Understanding the crisis in Venezuela

Comprendre la crise au Venezuela

Photo: Yuri Cortez Agence France-Presse
Protesters in the streets of Caracas

The meeting of the Group of Lima, which was held in Ottawa on Monday, had the goal of providing a response to the crisis in venezuela, which is political and social, but first and foremost economic. Here are five keys to understanding why the planet is now turned to this country from South America.

Player ” secondary “

The scale of the planet, and even South America, Venezuela is far from being a great power. “It is a player in the secondary,” says professor of political science at the University of Montreal Philippe Faucher, who is particularly interested in the economy of Latin America.

Between the early 1980s and the turn of the years 2010, the country was generally on the 3rd or the 4th place among the countries of South America in terms of GDP, behind Brazil and Argentina. The sharp decline in oil prices that occurred in 2014, however, has been tumbling down : he is now in 7th position, behind countries nearly two times less populous, such as Chile and Ecuador.

Oil-based economy

Venezuela has trade limited with other countries in South America and supports its economy almost solely on its abundant oil resources, including the nationalization was started in 1976. Since the 1960s, the oil has almost always represented more than 90 % of the country’s exports. According to the latest data provided by the world Bank, this proportion was 98 % in 2017.

Comprendre la crise au Venezuela

 

However, since the 2008 financial crisis and the plunge in oil prices a few years later, the State revenues have dramatically declined. This price reduction is compounded by the fact that the United States, who were until recently the main buyers of oil in venezuela, have little need of this resource since they can produce themselves from the oil shale. “Venezuela, since many years, most u.s. refiners’ need [to refine its heavy oil] that the Americans have need of the oil of venezuela, ” pointed out the professor Faucher.

Runaway Inflation

The lack of income for the venezuelan State has had a domino effect on the whole economy : cuts in social programs, food shortages, hyper inflation, skyrocketing food prices and declining purchasing power of consumers in the hands of a currency that is worth almost nothing.

“The country is in a complete bankrupt,” says the blunt Philippe Faucher. It is this crisis that has so far pushed three million Venezuelans to flee their country, a figure that could reach five million by the end of the year, said last week the canadian minister of foreign Affairs, asked by chrystia Freeland.

According to the international monetary Fund forecasts, the population of Venezuela will decline by nearly one million people between 2019 and 2020, from 28 to 27.1 million.

Military in control

The arm wrestling between president Nicolás Maduro and his opponent Juan Guaidó, which is declared by the interim president, is not only a political crisis, said Mr. Faucher. “It is a battle to regain control of resources and the functioning of the economy,” he said.

President Maduro has appointed a former general Manuel Quevedo, the head of the PDVSA, the national oil company of venezuela, which means in some way that “the military took control of the economy,” notes the professor.

“In the military dictatorships, we always think of the policy, censorship, authoritarianism, but never to the fact that these people are also in control of economic resources. “

Blocked Horizon

If Juan Guaidó came to oust Nicolás Maduro from power and impose itself, it is not known what fate he would reserve for those members who have in the hands the main economic levers of Venezuela, and still less what he could do to put the economy of the country on the rails.

“It’s been 50 years since we said [to diversify their economies], it’s been 50 years that they know, it’s been 50 years they have done nothing,” says Philippe Faucher.

To get rid of its dependence on oil, the State could focus on other economic sectors. This, however, would require significant investments that Venezuela can not afford because of its huge debt, ” explains the professor.

“In the short and medium term, they will have to entrust these investments to foreigners. These foreigners are going to demand guarantees, but the government will not be able to provide it. This is going to be so long and painful. “

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