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The Fall of Venezuela

One of Latin America’s wealthiest countries, Venezuela is now considered a prime example of a failed state. With political degradation, economic isolation, and social degeneration, the country seems stuck in a never-ending downward spiral. After years of thriving on the riches of its oil reserves, Venezuela is going through what many experts have called “a humanitarian crisis of Syrian proportions.” While the country's inflation and poverty rates showed mild signs of recovery in 2022, the increasing political instability, rate of crime, and an unmanageable refugee crisis have wreaked havoc on the population. 


Ironically, the reason for Venezuela’s fall lies in the very reason for its rise.


In 1922, after the discovery of oil at La Rosa, a field in the Maracaibo Basin, by the Royal Dutch Shell Geologists, Venezuela started producing hundreds of barrels of oil a day. Within the next few years, more than a hundred foreign companies were producing oil in the country with the support of the then president Juan Vicente Gomez.  By his demise, the country’s oil sector formed ninety percent of its exports, pushing aside all other sectors, including the economy. In the 1950s, Gomez’s successors ensured a tighter state hold over the oil sector. The oil companies were compelled to share fifty percent of the oil profit with the State.  


After joining OPEC in 1960, the country established its first indigenous oil companies and taxed them at sixty-five percent of profits. However, the most significant step was taken by President Carlos Andres Perez in the 1970s. He nationalized the entire oil industry by creating Petroleos de Venezuela, S.A. (PDVSA). The main functions of PDVSA were oil: exploration, production, refining, and export. The PDVSA was allowed to enter into partnerships with foreign oil-producing companies in Venezuela as long as it held sixty percent equity. 


A fundamental change occurred in the Venezuelan economy in the 1980s. As the global prices of oil saw a considerable slump, Venezuela was faced with rising inflation and a contracting economy. In the face of economic challenges, Perez introduced a financial austerity package. Deadly riots broke out in the country. 


On the debris of collapsed governmental institutions, the country saw the rise of Hugo Chavez, the most charismatic and formidable figure in the political landscape of Venezuela. He came to power in 1999 after a long political coup. Despite being a leader with great popularity among the masses, the current grim state of the country is often attributed to his economic policies.


Chavez was the Venezuelan President from 1999 to 2013. He aimed to use Venezuela’s vast oil reserves to reduce poverty and inequality among the masses. He was loved and respected, especially by the working class.  He was authoritarian in his ways: he took complete control of the Supreme Court, harassed the Press, and nationalized several private and independent businesses. He was successful in reducing the country’s poverty by twenty percent. However, he depended solely on the revenues from the oil sector to fund his socialist initiatives. This led to a steady decline in the country’s oil production. Moreover, he shoved all other sectors of the economy into infancy. As his social spending exceeded the State revenue, the country’s debt doubled.


Chavez chose Nicolas Maduro as his heir. After the former died in 2013, Maduro rose to power. In 2014, amid massive protests against rising inflation and unemployment, Maduro consolidated his power through military repression and political manipulation. He got himself reelected in 2018 in an election that was condemned as undemocratic by the international community.  Nearly sixty countries, including The U.S., recognized opposition leader Juan Guaido as the interim president. The country’s challenges further aggravated between 2014 and 2020.


Seventy-seven percent of the country’s twenty-eight million population lives in stark poverty, the highest in Latin America. Venezuela has the largest share (17.5 percent) of the global oil reserves. However, a lack of economic and political stability, obsolete infrastructure, and a market heavily controlled by the State have caused the country’s economic collapse. 


Another central concern is the country’s refugee crisis which has resulted explicitly in the shortage of hospital workers. Nearly seven million people have left the country for better livelihood conditions.


According to Human Rights Watch World Report 2023, the country’s political leadership is in extreme peril. The UNFFM (United Nations Fact Finding Mission) has sufficient and concrete evidence to support the claims of crime against humanity as a part of State policy to repress all opponents. Even more worrisome is the fact that the judicial authorities are complicit in this abuse of power. The government and the judiciary are hands in gloves, leaving people in utter despair and helplessness. 


Incessant attacks on individual liberty and freedom are prevalent throughout the country. Arbitrary arrests and detentions have been on the rise since Maduro assumed Presidency. The Penal Forum reports that around 245 political opponents and 15,770 civilians have been arrested arbitrarily. The military is brutally beating people up. Many have been killed. It is a humanitarian crisis that needs immediate attention.


The 2022-2023 United Nations Humanitarian Response to Venezuela has estimated that around eleven million people were undernourished and chronically hungry. Approximately five million people lack access to the most basic facilities, such as healthcare, food security, clean water, and sanitation. People stand in never-ending queues for a single slice of bread.  The country’s waste disposal system has virtually vanished, transmitting many preventable diseases and infections. Medical services have become unaffordable due to their high prices.


A country’s political structure is the foundation upon which its economy and social relations are built. When power is concentrated in the hands of a few privileged individuals, any voice of dissent among the masses is silenced with the use of brute force, and the use of military and police to terrorize innocent civilians force them to accept subhuman living conditions. Devoid of adequate economic opportunities, people resort to criminal and anti-social activities, and as a result, society falls apart.  According to a report by Time, Venezuela has one of the world’s highest murder rates. Street gangs, right-wing paramilitaries, drug cartels, and leftist guerrillas are jostling for power. 


Many experts have called Venezuela a textbook definition of a failed Petro-state. The fact that ninety-nine percent of the country’s exports are from the oil sector reflects its vulnerability to any fluctuation in global oil prices. Some petro-states, such as Norway and Saudi Arabia, show that resource-dependent nations can be huge successes. The key lies in the careful management and spending of resource wealth. Both Norway and Saudi Arabia have established SWFs (Sovereign Wealth Funds). Worldwide, SWFs manage around nine trillion dollars’ worth of assets.


A significant global shift is taking place in the Energy sector. The tilt is now towards renewable energy resources. Analysts fear that this could further damage the economic situation of Venezuela. In such uncertain times, economic diversification will play a pivotal role in the global economy. For Venezuela to benefit in the emerging scenario, it is essential to cut down its sole reliance on oil and develop other sectors of the economy.


Interestingly, the latter half of 2022 has brought some signs of recovery for the country. According to Bloomberg, the GDP is expected to grow by 8.3 percent from 1.9 percent in 2021. There is a considerable rise in domestic demand.  The country has also benefited from the increase in global prices for crude. This has indeed brought about some relief after the devastating shock of the COVID-19 pandemic. Imports and consumption have also risen significantly.  


Despite all the gradual positive developments since June 2022, the country still needs a boost through foreign investment. The U.S.A will have an important role to play here since its economic sanctions have intensified by the Trump administration post Maduro’s reelection in 2018. Financial support from China and Russia is what is keeping the country afloat. 


Beyond and above any superficial changes and rearrangements, Venezuela needs a shift in its ideology, most notably in its interpretation of Socialism. The most fundamental tenet of the Socialist ideology is that resources and wealth are collective belongings.  When access to natural resources is restricted, when the State confiscates industries and lands, and when the market is rigid and closed and vulnerable to global price shocks, it is only natural for a select few to grow wealthier at the cost of the vast majority.  Equality and justice can only prevail when the gap between the rich and the poor is weakened. 


The fall of Venezuela is, therefore, a testament to how even the wealthiest nation can fall flat if it misuses its resources and disowns its people. Its rise will consequently require: judicious use of its resources, the restoration of the most basic human rights and a market wherein people are allowed to participate and contribute freely, thereby creating opportunities for recovery and development.


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