The once richest Latin American country, is in a state of economic chaos, crisis and disarray. The story of the collapse of this petroleum-reliant economy was set back in 1999 when Hugo Chàvez was elected as President. Chàvez, a celebrated leader of the masses, took the reins after a period of currency devaluation,a collapse in oil prices and sky-rocketing inflation. The Venezuelan economy experienced a boom in the economy due to an increase in oil prices, which led to an increase in the national revenue. This money was spent hugely on the welfare of the poor, a move that made Chàvez the messiah of the underprivileged. The state introduced various successful subsidy and social security programmes, which were a causal factor in the massive fall in the poverty and unemployment rates and, thus, a period of prosperity for the general public. The plaudited President failed Venezuela economically because of actions like indebting the nation to fund the social welfare schemes; not investing in the petroleum industry, which led to a subsequent decrease in the production of oil; not exploring other industries, which would have reduced the country’s dependency on the oil industry; and nationalisation of the production of even common products- industries which gradually shifted the economy to socialism.

The Bolivarian revolution of 2002 raised the inflation rate, caused a decline in oil production and devalued the bolivar. Foreign exchange trading was suspended by the Central Bank of Venezuela as a step to increase the level of international reserves, which was brought about by a decrease in exports of oil. As Venezuela has never been self-sufficient in the food and pharmaceutical industries, it depends on massive imports of these necessities.The increasing revenue deficit due to a steep decrease in the price of oil forced the nation into a food and health crisis, which consequently led to a disturbing condition in the country.

With the death of Chàvez in 2013, the economically unstable nation also slipped into a long period of political vulnerability. The chosen President, Nicolàs Maduro, resorted to heavy foreign borrowing and monetisation of the economy. Moreover, Maduro brought a new system of foreign trade into existence, wherein the official exchange rate, which only his friends and allies had access to, was set at 10 bolivars per US dollar, whereas the black market rate was at a shocking 12163 bolivars per US dollar as of August 2017. They earned enormous profits as the beneficiaries imported goods at the official rate but sold them at the black market rate. Maduro’s fallacious actions induced hyperinflation in the economy, and the GDP shrank over 35% in the last four years. The debt-ridden country recorded an inflation rate of 3,80,000% in 2020 and a GDP growth of -19.6% in 2018. The by-products of this economic collapse have been harsh- the citizens are facing hunger, lack of healthcare facilities and an educational crisis. Amidst the disregard of the national crisis, the conditions are changing for the worse. Also, political discontent, US sanctions and interventions, and COVID-19 added to the woes of the countrymen.

The Venezuelan currency has lost its worth and the residents are shifting to US dollars for transactionary purposes. The continuing economic mismanagement has resulted in an all time high fiscal deficit, inflation, and poverty rates. The poverty rate rose to an all time high of 96.2% in 2019, thus indicating the severity of the crisis. Though PIIE reports that “Maduro plans to slash five zeroes from prices, give the currency a different name (the Sovereign Bolivar); devalue the currency by 95%; and peg the bolivar to the petro”, economists opine that the reforms would be unsuccessful and lead to a much more aggressive state of hyperinflation.

Conclusively, Hugo’s extravagant spending in the name of social security programmes, to be a political star; and Maduro’s selfish motives, besides poor economic planning, left the rich country of Venezuela in shambles.