Venezuela holds the largest oil reserves in the world at about 300 billion barrels. It accounts for 18% of the global oil reserves. Venezuela is a case of too much oil wealth which had been utterly mismanaged specially by the previous president Hugo Chavez with wrong policies. It is unbelievable that the economy of a country with so much of resources can be messed up like that. The current inflation rate in Venezuela is 5500%. With that type of inflation it becomes very difficult for the people to barely survive.
The Venezuelan economy is mainly based on petroleum production. From 1940 to 1970 Venezuela had been the world’s largest petroleum exporter. The economy relied on investing the surplus from petroleum in other sectors to diversify the economy. “Sowing the Oil” has been a national slogan since the 1940’s. Venezuela also has rich deposits of iron ore, nickel, coal & bauxite as well as Hydroelectric power which expanded the economy.
During the 1960’s the government relied on import substitution which led to the growth of export oriented industries. In the mid seventies the government nationalized iron ore, oil & gas industries. It then used the revenue from oil exports to fund infrastructure improvement and other public works. By the end of the 20th century the Venezuelan industry has diversified
The “Sowing the Oil” policy of the country got derailed due to the fluctuation in world oil prices. There were also domestic problems like inflation, corruption, lack of skilled personnel and inefficient management.
The country had a huge foreign debt, high unemployment, population growth and illegal immigration. By the early 21st century the economy recovered and the entire foreign debt was paid off by the year 2007. Hugo Chavez was first elected in 1998, and pursued nationalization and a socialist agenda. This resulted in a landslide victory for him in the 2006 election.
Chavez was against the US economic influence in South America and he gave generous loans to his neighboring countries. During Chavez’s presidency mis-management resulted is decline of oil production. Enough investment was not made in the oil sector to maintain it which resulted in the decline of oil production.
At the same time Chavez expanded the social schemes and borrowed heavily for funding them. When the world oil prices had a big fall in 2014, Venezuela ran into deep trouble and between 2014 & 2019 GDP declined by 75%. Nicolas Maduro followed the practices of Chavez and made them worse and in the process he attracted sanctions from the US and other western nations.
Big shortages of food and medicines resulted on account of the sanctions leading to a humanitarian crisis that was abetted by Corona.
The GDP of Venezuela had been declining nonstop from 2012 except for the year 2015. In the year 2011 the GDP was USD 352.5 billion and it came down to just 47.26 billion USD in 2020. That is a decline of 86% in just 10 years. That incidentally is equal to the GDP Venezuela had in the year 1987. So the GDP has reverted to 33 years back figure.
Scarily Venezuela had a shocking inflation level of 65374% in the year 2018, 19906% in 2019, 2355% in 2020 and 5500% in 2021 currently. That is an average of 29212% for the previous 3 years.
Population below poverty line was 20% in 2015, but it shot up to 87% by 2017.
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