Venezuela: The Collapse of a Petrostate

Riot police in Caracas. Image by Thomas Coex.

Riot police in Caracas. Image by Thomas Coex.

Venezuela, once one of Latin America’s most prosperous countries, has experienced the most devastating economic crisis in the region. And yet, Venezuela has the biggest oil reserve in the world, its annual inflation rate rose to 1.30 million percent (the highest in the world), its external debt has exploded to $156 billion and the oil exports of PDVSA—the Venezuelan state-owned oil and natural gas company—continue to decline.

So, how did we get here? To answer this question we have to understand the last 20 years of the country’s history. The current situation is the logical result of the economic and political transformations under the governments of Hugo Chavez and Nicolas Maduro. Chavez won the presidential elections in 1999 and subsequently started a deeply political and social transformation of the country. “Socialism of the 21st century”, as Chavez called his revolution, consisted in the concentration of political power in the figure of the leader—to the decrement of democratic institutions. This was coupled with expropriations against private companies and excessive government spending. In addition, it should be mentioned that both the Chavez and Maduro governments have been characterized by populism, militarism, corruption and in the last five years a complete lack of respect for the democratic system and the Constitution.

Likewise, it’s vital to understand that Venezuela is a Petro state. The oil industry represents 98% of the country's total exports. For that reason, Venezuela is fiercely dependent on the international oil market. When Chavez came to power, crude oil production was around 3 million barrels. Since then, this has fallen to less than 1.3 million barrels a day. This fall was caused by the poor management of the oil industry and widespread corruption.

On the other hand, expropriations against local and foreign companies caused a breakdown in domestic production and a reduction in international investment. This generated a simultaneous increased dependence on oil exports coupled with a growth in imports. Meanwhile, in order to maintain social control, Chavez began a system of unsustainable social programs financed by oil exports.

With the fall of exports, the increase of external debt and an insane government spending, inflation turned into hyperinflation. In this economic context, the Bolivar — the national currency — became so devalued that today it almost lacks any value; at present, the minimum monthly salary in Venezuela is equal to less than $5.

President Maduro said that “Venezuela is the victim of world media attacks designed to construct a supposed humanitarian crisis so as to justify a military intervention”. However, the reality is far different.  As consequence of the economic crash, health services have collapsed and supermarket shelves are empty. These are issues that affect millions of people. The situation is marked by climbing hunger, disease, crime and death rates. Despite the many of protests against the government in recent years and international pressure from Washington and Latin American countries, Maduro continues to hold onto power and push through harmful economic policies.