The Venezuelan Economy: Falling Apart at the Seams

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.

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.

Many people are also depending on the government’s ability to import consumer goods in the form of beef and toilet paper, but officials do not have the resources to pay for such items, causing widespread food shortages, and many people wait in long lines for hours to receive necessities. However, the government uses a barter system to get the necessary goods. For instance, Venezuela trades oil for beef with Uruguay, and officials in Tobago and Trinidad have offered to exchange toilet paper for Venezuelan oil.

The crux of Venezuela’s problem lies with the slump in oil prices that has placed oil-driven economies in a tailspin, and Venezuela is urging cooperation with OPEC and non-OPEC nations to stabilize market prices. Oil prices hover around $60 a barrel, but it is 50 percent lower than 2014, when oil was over $100 a barrel. This does not bode well for a nation that derives 96 percent of its foreign reserves from oil exports. President Nicolas Maduro stated he sees cooperation between competition oil producers, but Venezuela’s largest barrier may be within OPEC itself. Saudi Arabia is determined to put North American shale producers out of business, even if it means keeping oil prices low to make production uncomfortable for all parties. Poorer OPEC nations, such as Venezuela, rely on higher oil prices to meet budget needs, and the South American nation has called for a cap in production output, but such pleas have been ignored.

Saudi Arabia continues to pump oil to not only maintain its market share but to satisfy growing energy demand within the Kingdom itself. This has forced Maduro to travel to non-OPEC nations such as Russia and China for aid and support, and he gained China’s commitment to supply aid in exchange for free oil. Critics contend that such a move devalues Venezuela’s most precious resource, and it highlights the need for the country to diversify its economy away from oil to secure higher growth and avert economic implosion.