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Venezuela. How did it turn out this way?

Juan Guaido, President of Venezuela's National Assembly, reacts during a rally against Venezuelan President Nicolas Maduro's government and to commemorate the 61st anniversary of the end of the dictatorship of Marcos Perez Jimenez in Caracas, Venezue Carlos Garcia Rawlins/Reuters

Venezuela has made the headlines of all the newspapers since the young President of the National Assembly, Juan Guaidó, proclaimed himself President of the Republic  in a defiant move against the inauguration of Nicolas Maduro, who had taken his oath for a second term on 10 January 2019. But, most certainly, such mistrust would not have had such an impact, if it had not been immediately and unconditionally supported by the United States and other Latin American countries such as Colombia, Brazil, Peru, Ecuador, Chile among others. For its part, the European Parliament has followed this process of recognition of Juan Guaidó as the country's interim president, also calling for the immediate presidential elections to be held.  Finally, President Nicolas Maduro is increasingly isolated by Western countries. He was, however, elected in the presidential elections held in May 2018. Analysis by Lenin Bandres 


Guaidó's emergence on the international political scene took place in an absolutely frightening economic and social context. Venezuela, the world's largest oil reserve (386 billion barrels) is now one of the countries with the most alarming infant mortality rate in the region (21 deaths per 1000 births). In 2016 GDP per capita fell by 30% and by 14% in 2017. In the same year, 62% of the population was in extreme poverty and 90% of households complained that they did not have enough money to buy food. According to IMF figures, in 2017 cumulative inflation was 2100% and in 2018 it exceeded the historical figure of 1000000%. These are figures that the government has not denied, as it has not released any macroeconomic indicators since 2015. According to the UN, about 3.3 million Venezuelans fled the country in search of minimum conditions for survival. Mainly to the bordering countries (Colombia, Brazil), but also to the United States and, to a lesser extent, to Europe. Finally, public services such as water and electricity are scarce and intermittent in most of the country, while the infrastructure of the oil industry, almost the country's only source of income, is further destroyed producing only 1.1 million barrels per day, according to OPEC.

The limits of capitalism based on Venezuelan oil revenues

The first signs of economic distortion appeared in the 1980s during the oil counter-shock. With an industrial development focused on the hydrocarbon industry, Venezuela was economically built throughout the second half of the 20th century thanks to oil rent and mining.  While at the beginning of the century the Venezuelan economy was mainly agricultural, oil became the most important source of income for the economy from 1930 onwards, as well as the basis for the country's industrialization. The decline in oil prices during the 1980s, however, showed the structural weakness of an economy heavily dependent on oil revenues and international commodity prices.  Thanks to petrodollars, Venezuela has been able to increase its imports of goods and services exponentially, without worrying about national productive diversification. The omnipresence of oil in all spheres of Venezuelan economic life has inhibited the development of other exporting economic sectors, traditionally referred to, according to economic slang, as "Dutch disease".

The period of the "import substitution industrialization" paradigm so dear to the ECLAC (Economic Commission for Latin America) business school showed its limits at a regional level and in Venezuela in particular. A change of era was taking place with the emergence of the ideology of the free market and the institutionalization of the Washington Consensus.

Throughout the period from 1989 to 1998, Venezuela experienced turbulent times characterized by crises of all kinds: a crisis of political legitimacy for traditional parties, a financial crisis and increased impoverishment of society. To simplify, during this period, Venezuela experienced a popular insurrection (27 February 1989), two attempted coups, (4 February and 27 November 1992), the dismissal of a government for corruption cases (1993) and an unprecedented financial crisis with the bankruptcy of 17 out of the 49 banks of the country (1994).

The arrival of Hugo Chavez and "21st century socialism"

The "Chavez" period came in 1998, with an atmosphere of change that promised the renewal of the Venezuelan political class, as well as the restructuring of the national economy.

Despite the fact that when Hugo Chavez came to power the price of oil was artificially low, soon after the price began to rise thanks to the boom in raw materials stimulated by Chinese growth. During the 2000's, Venezuela enjoyed exorbitant prices for a second time, which allowed it to increase these international reserves; but it also caused it to sink, and this time more critically, into dependence on oil revenues. During the period 2003-2008, Venezuela enjoyed significant economic growth (6% per year on average), but it did not experience the development of its productive forces. However, during this period and despite the colossal flow of petrodollars into the public coffers, Venezuela did not diversify its economy. Worse still, the country has quadrupled its foreign debt by creating "white elephants" that have never been created. At the same time, sources of corruption and cronyism at the state level and in complicity with the national and international private sector have multiplied.

Admittedly, the massive inflow of petrodollars has helped to finance public spending and, in this way, to lower poverty indicators through social programs that have had a positive impact on the most disadvantaged classes. But this has only stimulated domestic consumption through the availability of state-subsidized foreign exchange.  The result has, therefore, been the creation of a fictitiously prosperous economic and financial environment.  At the same time, however, as oil prices rose, imports and public debt also increased, but the productive apparatus stagnated or even decreased. Despite the promotion of countless huge projects (such as the southern gas pipeline and the creation of more than 50 refineries around the world) PDVSA - the national oil company - has not increased its oil production and even less invested either in new infrastructure or in maintaining existing infrastructure. Today the results are catastrophic. With a production of 1 million barrels per day, PDVSA has to import a large part of the fuel needed for domestic consumption and has a debt of more than 42 billion dollars.

Political, economic and social decadence

With the untimely death of Hugo Chavez in 2013 and the arrival of Nicolas Maduro in power, Venezuela's economic and political situation has begun to deteriorate exponentially. Although the reasons are many and complex, I would like to highlight three fundamental ones. 
First, it must be taken into account that the structural dysfunction of the economy reached its peak when the price of oil began to fall from 2014 onward. In early 2016, the barrel hit the $33 per barrel low as a result of the contraction in Chinese demand and the "oversupply" of shale oil production from the United States. This new economic reality has undoubtedly hit Venezuela's public revenues hard as spending continued at an exponential rate. At the same time, corruption scandals linked to the mismanagement of state-owned companies and banks have increased, leading to the loss of credibility among the Venezuelan ruling class.

Secondly, the death of Hugo Chavez left a void of "leadership" in national life and more particularly within the PSUV (the government party), which deepened political polarization and competition for public office. From 2014, in the absence of an agreement between the government and the opposition, the latter will use social mobilization to make its demands known. These claims were completely unexpected by the government.  On the other hand, political violence, repression and arbitrary detentions are becoming more frequent and are creating the precedent for violent events that took place in 2017.  Similarly, within the Chavismo, there was a purge of former collaborators of President Chavez, as well as political executives showing some signs of dissent from the political and economic measures taken by President Maduro.


Third, the political environment in the region is beginning to change with the right-wing shift of Argentina and Peru, followed by the impeachment against Dilma Rousseff in Brazil. This has resulted in a process of political polarization that has rendered the main multilateral organizations at the regional level (UNASUR, CELAC, MERCOSUR, OAS) unnecessary and sterile. In this context, Venezuela is beginning to appear increasingly isolated ideologically, but also in the face of an increasingly aggressive and vehement American administration that is putting in place economic and financial sanctions seeking to weaken the Caracas regime.

The confluence of these three factors has had extremely damaging consequences for the political and economic stability of our nation. Faced with this reality, the government has reacted in an inappropriate way politically and economically. Politically, the Maduro government has become extremely authoritarian and arbitrary by ignoring the legislative and judicial powers, by legitimizing a permanent state of emergency and by increasing repression and political violence. Economically, the government has failed to control currency depreciation and hyperinflation. On the contrary, with an oil industry completely destroyed due to lack of investment, the Maduro government turned to mining and forestry to increase public revenues. But as a result, the country is sinking into extractivist voracity, as well as the primarization of its economy. 

Moreover, all productive sectors are directly controlled by the military, those who have neither the technical training nor the moral integrity to manage public industries properly. Corruption scandals are on the rise and the limited financial resources available are distributed according to a patrimonial and clientelist model of power exercise.

 The resolution of the deep crisis in Venezuela and the reconstruction of the country's economic and social structure will not take place without a deep and genuine democratic re-institutionalization of the public authorities. This should be accompanied by a reflection on the drift of political ideas that have led Venezuela to the contemporary disaster. 

A first conclusion shows that "21st century socialism" has failed to overcome the contradictions that led 20th century socialism to the social and economic disasters that historically shaped it. Venezuela should be able to emerge on its own from its current reality through an open and constructive dialogue. Our wish is to encourage this meeting, as well as the possibility of the promise of a better future.


02/06/2019 - Any reproduction, copy, transmission or translation of this publication is prohibited.

A woman walks past graffiti that reads "Which is food of the poor now?" in Caracas, Venezuela November 30, 2018 Marco Bello/Reuters