By Benny Sun
Venezuela is in chaos. As over four million Venezuelans have left the country, Venezuela's situation continues to worsen every day. The economic pain faced by normal civilians is characterized by widespread poverty driven by hyperinflation and chronic shortages of food, medicine, and necessities. In fact, a recent report now finds that over 9 in 10 Venezuelans live in poverty. In the context of human disaster, it is no wonder that America’s recent actions in January are controversial, as the Trump Administration has chosen to renew their sanctions policy which blocks Venezuela access to food, water, and humanitarian aid amid Venezuela’s humanitarian crisis. Even in international accounts, the U.S. government had frozen over 5.5 billion dollars in Venezuelan funds, preventing the government from attaining the necessary funds to conduct fiscal policy or enact stimulus packages to save their economy. Overall, to better understand the Venezuelan crisis, one must first under its cultural history.
The 1990s saw the rise of Hugo Chavez in Venezuela, who soon became the face of Venezuela’s government in 1998 off of his uncompromising attacks on political corruption and state incompetence. Many saw Hugo Chavez’s domestic policy as radical, as he greatly expanded social welfare programs including improving access to health, education, food, and social security to the lowest echelons of society. As Venezuela was an oil state, meaning that a vast majority of their industries relied on extracting oil and petroleum, the boom in oil prices in the early 2000s allowed Chavez to use its extra profits in providing for the people. Unfortunately, because of Venezuela’s lack of diversification, Venezuela’s extreme reliance on oil would later become the beginning of Venezuela’s economic woes. Moreover, Chavez’s successor, Nicolas Maduro, would drive his country further into financial chaos with his lack of competent management, rampant corruption, and dismantling of humanitarian services. In 2014, plummeting oil prices triggered a severe economic contraction causing simultaneous hyperinflation. However, rather than aiding his people, Maduro instead announced cuts to major social services that millions relied upon under the guise of austerity. Consequently, even before the implementation of American sanctions, from 2013 to 2016, Venezuela’s food imports had dropped 71%, medicine had dropped 68%, infant mortality had increased 44%, and inflation has risen by 1 million percent.
Under these circumstances, the Trump administration, beginning in August 2017, announced sanctions on Venezuela’s oil industries and international markets. Their main intention was simple: to drive Maduro away from power (who they deemed as the cause of the crisis) and instigate the Venezuela economy away from socialism towards free-market economics. However, the current success record of these sanctions is mixed and has come into dispute because of the views that America is only prolonging the crisis in Venezuela. For one thing, Maduro is still in power and has seen a bolster in his support. Weeks after Trump’s implementation of sanctions, Maduro’s approval ratings rose by 23%. This is because while Venezuela heavily relies on oil for revenue, many of Maduro’s allies including Iran and Russia have responded by increasing their investments to keep Maduro alive. Simply, while Maduro can continue living on, it is only the poorest of the poor who could be suffering under these sanctions. On top of that, Maduro, with his state-controlled media, can shift the blame away from his mismanagement and lack of diversification onto the United States. However, while Maduro might still be in power, there are certainly still economic shifts occurring within Venezuela. For instance, in December 2019, the Maduro government erased price controls, loosened capital controls, and even accepted dollarization into his country. The implications of these policies have been the rise of non-oil private industries including food, service, and technology sectors. Venezuelan business chamber Fedecamaras predicts that for the first time in decades, the private sector will account for 25% of GDP in 2019 and continue to rise in 2020. Consequently, the New York Times in 2020 predicts that Venezuela could potentially follow a path of economic liberalization: by loosening the control of the government, capital inflows such as foreign investment and bond investors could re-enter Venezuelan markets again. However, while this process is slow, American sanctions are also painful for the majority of normal Venezuelans.
By incapacitating revenue streams from the Venezuelan government, American sanctions also prevented Venezuela from purchasing food and medicine imports directly. For example, while Venezuela attempted to buy new water pumps, they were unable because the sanctions prevented these companies from doing business with Maduro’s regime. These reports showed that Venezuela’s clean water input fell by 30% and nearly 20% of the country was facing water shortages as a result. Not only has it been reported that water shortages have occurred, but additional blocks to medicine, food, and even humanitarian aid. Therefore, America’s solution to continue its placement of sanctions still has its varying detrimental effects. As a result, a report from Dr. Jeffrey Sachs, Professor of Economics at Columbia University, analyzed data and found that American sanctions coincided with a whopping 31% increase in mortality or 40,000 additional deaths. On the other hand, since American sanctions froze Venezuelan assets in international markets, Venezuela was unable to commit to debt-restructuring in 2017. Even during the Chavez times, external debt was a major problem that Venezuela had to deal with when arising in Latin America. However, in 2016, Venezuela was on the brink of restructuring and solving many of its debt problems under a major debt-restructuring package that would redirect billions of dollars back into the Venezuelan economy. Subsequently, American sanctions inhibited Venezuela from reaching its economic cure which further pushed Venezuela’s health down the drain.
While US sanctions on Venezuela’s oil sector and international markets have failed to oust Maduro, there are still some benefits such as their slow economic liberation phase, with increases in diversification and privatization. Unfortunately, Venezuela’s progress is still slow and COVID-19 is only continuing to enact punishment on Venezuela. Thus, millions of civilians are still suffering, unable to access the necessities to live a normal and healthy life. As economic conditions worsen across the globe due to COVID-19, it is crucial for Venezuela to create productive policies to recover its economy soon.