“Venezuela’s economy finally collapsed.”
“The humanitarian crisis and economic downfall in Venezuela are unprecedented.”
“The state of the Venezuelan economy is past dysfunction.”
Once Latin America’s wealthiest, Venezuela’s inflation rate is predicted to reach 10,000,000% by the end of 2019, making it one of the worst cases of hyperinflation in modern history. The rate is currently at 1,623,656%, a significant decrease from January when it hit 2 688 670%. In January 2016, the average price for a cup of coffee was 450 Bolivars. In January 2019, a cup cost 2.5 million Bolivars.
Economists claim that this economic collapse was a result of years of socialism, incompetence, and corruption resulted in this catastrophe, throwing the Venezuelan government into scorching political water. Historically, Turkey’s economy has been heavily dependent on oil exports. As of 2012, more than 90% of the country’s export earnings came from oil, which had enabled previous governments to pay for social programs, subsidies, and health services. The former late president, Hugo Chávez, had a public history of interfering with Venezuela’s oil industries, in which he, as the public coined, had “converted oil into loyalty”. This was done through the state-owned oil and natural gas company, PDVSA, in which the majority of its operating budget was diverted into programs for the late president’s political base, payoffs for government accomplices, and subsidies to keep his promise of affordable food. Mr. Chávez’s actions set Venezuela in a vulnerable state on the brink of an economic collapse, and when oil prices did plummet, cash reserves and confidence depleted.
In 2013 the global price of oil dropped. Foreign demand for the Bolivar to buy Venezuelan oil plunged, and as the currency’s value hurtled, the cost of imported goods rose. This spiraled the economy into an unprecedented man-made hyperinflated state. President Nicolas Maduro succeeded in the same year and responded to this crisis by printing more money, which did have the intended effect of stimulating the economy in the short-term but also depreciated the value of the Bolivar even further. This created incentives for Venezuelans to invest in other currencies, in particular in USD, driving its value even lower. Maduro then devaluated the bolivar by 95% and deducted five zeros, making it the largest currency devaluation in contemporary world history. This backfired and caused people to turn to credit and bank transfers, even for minuscule transactions. The president created this new currency and boosted the minimum wage by thirty-fold in an effort to stabilize prices in August 2018. Despite the good intent, inflation persisted with prices rising 4% daily.
The choices made by the government drove up inflation, which in turn, made basic necessities unaffordable. The Venezuelan president accordingly responded by instituting price controls and fixing the exchange rate to the price of oil, which unintentionally caused shortages and made most imports prohibitively expensive, leading to businesses shutting down, hence food and medicine became scarce. The UN reported that 9 out of 10 Venezuelans live in poverty, and up to 65% face extreme poverty. Diseases which were medically presumed to be eradicated returned, which caused more suffering as 3 out of 4 hospitals have been abandoned. Murder rates spiked, jails became overcrowded, struggling families turned to black marketizing. The Venezuelan population has been literally decimated, as about 10% of the population has left the country, becoming the largest exodus in modern Latin American history.
“Recovery” is a distant concept with respect to the Venezuelan economy, but her government maintains an optimistic front, drawing billions of dollars (USD) from leading economies such as China.