When your government asks you not to go to work for five days, to conserve power, your country is in trouble.
Especially when you live in Venezuela, home to the world’s largest oil reserves. Also rich in gold and other minerals, the country is nonetheless on the brink of bankruptcy.
“Venezuela is going through the worst crisis in its 200-year history,” said Jean Daudelin, a professor and Latin American specialist at Carleton University currently on sabbatical in South America. “The economy is in shambles and the political system is paralyzed.” The economy contracted by 10 per cent in 2015, according to the International Monetary Fund, and is expected to shrink by a similar amount again this year. Oil revenues have declined, not just because of low prices but due to years of underinvestment and declining productivity. Inflation is estimated at 200 per cent — the highest in the world.
Infrastructure, including the electricity grid, is in such poor shape that President Nicolas Maduro extended the Easter holiday to five days this week to address a drought affecting hydroelectric dams. Malls, banks and many supermarkets closed, or cut hours.
“We had to go to a black market supplier, where the prices are higher, to find oil and white corn flour to make arepas,” Harold Schott, an industrial engineer, said after trying to shop Thursday in Maracay, a city 120 kilometres west of Caracas. “Inflation is so bad that cheese costs 10 times what it did three months ago. My car battery died a week ago and I cannot find a replacement.”
While Venezuelans are accustomed to food shortages, Caracas journalist Mary Trina Mena said the quality of life has deteriorated drastically in the last year. “I have water only 20 minutes a day three times a day, but I never know when that will be. People are frustrated and tired of not finding solutions.”
Some analysts, including Daudelin, fear there could be military intervention. One reason is that it is unclear that the two main opposition leaders, Henrique Capriles and Leopoldo Lopez (who is in prison for inciting violence during anti-government protests), are able to work together for long enough to offer a valid leadership alternative. The military continues to back Maduro, who replaced former president Hugo Chavez after he died in 2013. Venezuela has a long history of military intervention; Chavez himself led an attempted coup in 1992 before becoming president in 1999, and he survived a coup attempt in 2002.
Many of the challenges Venezuela faces stem from a long-standing overreliance on petrodollars, and a failure to invest properly in the state-run oil and gas company, Petroleos de Venezuela, known by its Spanish acronym, PDVSA. Chavez increased social spending when the price of oil was high, expanding the government debt. He fired thousands of oil workers and executives and demanded control of PDVSA’s joint ventures. The result has been a reduction in oil exports. “Venezuela is producing one million oil barrels per day less than it was 50 years ago, and its population has grown by three (times, to 30 million),” said Dany Bahar, an economist, Venezuela expert and fellow with the Brookings Institute, a Washington, D.C.-based think tank.
With the price of oil having plunged from more than $100 (U.S.) per barrel to the current $40, the country has run out of money to pay for imports and make its debt payments. The result has been a cut in imports, to the point that the government can no longer provide for its citizens. “The only way for the government to pay its debt is to print money. That creates inflation,” said Bahar. “The price controls make it almost impossible to produce things. That’s why the shelves are bare.”
Maduro also lacks his predecessor’s legendary charisma. That helped the opposition Democratic Unity alliance (MUD) to win two-thirds of the 167 seats in December’s parliamentary election. However, the opposition’s ability to wield influence is being challenged by Maduro. He s gned a decree that stripped the assembly of its ability to oversee the central bank. And the government-controlled Supreme Court ruled three opposition legislators could not be sworn in, thus denying their “super majority” that could have given parliament the power to unseat Maduro.
“It is a crisis of governability,” said Bahar. “Venezuela has already defaulted, on its citizens.”
Venezuela’s challenges may not have the same impact globally as the political and economic problems facing Brazil, Latin America’s largest economy, where protesters are calling for the resignation of President Dilma Rouseff over a corruption scandal.
However, that is of little comfort to Venezuela’s citizens, who are left in the dark, wondering how much worse it can get, and what kind of a future is in store for their resource-rich country.
By the numbers
In 2015, Venezuela had the world’s worst economy, according to the International Monetary Fund’s growth estimates:
Brazil: – 3.8%