simultaneously, Maduro’s increasing intervention in the private sector and intensification of price controls created a hostile environment for foreign business, driving companies such as Pepsi and General Motors to cut back or leave Venezuela entirely. Today, foreign companies continue to flee the chaos, contributing to the rising levels in unemployment.
The unravelling of Venezuela's economy has been accompanied by hyperinflation. Venezuela's annual inflation rate was 80,000% at the end of 2018, and the IMF predicts that it will hit a world-topping rate of 1,000,000% by the end of 2019. Along with the dramatic weakening of the Bolivar, the country’s GDP shrunk by double digits for the third consecutive year in 2018.
In recent years, Maduro has spent much of the government's money repaying debts to China, Russia and foreign investors, leaving Venezuela starving and suffering from shortages of medicine. A national poll found that the average Venezuelan living in poverty lost a staggering 19 pounds last year. As a result of the humanitarian crisis, three million Venezuelans have left the country in recent years, fleeing to cities throughout South America. According to the World Refugee Council Report, this is the largest human displacement in Latin American history.
These circumstances created the perfect storm for 35 year-old Juan Guaidó, leader of the Legislature, to declare himself acting President on January 23, 2019. The United States quickly recognized Juan Guaidó as the legitimate leader of Venezuela, based on his constitutional right to challenge the Maduro regime. Mr. Maduro, however, continues to be supported by top security generals in Venezuela, and Venezuelans have taken to the streets in protest of his current hold on power. Recently, violence erupted on the southeastern Venezuelan border, as opponents of the Maduro regime attempted to deliver humanitarian aid across a heavily armed government blockade. Whether or not the U.S. and other countries will militarily involve themselves in Venezuela remains to be seen.
The flailing hope is that the battered Venezuelan economy will one day be restored to its prior state of prosperity.