Venezuela - The Chaos You Don't Know About
Updated: Mar 4, 2020
How mad would you be if your pumpkin spice latte was $3 one day and then $297 a year later? The same exact latte, the same exact size and the same exact judgement the barista at Starbucks gives you every time you order that as they spell your name wrong.
"Excuse me, it's Kristina with a K".
Chances are, you'd be pretty upset if the price of your latte went up 9900% in just 1 year. Unless every coffee bean on earth was destroyed or the latte includes diamonds in it (a choking hazard), this astronomical rise in the price of a cup of coffee can be linked to hyperinflation. As time goes along, the prices of goods become more expensive, known as inflation. Hyperinflation is when inflation injects itself with steroids and the prices of goods rise dramatically within a short period of time while the value of money goes down.
In the US, if the price of a cup of coffee increased by 9900%, there would be anarchy in the streets. Americans would be calling for a revolution. Not to mention, every gentrified neighborhood would see the closing of the 17 coffee shops that seem to be on every block.
Yes, there would be chaos and an indication that something is seriously wrong with the economy. For the citizens of Venezuela, this is their reality. This is the story of how a country only 1,200 miles away from the United States is on the brink of collapse.
Blow my mind with a fact about Venezuela
There are more oil reserves in Venezuela than in any country on Earth. Let me repeat that. There are more oil reserves in Venezuela than in any country on Earth. More than Saudi Arabia, more than Iraq, more than the United States, more than Iran. Venezuela has 303 billion barrels of proven oil reserves, accounting for 18% of the worlds oil reserves. When you hear about oil producing nations, you always hear about the countries in the Middle East or the US but never about Venezuela.
How come we never hear about Venezuela and its oil producing capabilities?
Saudi Arabia which has the second largest proven oil reserves in the world, 298 billion barrels, produces about 12 million barrels of oil per day. Venezuela. on the other hand, produces only 2 million barrels a day. The economy and infrastructure is so bad in Venezuela, they can't efficiently and effectively produce oil.
While sitting on one of the world's most valuable commodities, Venezuela has failed to capitalize on their literal gold mine. While countries such as Qatar, Kuwait and Saudi Arabia have some of the highest GDP per capita in the world due to their abundance of oil, Venezuela has one of the lowest GDP per capita and has some of the worlds worst quality of life.
How does the country with the most oil reserves in the world have one of the worst economies? What type of economy do they have?
Due to the rise of Bernie Sanders in the Democratic party, you might have heard of the term, socialism. Critics of Bernie Sanders, love to point out the failures of Venezuela, which is a socialist country. In 1999, under the leadership of Hugo Chavez, Venezuela became a socialist country. The government of Venezuela nationalized industries all over the country, including oil. They manipulated exchange rates and printed money that devalued the Venezuelan currency and expanded welfare programs across the country.
Please explain how those actions by the Venezuelan government in 1999 created the chaos we see today, in 2020.
First, the government nationalized major industries across the country. What this means is they took over big industries from private companies and private owners. The government was now in control of these major industries, including the oil industries. In addition to the oil industry, the agriculture industry was nationalized and plots of land were given to everyone, including the poor. In theory, this sounds pleasant but the government was selling goods at very low costs while hiring tons of people. Since its a socialist society, there were no incentives for profits which led to high production costs. It was a recipe for disaster. Venezuela's food production fell by 75%!
The Venezuelan economy centers around oil. Given they have the largest oil reserves in the world, this isn't surprising. Venezuela exports oil but they don't produce anything else, relying on imports for everyday needs, such as medicine and technology. In 2013, the global price of oil dropped. Foreign demand for the bolívar (Venezuela's currency) to buy Venezuelan oil crashed. As the currency’s value fell, the cost of imported goods rose. To combat this, the government printed more money which devalued their currency even more. In addition, there were black markets set up where the bolívar was traded in for USD. This drove the value of the bolívar even further down. The currency manipulation of the bolívar is complicated and needs its own article.
The appeal of socialism is the distribution of goods, services and welfare programs to everyone. Oil prices rose dramatically from 1999 to 2008 which helped fund a lot of the programs in Venezuela to pull some people out of poverty. However, none of this oil money was used to create new industries, fund innovation and help build or repair the infrastructure in the country. The infrastructure to extract oil was ignored which is why you see such little oil production compared to other oil producing nations. Once the price of oil crashed in the mid 2010's, the government had no way of paying for all those welfare programs they had created. And in turn, they printed more money which devalued their currency and created the hyperinflation we see today.
Okay, that was pretty boring but thanks for explaining. With the economy in the tank, why don't the people vote for a new regime?
Throughout Hugo Chavez's tenure as President there were reports of rampant election fraud, censorship of the media, jailing of political rivals and amendments to the constitution that allowed him to make decisions without consulting anyone and allowing him to remain in power. In 2013, Hugo Chavez died due to cancer and his Vice President, Nicolas Maduro became President of Venezuela.
In 2018, Nicolas Maduro won the election to remain President. However, the results of the election were disputed within the country. Widespread fraud was suspected. The opposition party (National Assembly), declared themselves the winner, not Maduro. The National Assembly declared their leader, Juan Guaido as the President of Venezuela.
This has set off riots and chaos in the streets of Venezuela between Guaido and Maduro supporters. Across the globe, 60 countries, including the United States recognize the 35 year old Juan Guaido as the legitimate leader of Venezuela. In fact, Guaido was present at President Trump's State of the Union address. The military of Venezuela recognize Nicolas Maduro as President. It helps when the President gives top military commanders control over some of the most lucrative industries in the country.
How is Venezuela doing today?
Venezuela is one of the worst humanitarian crisis in the world. Three to five million people have left the country, making it the largest displacement of people in the Western Hemisphere. It's on pace this year to be the largest displacement of people in the world, surpassing Syria, which has been in a bloody civil war since 2010. In addition, the lack of food across the country has led to high undernourishment rates and the lack of medical supplies has caused sickness and deaths to sky rocket. As expected, with all this chaos and lack of necessities, Venezuela has become the murder capital of the world. What has compounded this issue is the lack of international help. To put it in perspective, about $1,500 on average is spent on a Syrian refugee while only $125 is spent on a Venezuelan refugee.
How does this affect the United States?
The US has put sanctions on Venezuela by not buying their oil and freezing their assets because they see Nicolas Maduro as a dictator.
Across the globe, in the past few years, there have been examples of some sort of failed state; Libya, Iraq and parts of Syria. The United States is thousands and thousands of miles away from these countries. Venezuela on the other hand is just a short 3-4 hour flight away from the shores of Florida. A failed state so close is a major threat to the national security of the United States. You can have bad actors across the globe who can travel to Venezuela and launch attacks on the United States. Nicolas Maduro's government is very close with the Russian government. A failed Venezuelan state could allow Russia to build bases or have submarines close to American shores.
That was a lot or reading
The situation in Venezuela is dire but the world doesn't understand just how bad it is. It's important to understand how Venezuela got to its current state. It was 20 years of bad decision making and corruption that has led to the chaos Venezuela finds itself in.
The children of Venezuela are suffering. You can use the link below to donate or raise awareness of the humanitarian crisis in Venezuela.