State-oil firm PDVSA reported a 41% drop in oil income when compared to 2015, according to Reuters. The South American country has suffered under a lower-priced oil market as Saudi Arabia contributed to a market glut. Venezuela also has a history of corruption and overspending, causing further damage to the economy.
Venezuela can attribute its financial woes to a system which has failed to establish a rainy-day fund when oil prices were lucrative, which could have cushioned the economy in the event of an economic calamity. Further, the PDVSA has been used to funding social programs for the poor, but officials drastically mismanaged the economy, resulting in the drastic reduction of public services.
On the business front, the world community suspects that the PDVSA could default on its loan obligations, but the government asserts that Caracas will continue to make payments. Venezuela is currently hanging on by a thread, and analysts suspect that the economy will soon reach failed-state status in the short-term. The situation is dire to the point where Catholic bishops have called on President Nicolas Maduro to allow foreign assistance into the country.
Many Venezuelans struggle to attain necessities, such as toilet paper, food, and medicine. Maduro has refused help thus far and contends that his country will eventually overcome the crisis.
Murder Rate Increases
Aside from dire economic circumstances, Venezuela also contends with a rising murder rate stemming from extreme poverty and poor security. The murder rate is prevalent to the point where Venezuela has joined the ranks of Honduras and El Salvador as murder capitals of the world, notes Los Angeles Times. Critics charge that rampant corruption among police and general disregard of public safety on the part of officials are key drivers behind the violence.
Most of the victims are poor, but those from the upper class are increasingly falling prey to violence, and the wealthy live in isolated conclaves patrolled by heavily armed personnel. Such violence has contributed to the rising frustration against Maduro’s failed policies, which have contributed to a state of lawlessness throughout the country.
Further, the president’s political career may not survive as political opponents call for his ousting, and a recall referendum remains a possibility. Maduro not only faces political heat from enemies, but members of his own party have called for his removal as well. Former supporters maintain that his policies have failed to aid the poor while damaging the legacy of Hugo Chavez.
The president finds himself with fewer allies as political opponents plan to remove him from office before January 2017, and he did not do himself any favors by blaming outside groups, such as factory owners for society’s ills. At this point, there is little policymakers can do as Venezuela lacks the means to diversify its economy, with no other substantial revenue stream to offset shortfalls in the energy market. Maduro’s contentious relationship with the West, the United States in particular, has isolated Venezuela from additional assistance, but China may be willing to help.
The Chinese, however, require a seizure of Venezuelan oil resources in exchange for loans, and it remains to be seen if the Middle Kingdom can save its South American partner.