How Venezuela, Once the richest country in Latin America, Became one of the poorest ?

For about a decade, Venezuela has faced an unprecedented political and economic crisis. The internal situation of the country is deteriorating from year to year and lasting solutions do not seem to be offered. This South American country, which was once the richest on the continent thanks to its astronomical amount of oil, is now the poorest in all of Latin America, ahead of Haiti.

The national currency, the bolivar, is in free fall while the protest against President Nicolás Maduro continues to grow. The richest country in South America in 2001, Venezuela has now become one of the poorest, analyzes The Economist. According to documents from the Venezuelan Central Bank released to Reuters news agency, in 2016 inflation rose 800% and gross domestic product fell 18%. "This is the strongest contraction in the country's economy in 13 years and the highest inflation on record," said Reuters. Figures confirmed by the International Monetary Fund, which estimates this year at 2,200% the increase in the consumer price index.

In monetary terms, the 100 bolivar banknote, the country's highest value, "equals only a few cents on the black market," adds The Economist. “Traders sometimes weigh them rather than count them,” he continues. The government replaced the 100 bolivar banknote with new ones to curb inflation. The economic situation has a direct impact on the daily life of Venezuelans: power cut, shortage of food and medicine, record increase in the prices of basic products. 70% of Venezuelan families now live below the poverty line.

Oil, a double-edged sword

In 1998, some time before Hugo Chavez took over as president, oil accounted for 74% of the country’s exports, up from around 95% in 2019 . During the reign of Hugo Chavez, several social programs, financed by oil, were put in place. These programs made it possible to reduce the poverty rate in the country considerably between 2003 and 2010. However, after this notable social rise, the fall in the price of a barrel of oil in 2014 greatly deteriorated the economic situation in Venezuela .
The country's lack of economic diversification has fueled a skyrocketing inflation and plunged the country into an unprecedented crisis . In the opinion of Antonio de la Cruz, the executive director of the think tank Inter American Trends, divestments and non-maintenance of oil infrastructure are the two main factors that led to the economic collapse of Venezuela . The country produced about 3.2 million barrels of oil per day in 2012. However, this production fell to 1.5 million in 2018, before reaching 400,000 in September 2020.

Inflation hits record highs

Venezuela currently holds the title of the country with the highest inflation rate in the world . According to data from the International Monetary Fund, Venezuela's inflation rate has reached unimaginable levels of approximately 10,000% for the year 2019. By comparison, for the same period, according to World Bank data, Colombia ended 2019 with an inflation rate of 3.53%, Ecuador with 0.27% and Brazil with 3 , 73% . According to this indicator, it is possible to see that Venezuela is in complete asymmetry with its neighboring countries, and is therefore, with its hyperinflation, an isolated case. The words of Christopher Dembik, chief economist of Saxo Bank, are evocative: “Venezuela is in a situation comparable to that of Germany in the 1920s, when bread was bought in wheelbarrows ”.

In 2019, the value of the bolivar, Venezuela's national currency, plummeted 98.6% against the dollar. This phenomenon has greatly dissuaded citizens from using local currency. They turned to the US dollar for their day-to-day trading . The minimum wage in the country is equivalent to only $ 1.8 per month, which does not even afford a kilo of meat ($ 3.4) . Hygienic products, soap and detergent are no longer accessible. Those wishing to obtain these basic necessities must obtain them on the black market with dollars .

This economic plunge is aggravated by a political crisis. Elected in 2013, the Venezuelan president, member of the party of Hugo Chávez (the MVR which joined the United Socialist Party of Venezuela), clings to power while refusing dialogue with the opposition, notes The Economist. This Chavist even calls on the Pope to settle the institutional crisis. Without success. Only 24% of the population approves with its policy while the parliament, mostly on the right since 2015, is still trying to call early elections.

The Central Bank of Venezuela has announced that it will henceforth put into circulation banknotes of 200,000, 500,000 and 1,000,000 bolivars to avoid the unnecessary accumulation of banknotes and to meet the needs of the national economy .

According to IMF forecasts, Venezuela's population could decline by nearly one million people, from 28 to 27.1 million between 2019 and 2020 . The United Nations also published a report in 2019 stating that 4.7 million inhabitants left the country between 2015 and 2019.

As mentioned by Philippe Faucher, professor of political science and researcher at the Center for International Studies and Research of the University of Montreal (CERIUM), the State should strongly encourage economic diversification, to avoid the worsening of the phenomenon experienced by Venezuela. However, investments in other sectors of activity are currently very limited due to the country's enormous debt . The next few years will be crucial, but hope remains elusive.
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