The South American country of Venezuela has become a complete mess. If someone wants a firsthand proof of what some tyrannical leaders can do to their country, Venezuela is a perfect test case for them. The Venezuelan romance with socialism started in the late 1990s with the election of Hugo Chavez and continues till date under the leadership of authoritarian president Nicolas Maduro. The socialist economic policies of the country overflowing with subsidies and welfare programs proved disastrous for the Venezuelan economy.
Venezuela is facing hyperinflation with estimates suggesting a 1,000,000% inflation rate at the end of the year, a situation only faced by Germany in 1923. Millions of people have fled to neighboring countries to seek shelter and international human rights organizations have been asking for refugee status to Venezuelan people. The crime rates are very high with people being killed for essential goods like bread and butter. Many people are forced to eat rats and rabbits to stay alive, but the socialist political regime of Venezuela is not ready to step down. Instead, the Venezuelan army is punishing the people for protesting for food and shelter.
So, what are the reasons behind the disastrous conditions of Venezuela, a country which has world’s largest proven oil reserves?
Well, the greatest gift of god to Venezuelan people is also a poison for them, just as the stories from Hindu epics where the greatest strength of an individual also proves be his bane when the times are averse. When Chavez was elected as Venezuelan president the global economy was riding on commodity boom with skyrocketing oil prices. So, the Venezuelan government started subsidizing everything from bread to oil. The domestic industries and agriculture were destroyed because they could not compete with subsidized imported goods. The increased social spending under the populist welfare policies supported by petrodollars initially boosted the Venezuelan economy. The people of the country enjoyed life without working for even few hours. It was one of the happiest countries on planet. With petrodollars, the Venezuelans did not need to work in order to lead a high-quality life because the state was there to support them. But as the old wisdom goes that even in your best days you must prepare for the worst, but the Venezuelans never took it seriously.
As the oil prices tanked, the Venezuelan public finances became vulnerable. The loans country had taken from international financial intuitions to support the social welfare programs became unsustainable. It couldn’t even pay the interest on the loans and was declared to be in default regarding debt payments by credit rating agencies. The central bank of Venezuela started printing more currency to meet the fiscal deficit targets and this resulted in hyperinflation which is expected to reach 1,000,000% by year’s end. In April, the IMF announced that Venezuela’s gross domestic product (GDP) was expected to be 45% below its 2013 level by the same time. The political regime of the country is not changing despite all the chaos in the country.
So the overdependence on a commodity, prices of which is not stable in the international market and excessive borrowing from international intuitions to support the welfare policies destroyed the country. There are no positive roads ahead in the country because the commodity prices are still low and the political regime of the country and its romances with socialism are still the same.