We have often seen millionaires turning into rags. Here the whole nation has turned into insolvent and destitute. Venezuela Economic crisis is the current example of a famous English phrase ‘rich turned into rags’. Let us see how Venezuela who was one of the richest countries in South America is now facing high financial crisis and not able to feed their people.
Venezuela is a federal republic on the northern coast of South America, bordered by Colombia on the west, Brazil to the south, Guyana on the east, the Dutch Lesser Antilles to the north and Trinidad & Tobago to the northeast. Venezuela covers 916,445 km2 and has over 31 million people. Caracas is the capital city and is one of the most dangerous places to live in with highest number of crime rates.
Oil was discovered in mid 20th century and since then it has been the major economy of the country. It has the largest proven oil reserves in the world. It is also the founding member of OPEC (Organisation of Petroleum Exporting Countries) along with other 13 oil-producing countries. Bolivar Fuerte (VEF) is the national currency of Venezuela. Women of Venezuela have won the most number of Beauty Pageants Competition till date including Miss Universe and Miss World.
Economy before & after crisis
In 1997, Hugo Chávez was elected as the president of Venezuela. He came into power by promising to its people that his government will reduce the Unemployment and Poverty. Hugo Chávez Government did so; the unemployment rate came down from 60 to 30 percent. He adopted the ideology of Modern Communism and Nationalism in which the Government controlled sectors from Oil producing companies to Bakeries. From here the whole Venezueala economic crisis began.
In 2003, various opposition parties protested against the Chávez Government for corruption. Due to the protest, it not only affected the people but whole Oil production was stop during that period. 95 percent of its oil exported to other countries for economic stabilisation so that food, medicine could be imported.
Since there was no production and export, the economy started to get destabilized and value of VEF fell rapidly against US dollar. He approached to the then Prime Minister of Cuba, Fidél Castro and asked for some help. He urged him to authorise fixed exchange rate, which changed the value of 1VEF to US$1.6. This fixed exchange rate was the outset of Venezuela crisis.
In Venezuela, all public services are free of cost. The government provides education, Healthcare facilities, and even the jobs. Most of their population is dependent on government.
After the protest got over, this fixed exchange rate was not removed and by that time, the oil price was reduced to very low value. Venezuela was short of money and resources. Being an OPEC member, Hugo Chávez negotiated with other nations to reduce oil production so that they can produce more oil and can overcome the debt. The request was disregard by other members. Venezuela left with no help.
Venezuela Economic crisis
In 2013, President Hugo Chávez passed away and left people of Venezuela in more pain and grief. Nicolas Máduro became the new president of Venezuela and was having the burden to resolve crisis as quickly as possible and uplift Venezuelan economy. 2014 was the year when oil prices drastically reduced from US$ 112 per Barrel to US$ 59 per barrel (1 Barrel = 160 litres approx) and the economy of OPEC nations was ruined.
The fall of oil prices led reduction in Oil export. Máduro implemented new exchange rate 6 VEF equal to US$ 1.4. This new exchange rate was much higher than the original exchange rate and they kept their Oil prices very high, which left Venezuela with no buyers. Huge amount of Bolivar fruete are sold in black market to buy 1 US dollar note.
In December 2016, Venezuela government decided to demonetise 100-Bolivar note. This demonetisation led to violence and bloodshed among the citizens of Venezuela. Government had to halt demonetisation within 4 days after the violence erupted.
Today, Venezuela is going through tough time that has not only left reduction in their economy but has also left people suffer from hunger and shortage of resources. Recently in January 2018, Venezuela adopted crypto currency, Petro as their official currency so that they can overcome their crisis and debt and uplift their economy.