How Venezuela's crisis developed
and drove out millions of people, 8/22/18. BBC News.
Venezuela is rich in oil, and has the largest proven reserves in the world. But arguably it's this exact wealth that underpins many of its economic problems.
Venezuela is rich in oil, and has the largest proven reserves in the world. But arguably it's this exact wealth that underpins many of its economic problems.
What's
wrong with Venezuela? The population of Venezuela was 32.4
million and 2.3 million have left since 2014. 95% of government revenue comes
from oil exports. 19 years of Socialist government. 80,000% inflation.
Arguably the biggest problem facing Venezuelans in theirday-to-day
lives is hyperinflation. The annual inflation rate reached 83,000% in July,
according to a recent study by the opposition-controlled National Assembly.
Prices have been doubling
every 26 days on average. This has resulted in many Venezuelans struggling to
afford basic items such as food and toiletries.
How did
hyperinflation come about? On the most basic level, there are more
people wanting to purchase goods than the number of goods available.
Because it has so much
oil, Venezuela has never bothered to produce much else. It sells oil to other
countries, and with the dollars it earns, imports the goods Venezuelans want
and need from abroad.
Its oil revenues account
for about 95% of its export earnings. But when the oil price plummeted in 2014,
Venezuela was faced with a shortfall of foreign currency.
This in turn made it
difficult to import goods at the same level as before, and imported items
became scarcer. The result: businesses
increased prices and inflation rose.
Add to that the
government's willingness to print extra money and regularly hike the minimum wage in
an effort to regain popularity with Venezuela's poor, and you get
money which loses its worth
rapidly.
The government is also
increasingly struggling to get
credit after it defaulted on some
of its government bonds. With creditors less likely
to take the risk of investing in Venezuela, the government has again taken to
printing more money, further undermining its value and stoking inflation.
What's
the government doing about it? The government lopped five
zeros off the old "strong bolivar" currency on 20 August and gave it
a new name - the "sovereign bolivar". It also began circulating eight
new banknotes worth 2, 5, 10, 20, 50, 100, 200 and 500 sovereign bolivars and
two new coins. The new currency is part
of an "economic package" of measures which the government says is the
"magic formula" to help Venezuela's battered economy recover.
Among the measures are: Raising
the minimum wage to 34 times its previous level from 1 September. .Anchoring
the sovereign bolivar to the petro, a virtual currency the government says is
linked to Venezuela's oil reserves.
Curbing
Venezuela's generous fuel subsidies for those not in possession of a
"Fatherland ID". Raising VAT
by 4% to 16%
How are
people reacting? Many people have been voting with their feet and leaving
Venezuela. According to United Nations figures, 2.3 million Venezuelans have
left the country since 2014 when the economic crisis started to bite.
Main Destinations for
Venezuelans migrating in 2017 to:
Colombia 600,000
US 290,224
Spain 208,333
Chile 119,051
Ecuador 39,519
Brazil 35,000
Peru 26,239
Total is 1,028,142 partial count for 2017.
The mass migration is one
of the largest forced displacement in the western hemisphere.
What
faces those staying in Venezuela? While the new currency is likely
to make cash transactions
easier for a while, its introduction caused confusion. Some Venezuelans managed
to get hold of the new bills, but others reported long queues when banks
opened.
Some economists have also
warned that the new currency could soon face the same problems as the old one
unless the root causes of hyperinflation are tackled. They say that within
months its worth could be decimated by rising prices.
Employers have also said
that they do not know how they will pay for the 34-fold rise in the minimum
wage.
Meanwhile, shoppers still
face empty shelves in supermarkets, and in some cities there have been water
shortages and power cuts caused by a lack of investment in Venezuela's
crumbling infrastructure.
But while the power cuts
and lack of running water are a problem for households and businesses, they
have proven deadly in Venezuela's already run-down public hospitals.
Many of those fleeing the
country say they are doing so because they cannot get the operations and
medical care they need.
Who do
people blame? Some of the problems go back a long time, but since the
socialist government has been in power since 1999, first under President Hugo
Chávez and more recently fronted by President Nicolás Maduro, many Venezuelans
blame these two men for what is happening.
They say that while the
socialist policies of President Chávez may have been aimed at helping the poor
- Venezuela was a country of huge inequality when he came to power in 1999 -
they backfired.
Take price controls, for
example. They were introduced by President Chávez to make basic goods more
affordable to the poor by capping the price of flour, cooking oil and
toiletries. But this meant that the few
Venezuelan businesses producing these items soon no longer found it profitable
to make them.
Critics also blame the
foreign currency controls brought in by President Chávez in 2003 for a flourishing
black market in dollars. Since then, Venezuelans wanting to exchange bolivars
for dollars have had to apply to a government-run currency agency. Only those
deemed to have valid reasons to buy dollars, for example to import goods, have
been allowed to change their bolivars at a fixed rate set by the government. With
many Venezuelans unable to freely buy dollars, they turned to the black market.
At one point, the dollar was trading for 6.5m bolivars.
But there is still a loyal
core of people who support the government and who say that Venezuela's problems
are caused not by President Maduro or his predecessor, but by a hostile and
coup-mongering opposition inside the country, and "imperialist
forces" like the US and neighboring Colombia outside it. They say that US
sanctions have hampered the government by making it hard to restructure its
debt. Often, they have benefited directly from the government's social programs
- and argue that despite the shortages, they are still better off now than
before Mr Chávez came to power in 1999.
Norb Leahy, Dunwoody
GA Tea Party Leader
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