Unless you are watching this video from Syria, it is fair to say that no matter how bad the
situation in your contry…
Venezuela is doing worse.
As of 2016, they are experiencing more inflation than any other country in the world.
Furthermore, their capital, Caracas; is currently ranked as the world’s most violent city,
outnumbering all other Mexican or Colombian cities.
Something as simple as buying a toilet paper practically impossible in Venezuela, where
scarcity has become a norm in their supermarkets.
Other products like condoms are only sold on the black market.
And all of this is happening in the country with the biggest oil reserves on the planet.
In fact, it wasn’t so long ago that Venezuela was the wealthiest nation in the entire of
South America.
Today, half of their population lives in extreme poverty.
So, the question is…
How did they end up there?
What did their government do so wrong to destroy an economy in so little time?
Today, we are gonna tell you the story.
THE BOLIVARIAN REVOLUTION
The first character in our story is Hugo Chavez, the father of the modern-day Venezuela…
Or as we should say, the “Bolivarian Republic of Venezuela”.
He became president after a landslide victory 1999.
His campaign was based on the promise of equality and poverty reduction under what he called
“21st century socialism.”
One of his first policies was the so called “System for the Democratization of Jobs”,
this was meant to be implemented in PDVSA - that’s the state owned company that extracts
Venezuela´s oil.
Don’t forget that we are talking about a country with bigger reserves than Saudi Arabia!
“PDVSA's payroll has more than doubled to 115,000 employees since Chávez took office
in 1999, and debt has risen 10-fold since 2006 to $34 billion.”
This was big news considering that PDVSA is the biggest company in all across South America.
Nonetheless, Venezuela kept producing the same number of barrels a year.
This means, the staff increase was not due to corporate reasons but political ones instead.
In fact, this “Job Democratization” was a way to employ all the unemployed Venezuelans.
The same thing happened with the government.
During the Chavez administration, public spending tripled.
This meant more government workers and more social programs than ever before.
However, none of this was a problem as long as oil exports kept paying the bills.
In fact, Chavez cut poverty in half.
Despite being an oil-rich country, before Chavez, 60% of their population lived in poverty.
10 years later, only 30% remain below the poverty line.
Despite Chavez’s retoric claiming that capitalist countries were trying to destroy the Bolivarian
revolution, no nation on earth would reject Venezuelan oil.
Even Nicolas Sarkozy, France’s conservative president of the time, was complimenting Venezuelan
democracy:
“I’m glad about Venezuelan elections, with their strong turnout that shows, once
again, the vitality of democracy in Venezuela” To all of these policies, we must add the
famous:
CORTE CHAVEZ: EXPROPIESÉ!
That literally means “expropriate this” (expropriation being the taking away of property
from its owner).
Chavez was no friend of private business so it was common to see him walking around different
cities ordering the local authorities to nationalize all kinds of businesses - including small
shops.
All of this ended up with an economy fully dependant on oil.
By 2012, brent barrels were 95% of Venezuelan exports.
To this, we should add the fact that PDVSA had higher costs than any other oil company,
partly because of the payroll increases.
Nonetheless, as long as the oil price was higher than the production cost, Venezuela
was making money and everyone was happy.
But hold on a minute...
Because this is where things turn sour!
In 2014 oil prices fell.
And, guess what, Venezuela was the first country to see the effects of that fall.
Their profit per barrel shrank more and more every day…
TITLE: NICOLAS MADURO BACKFIRES
By the time this oil crisis started, Hugo Chavez had already passed away and his successor
was this guy called Nicolas Maduro.
“If you Whistler, I whistle (whistling) the bird looked at me funny, then flew over
my head and…
I could feel the spirit of Chavez blessing me”.
No, this is not a joke, nor a quote taken out of context.
Maduro found himself with a country that wasn’t making enough money from it’s only export...
And he had wages to pay.
Then on the top of this, we have the famous...
EXPROPIESÉ
Now, because of the “expropriating” that had been going on, we’ve got a Venezuela
with no private companies.
So, even if he would have risen taxes, there was no one to pay them.
And this is the when Maduro made the most irresponsible decision any politician can
make: print money.
Having devalued the Venezuelan currency, the BOLIVAR, inflation skyrocketed.
Here’s an example of how bad this was:
Imagine your having a beer in a Caracas bar in July 2016.
You’re beer might cost you around 50 Bolivars.
Then, you go back on September and the same beer cost 100.
This has been happening consistently in Venezuela for the last three years.
Obviously, this destroyed all the poverty reduction policies Chavez had created.
Oh, but it gets even worse.
Just when things were pretty damn terrible, Maduro demonstrated to the whole world that
things can get a whole lot worse...
“The new tool to finish with the price increases will be the creation of the Maximum Sales
Price”.
According to Maduro, inflation was created by those evil capitalists who wanted to destroy
Venezuela.
So the logical solution, of course, was to fight them…
So now you might be wondering what’s the outcome here...?
Imagine you have a butcher show in Maracaibo, a beautiful city on the Venezuelan coast.
You buy the meat from a Colombian farmer, and you pay with US dollars.
Let’s say a pound of beef costs $10.
The Venezuelan Central Bank had set an official exchange rate of 10 Bolivars for each USD…
but no one is going to sell you dollars at that price.
The market price is way higher.
This means, if you want to keep buying beef from your Colombian producer, you’ll have
to pay the price set by the market - the equivalent of 10,000 Bolivars per $10.
Alright, fine, but then you go back to your shop with the pound of beef you just bought.
But the government has set a maximum sale price of 1,000 Bolivars.
Ten times less that what you spent.
So what do you do?
You just have two options: you either close up shop, or you sell the meat on the black
market.
Now some of you might be wondering: Why do they have to buy foreign meat?
Aren’t there producers in Venezuela?
The answer is: whatever product you buy, it requires some raw material or some tool created
abroad.
If you want to grow your own wheat, you need a tractor, which is manufactured somewhere
else, or fertilizer, or even just the seeds...
One way or another, there is no country on earth capable of producing all the goods they
consume.
Not even United States.
On and don’t forget that Venezuela based their economy entirely on the export of its
oil.
But today this is not going well at all...
“PDVSA has launched one of its largest oil tenders ever, seeking to buy some 8 million
barrels of U.S. or Nigerian light crude for delivery from April through June”.
As I mentioned, Venezuelan oil is so expensive to produce that they’d rather just buy it
abroad.
Meanwhile, shops cannot import goods - leading to increased scarcity, with people fighting
over toilet paper, waiting in line at the supermarket and others are willing to, literally,
stab at someone for a small piece of bread.
So now that we've given you the round down on Venezuela, we'd love to know what you think.
Do you think Maduro will be able to pull his country out of collapse?
Do you see there's an alternative for him to pursue?
We would love to know your opinion, just let us know in the comments below.
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