Venezuela's Economic Crisis: What You Need to Know

The situation has deteriorated in recent years because of a variety of factors.

ByMICHAEL EDISON HAYDEN
June 21, 2016, 4:43 PM
PHOTO: An empty supermarket is pictured in Caracas, on May 28, 2016.
An empty supermarket is pictured in Caracas, on May 28, 2016.
AFP/Getty Images

— -- Today in Venezuela, families can wait in lines at the supermarket for 18 hours at a time to get the right to purchase small quantities of oil, rice or pasta, according to Foreign Policy. Violent crime, meanwhile, is on the rise, with the country's capital, Caracas, recently overtaking Honduras' San Pedro Sula to become the most violent city in the world, according to the Citizen's Council for Public Security and Criminal Justice.

Problems with starvation and malnutrition are worsening, and major Venezuelan companies, like Empresas Polar, the country's largest producer of beer, are shuttering their doors. Moody's, an American credit agency, said Monday that the country is "highly unlikely" to have enough currency to available to make its debt payments this year.

The political circumstances leading up to economic collapse in Venezuela have been happening for over a decade now, according to Dany Bahar, a fellow at the Brookings Institution and an associate at the Harvard Center for International Development, but the situation has greatly deteriorated in recent years because of plummeting crude prices, environmental factors and the failures of President Nicolas Maduro's government to address the country's woes.

Bahar told ABC News that he believes Venezuela will need "significant foreign intervention" from the International Monetary Fund (IMF) or other organizations in order to begin to surface from its current economic state.

PHOTO: A woman with a sign reading "There is no food" protests against new emergency powers decreed this week by President Nicolas Maduro in front of a line of policemen in Caracas, on May 18, 2016.
A woman with a sign reading "There is no food" protests against new emergency powers decreed this week by President Nicolas Maduro in front of a line of policemen in Caracas, on May 18, 2016.
AFP/Getty Images

Falling Crude Prices, Drought and Blackouts

Venezuela, which is sometimes described as a "petrostate," or a nation that derives its wealth largely from oil, is a founding member of the Organization of the Petroleum Exporting Countries (OPEC) and one of the world's largest exporters of oil.

Oil has been a critical component of the country's economy since it was discovered in the early part of the 20th century and particularly since the industry was nationalized in 1976. Today, oil accounts for 95 percent of the country's export earnings, according to OPEC, and the oil and gas industry account for 25 percent of its GDP.

Oil prices have fallen sharply in recent years across the world, and Venezuela's dependence on it as an export has exacerbated preexisting economic conditions that were in place before Maduro took office in 2013, such as debt and currency devaluation, according to the International Crisis Group, a transnational non-profit, non-governmental organization that carries out field research on violent conflict.

PHOTO: Venezuelan citizens waiting for a vessel after purchasing necessities such as diapers and toilet paper in Cedros, Trinidad and Tobago, to bring it back to Tucupita in Venezuela, June 17, 2016.
Venezuelan citizens waiting for a vessel after purchasing necessities such as diapers and toilet paper in Cedros, Trinidad and Tobago, to bring it back to Tucupita in Venezuela, June 17, 2016.
Andrea de Silva/EPA

Bahar, who was born in Caracas, said that an economic collapse of this magnitude "should not [have] happen[ed]" to such an oil-rich country like Venezuela and that he believes that poor economic decisions made by its socialist government since former President Hugo Chavez rose to power are to blame.

From 2006 to 2012, Venezuela increased its foreign debt, multiplying it by a factor of five, according to a report co-authored by Bahar, but the move has proved unsustainable.

Venezuela still imports much of what it consumes, according to Bahar, and the decline in value of its primary export, combined with its swelling debt, creates intrinsic challenges for the country's economy.

Improving self-sufficiency in terms of food production has also been limited by environmental factors. Drought has affected Venezuela's water supply, which has hampered farming and also created a need for power cuts in order to conserve energy, NPR reported. The power cuts, which Electricity Minister Luis Motta Dominguez called a "necessary sacrifice" in a televised address this year, last roughly four hours per day, further hindering the ability of the country to produce from within.

Rising temperatures also play a role in the worsening conditions of Venezuela's environmental landscape. The country's amphibian population, considered by scientists to be a bellwether of the ecosystem's overall health, is facing extinction, Reuters reported last year.

Despite these environmental factors, Bahar says that Maduro, Chavez's successor, is "unwilling and unable" to restore balance to Venezuela's economy, which is creating a growing movement of political opposition.

PHOTO: People queue to buy basic food and household items outside a supermarket in the Petare neighborhood, in Caracas, on June 7, 2016.
People queue to buy basic food and household items outside a supermarket in the Petare neighborhood, in Caracas, on June 7, 2016.
AFP/Getty Images

Crisis of Leadership

Bahar told ABC News that Chavez, who took power in 2002 and served as president until his death in 2013, created a "dependency" among the public that is haunting them today. He described the conditions that paved the way to Chavez's rise as being a perception of corruption among Venezuela's elite and widening inequality. Maduro's governance is often considered an extension of Chavez's.

Public trust in Maduro, who served as vice president under Chavez, has plummeted as the country's economic crisis has deepened. A referendum to remove him from power received 37 percent of the 195,000 signatures required to trigger the next phase in his recall on the first day of its availability to the public, according to a report by the BBC today.

His term, barring recall, will run until 2019.

The timing of mounting a recall is critical, according to Bahar. According to law, Maduro would be replaced by his vice president if a recall is held after the midpoint of his term, which will occur in January 2017. Maduro's political opposition is pushing for the recall to take place before that time, according to Bahar, and Maduro is trying to prevent it.

According to the International Crisis Group, Venezuela's poor have taken the brunt of the country's decline after making modest gains during Chavez's socialist regime. Maduro, who is also a socialist, has confounded Venezuelans with his sometimes impractical suggestions to resolve the crisis.

PHOTO: German airline Lufthansa, at Simon Bolivar international airport, suspended flights to crisis-hit Venezuela for an indefinite period as of June 17, 2016, in Caracas.
German airline Lufthansa, at Simon Bolivar international airport, suspended flights to crisis-hit Venezuela for an indefinite period as of June 17, 2016, in Caracas.
AFP/Getty Images

For example, he advised residents this year to cultivate “urban farms” to produce their own food. The ability to produce food at home, however, has been rendered next to impossible by a shortage of seeds, as well as the medicine required to vaccinate farm animals, according to a report by NPR.

The U.S. has been critical of Maduro and has had a tense relationship with the Venezuelan government for many years.

U.S. Secretary of State John Kerry said last week that he hoped to go beyond the "old rhetoric" that divided the two nations along ideological lines in announcing talks aimed to bridge the gap between Maduro and opposition leaders who want to see him removed.

Bahar told ABC News that the economic crisis has made it "hard to go back" for logistical reasons. Among the many scarcities the country is facing are flights to and from the country.

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