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 has been economically embattled for some time, and the future does not appear any brighter. The International Monetary Fund (IMF) recently projected that the nation’s inflation rate will spike somewhere between 750% and 1200%.
In a speech to supporters, Venezuelan President Nicolas Maduro threatened to seize control of non-productive factories and imprison owners if they stop production, according to Associated Press.
His threat comes on the heels of an emergency decree granting him more authority, and he blames the “bourgeoisie” for worsening the South American nation’s widespread food and product shortages. Venezuela’s economy is on the brink of ruin, with opposition leaders gathering signatures to launch a recall referendum.
The Venezuelan situation degrades rapidly as President Nicolas Maduro declared a state of emergency, but this new power is subject to rejection or approval from Congress, according to Reuters. Venezuela struggles from lethal combinations of low oil prices and a staggeringly high inflation rate of 141.5 percent, the world’s worst inflation level. According to analysts, the Venezuelan economy will fail to improve in 2016, and many suspect that the South American country will undergo default this year.
President Nicolas Maduro replaced key figures of his cabinet in response to congressional losses, according to Bloomberg Business. Maduro removed certain people to address the dire state of the economy, which has long suffered due to a 40-percent drop in oil prices. Venezuela relies on oil revenue for 95 percent of its exports.
According to Venezuela’s National Election Council, the center-right Democratic Unity Roundtable gained 99 seats in the National Assembly, ending decades of socialist rule, according to BBC News. The opposition would ultimately need 116 seats in office to pass laws and call a referendum on President Nicolas Maduro’s political future. The president’s term limit ends in April 2019.
Currently, Venezuela’s currency, the bolivar, is worth $0.002, according to CNN Money. Venezuela suffers from a host of problems, ranging from sanctions to a debt crisis that could lead to default. However, the nation’s currency situation is worth noting, and it is the reason why the income gap has grown exponentially. Wealthier Venezuelans can exchange bolivars for dollars, whereas people in poorer classes have to fend for themselves. One dollar equates to 408 bolivars, compared to 279 bolivars one month ago.
Venezuela has shown consistently poor economic performance for many years. The communist regime, established by Hugo Chavez (who passed away in 2013) is largely to blame, thanks to its unusual politics and economic strategies. For many years, Chavez attempted to define policy primarily in terms of opposition to the United States, which he termed “Yankee Imperialists.” This led to ongoing economic sanctions over civil rights abuses, but that was only the beginning of the problem.
Venezuela’s recent experience is instructive. The Chavez regime had moved away from the fiat US dollar and had the bulk of its reserves in gold. Last month, Venezuela’s reserves drew down to about $19 bln, of which $14 bln may be gold.
Venezuela has found out the hard way that dollars are better than gold. At the end of last month, it swapped 1.4 mln troy ounces of gold for $1 bln with a large US bank.
When examining the Venezuelan economy, there is no doubt that the poor did rather better under Chavez’s regime than they had done under, what Chavez termed, “the rotten elites” that had ruled the country in the two decades prior. However, Chavez’s legacy, to any economically literate person, is to have bequeathed Venezuelans an economy that could hardly be in more of a mess.
