By Ruma Dubey
You cannot help but wonder – how did this richest country in Latin America, with one of the largest oil reserves in the world get be where it is today. We have seen the rags-to-riches story replay around a lot of living people but this happening to a country?
Venezuela is today a country in shambles with the ongoing economic crisis literally shattering it, splitting it wide open.
We gasp when we see inflation climb up by 50 bps or cross 5%; we do “tsk tsk” and say that we are living in very difficult times and the cost of living is killing us. But what about people in Venezuela – how does one wrap their mind around an inflation which is estimated at 42,000%! Is that even a number? Is that allowed in economics? The country’s currency, Bolivar is so badly placed now – it has shed 98% of its value – that literally means it is worthless! At end of June, one million bolivars could not get you even a dollar; it actually fetched a measly 29 cents.
Comprehend with this – their basic need, which is a packet of corn for making arepas, the crn cakes, costs 80,000 bolivars in cash and if you decide to pay by debit, it will cost you 1,10,000 and if its through a bank transfer, it will cost 1,30,000 bolivars. And forget the costs, most of the basic necessity items are not even available; there is a thriving black market too!
More and more people, who had been living in cities, the capital Caracas are now forced to migrate to villages and are going back to the rudimentary way of exchange – barter- to get a bag of flour or cooking oil, you can swap it with a packet of snappers. Ever since the 100 bolivar note was put out of circulation in 2016, people have never recovered and even today, two years later, people are able to buy only the very basic products in a super market at unbelievably high rates and many are living on one meal per day.
Once again it was politics which ruined the country. The two party establishment, where they decided to share power meant that they shared all the oil money within themselves and power was never allowed to go beyond these two. Corruption festered in every pore of the country and in the midst of this, Leftist Hugo Chavez got elected to power in 1998 as he promised returning the power to the people. Soon power and money corrupted him too and a coup escalated a conflict beyond ideology in 2002. But the coup leaders too made a mess of leadership and Chavez returned to rule again and this time, he basically throttled anyone who even tried to raise a voice of opposition.
What worsened the situation was that workers at state-run oil companies went on a strike and Chavez fired 18,000 of them and replaced them with 100,000 of his “own” – party workers.
The money from oil PSUs was diverted to fund political programs of Chavez, to payoff Govt cronies and keep subsidies going to keep food affordable. Thus when oil prices were at over $100/barrel, oil PSUs had their own internal rifes, with production falling down and from there, it was a one-way road downwards. Crime was thriving and murder rates were at their highest. Chavez died in 2013 and President Nicolás Maduro took over and he ruined the economy further. He gave the army control over drugs, food and gold mining and to pay for subsidies, he merely resorted to printing more money , driving up inflation and driving down the value of money. Since then inflation has spiraled.
The chaos in Venezuela continues and the big lesson we have from here is how a flourishing country, blessed with so much wealth, was ruined by its politics.
Yes, for once the rest of the world can feel that they are better off.