WHAT CAUSED THE ECONOMIC CALAPSO IN VENEZUELA AND THE GREATEST CRISIS OF THE HISTORY OF THE COUNTRY

Opposition leader Juan Guaido has proclaimed
himself the new interim president of Venezuela

In this article, the main causes of the economic collapse that Venezuela is suffering are analyzed. A country shaken by extreme poverty and hyperinflation. Is international intervention the way out of the crisis that plagues the Venezuelan people? 

The situation in Venezuela has been gaining tragedy for a number of years, but political and social conditions have deteriorated sharply in recent months in the country, where tension grows in the face of the possibility of international intervention.

Recent images show a country shaken by poverty and hyperinflation, while the installation of a government parallel to President-elect Nicolás Maduro intensified the internal and external political crisis of an increasingly isolated diplomatic nation.

Since the beginning of the year, protests have intensified over the departure of Maduro, who, in turn, rallies supporters around large demonstrations to show that he has popular support.

In January, deputy Juan Guaidó declared himself acting president of the country. He who had just taken office as president of the National Assembly, the Venezuelan parliament, the last state body under the control of the opposition.

Venezuelans go to the streets to protest Nicolas Maduro

More than 50 countries, including the United States, Brazil, France, Spain, Argentina, Canada, Chile, Colombia, Denmark, Ecuador and Peru, recognized Guaidó as the new Venezuelan representative. But Bolivia, China, Cuba, Iran, Mexico and Russia declare support for Maduro.

US President Donald Trump has already said that a military intervention in Venezuela is not ruled out. Maduro countered by accusing Trump of being a "white supremacist" who sought to destabilize his country.

In turn, the United Nations (UN) called for a "dialogue" in the country to avoid a "disaster". But the request of meeting with Trump made by representatives of Maduro was rejected.

In the face of the opposition's attempt to bring humanitarian aid to the country through the borders with Brazil and Colombia, Maduro ordered that access be closed in the currencies between the countries, which generated conflicts in these places between the Venezuelan military and demonstrators.

After the failure of the operation, Guaidó asked allied countries to keep "all options on the table", but the Lima Group, a bloc of 13 countries in the Americas, refused to use force to remove Maduro from power.

Market with empty shelves in venezuela

HUNGER AND EXODUS

The Venezuelan crisis has not started now. Hunger made Venezuelans lose an average of 11 kilos last year. Violence empties the streets of big cities when nightfall. And the situation has caused a mass exodus to neighboring countries.

PHOTO EMPTY SHELVES

The neighboring country is experiencing the biggest recession in its history: 12 consecutive quarters of economic recession, according to the National Assembly in July.

The size of the collapse can be seen in the numbers of Gross Domestic Product. Between 2013 and 2017, Venezuelan GDP fell by 37%. The International Monetary Fund expects this year to drop another 15%.

The situation was also explored in the Brazilian election campaign. Candidates and voters opposed to the Workers' Party, who historically supported the governments of Hugo Chavez and Nicolás Maduro, tried to use the Venezuelan failure as an alert of what could happen in Brazil with the election of Fernando Haddad.

The members of the workers' party, in turn, recalled that Chavez was a military man and that it was with the direct support and participation of the Armed Forces that Maduro had been ruling.

In August, the International Organization for Migration linked to the UN said that the increase in the number of people leaving Venezuela because of the hyperinflationary economic collapse makes it a time of crisis to be close to that of refugees and migrants who cross the Mediterranean to Europe .

In November, the UN reported that 3 million Venezuelans have left the country in recent years. But how has the situation in Venezuela reached this point.

(1) PETROLEUM CRISIS

Venezuela has the largest oil reserves in the world - and the resource is virtually the only source of foreign revenue in the country.

After World War I, successive Venezuelan rulers left agricultural and industrial development aside to focus on oil, which now accounts for 96% of exports - a near-total dependency.

The bet on oil was safe for years and gave good results at times when the price of the barrel was high. Between 2004 and 2015, in the governments of Hugo Chávez and the beginning of Nicolás Maduro - elected in 2013 after the death of his political godfather, in the same year, the country received 750 billion dollars from the sale of oil.

The Chávez government took advantage of this rain of the so-called "petrodollars" to finance from social programs to imports of almost everything that was consumed in the country.

But by 2014, the price of oil has collapsed. Partly because of the refusal of Iran and Saudi Arabia - two other major producers - to sign a pledge to cut output. Other factors were the deceleration of the Chinese economy and the growth in the US of the oil and gas production market through the fracking method - the hydraulic fracturing of rocks.

Earlier that year, having peaked at $ 138.54 in 2008, the price of a barrel of oil was trading at about $ 100 dollars and fell by half at the end of the year, keeping that significant drop until this year, when it returned to reach the level of $ 80.

In addition to receiving less money for its main product, Venezuela also had a significant drop in production. When Chávez took over the country for the first time in 1999, production was more than 3 million barrels a day. Today, it is about 1.5 million, according to the Organization of the Petroleum Exporting Countries (OPEC) - the worst level in 33 years.

This drop in production was mainly due to the poor management of PDVSA, Petróleos de Venezuela, the state that manages the exploitation of the resource in the country with exclusivity. In 2007, Chavez ordered all foreign companies to give up most of the control of their exploration activities to the Venezuelan state. Companies with the Exxon did not accept, had their property confiscated and legal battles for indemnifications continue until the present day.

At PDVSA, there was no investment in infrastructure and the company suffers from poor management and a high degree of corruption. To get an idea, since August 2017, the Venezuelan court has processed 90 former oil workers for corruption. In September, the Public Prosecutor's Office arrested 9 directors.

The US Department of Justice also conducted a Miami-based investigation that revealed a PDVSA money laundering scheme that diverted $ 1.2 billion between 2014 and 2015. The operation called Escape Money was co-operated by the United Kingdom, Spain, Italy and Malta. Two suspects were arrested.

Another thing that helped to undermine PDVSA's finances was the creation, under the Chavez government, of Petrocaribe, an initiative in which Venezuela committed itself to supplying oil at much lower prices to Caribbean countries allied with Chavismo, with long terms for payment . It was like borrowing money back from sight. With the deepening of the crisis, the initiative began to wane and countries like Jamaica and Dominican Republic began to seek other contracts for their supply.

(2) DEPENDENCE ON IMPORTS, EXCHANGE CONTROL AND PENALTIES

With the focus on oil and using some of the money raised from fuel exports to support social programs, Chavismo has not worried about the country's agricultural and industrial development. The government has not invested in the oil industry itself - leading to a fall in barrels production.

Chávez has taken a series of measures that have hampered the development of local industry: nationalized the cement and steel industries, among others, and expropriated hundreds of businesses and rural properties.

The private sector was led to replace its own production with cheaper imports, subsidized by the government. In addition, the government adopted a policy of price control, artificially holding inflation, which further helped to end local industry.

Venezuela has come to depend more and more on imports - from food and medicine to tires and spare parts for the subway system of major cities. In the past two years, with less money for imports, the issue of shortages - and hence hunger - has worsened. Lack of toilet paper in supermarkets.

The government also implemented a foreign exchange policy to insure the value of the bolivar, the local currency, controlling the purchase of dollars by the population, which generated a parallel market of the sale of the American currency.

With exchange control there was a significant increase in corruption, with a diversion of dollars to the parallel market, where the currency was worth up to 12 times the official exchange price. The government has tried various maneuvers to try to contain the escalation of the parallel - like the creation of distinct exchange bands that would be applied in different situations. But there was no concrete result and the illegal exchange continued to erode the already weakened economic system.

Chavez capitalized on a social discontent that had existed since past governments, with marked social inequality, and the beginning of his rule marked by the high weight he gave to the state and the populist aspect. This was characterized by a repudiation of private ownership and a smaller role of the market, which resulted in a strict control of prices and foreign exchange transactions.

It demonized the free market. The state became a great productive and centralizing apparatus. So, this comes from a strong foreign exchange subsidy, where artificially the local currency was valued higher than the foreign ones. This has made it much cheaper for local producers to import than to produce domestically.

The state also saw its public spending increase to maintain social programs. Foreign debt also increased fivefold, with the IMF forecast to hit $ 159 billion this year - this amount includes government-issued debt securities issued by the government and PDVSA and credits to China and Russia. By 2015, debt was $ 31 billion, according to IMF estimates.

The Bolivarian Nicolas Maduro with his main
supporter Russian President Vladimir Putin

Already very fragile, the economy suffered a major blow in August last year, when the US imposed sanctions on the country and some of its citizens. The Trump government has banned trading in Venezuelan debt securities and buying bonds from state oil company PDVSA. In May of this year, following the controversial re-election of Maduro, sanctions were deepened with the limitation of the sale of Venezuelan government debt and assets in American territory.

As most of the world financial system has activities in the United States, sanctions make it very difficult for new loans to be made to Venezuela and for the country to be able to sell new assets and renegotiate its debts. On the other hand, its effects are questioned, since the country was already isolated before that - organizations like the IMF no longer gave money to Venezuela for years.

Critics say the sanctions have only succeeded in getting Maduro to cling to power, as well as intensifying shortages of commodities - since, without access to dollars, the country has more difficulty importing goods.

The United States remains, however, one of the main importers of Venezuelan oil - PDVSA has, even, a subsidiary on American soil, Citgo. According to analysts, the Trump government does not announce sanctions in this particular sector because that would deepen the crisis in the country, which would increase the pressure on the US and its neighbors. There are also those who cite the fact that stopping to buy the Venezuelan product would lead to an increase in the prices of gasoline in the American bombs.

The re-election of Maduro in 2018 was challenged inside and
outside of Venezuela; the opposition does not recognize
the victory and claims use of the
state machine to get votes

(3) HYPERINFLATION

In trying to overvalue the Venezuelan currency, the government provoked distortions of values ​​that, in addition to causing the crisis of shortages, contributed to a scenario of hyperinflation.

In addition, with the fall in the price of oil and a reduction in the flow of foreign exchange, the government started to print more money to cover the gap in the public accounts and this was generating more and more inflation.

The forecast by the International Monetary Fund is that this year inflation in Venezuela will reach 1 million% (That means you multiply by 10,000 the price of a product). By day, the IMF estimates the value of inflation in the neighboring country at 4%.

Hyperinflation caused them to even run out of cash, as people needed a lot more money to buy anything. To drink coffee or buy toilet paper, for example, those who do not use the bank's debit card, have to carry stacks of bolívar notes - when they could extract money.

With the shortage of producing currencies, we used much more financing and printed a lot of money, with the State spending without generating more resources.

The bolivars needed to buy a toilet paper; the government of
Maduro cut some zeros of the coin to try
to contain the devaluation.

With the deterioration of the situation, chavismo adopted a kind of artificial control of inflation: it forced merchants to adopt a price below what they spent to produce, because they had to import the inputs. Then industries and traders began to break.

Hyperinflation has spurred income and poverty has increased. In 2017, the poverty line in the country of 30 million inhabitants reached 87%, an increase of 40 percentage points in three years, according to a survey by Andrés Bello Catholic University.

It is worth remembering that in the Chavez era, poverty in Venezuela had fallen by more than 20%, according to ECLAC (Economic Commission for Latin America and the Caribbean), and the country started to register the lowest inequality between rich and poor between Latin countries according to a UN report.

(4) POLITICAL CRISIS

Venezuela is also experiencing an intense political crisis, which has not started yet, with the start of the second term of Nicolás Maduro and the recent proclamation of opposition leader Juan Guaidó as interim president.

The country is divided between the Chavistas and the opponents, who are waiting for the end of the 19 years of power of the group that currently meets around the United Socialist Party of Venezuela (PSUV). In recent years, independence among Powers has been reduced in practice, which has contributed even more to the current critical situation.

In 2009, in his second term, Chávez was able, through a popular vote referendum, to change the constitution and change the reelection rule for president. Since then, Venezuelan presidents have been able to run for re-election without limits.

Chavismo, a power project that has been consolidated since the first election of Hugo Chávez, has as central elements a much greater role for the State and the defense of measures that expand social participation in politics - an example is the organization of "communes" in the poorest neighborhoods of the main cities, which in turn articulate with the local legislature to present demands and control the flow of input from some social programs.

It is also characterized by an "anti-imperialist" policy, advocating the integration of the South American peoples to combat the influence of the United States in the region. In Chavismo, the president has his power based on a strong militarism.

After Chavez's death in 2013, Nicolás Maduro, who was his vice president and also the PSUV, was already elected and re-elected president with the promise of continuing the policies of the predecessor.

But Maduro inherited Venezuela already entering an economic collapse and took measures that contributed more to the crisis.

In early 2014, the country was taken over by a wave of protests against Maduro. The repression of the state was violent. Between February and June, 43 people died. Opposition leader Leopoldo López was arrested.

In 2015, Chavismo lost control of Parliament and this made the situation of the country worse, as Maduro constantly accuses the opposition of trying to get him out of power by means of a coup.

After the defeat, he decided to convene a National Constituent Assembly - in practice, a maneuver to completely empty the power of the legislature commanded by the opponents and create a parallel instance of decision.

And this parallel instance works with the help of the Judiciary, which is accused by the opposition of being totally Chavista, since the government indicated the majority of the judges - Chavez increased the number of members of the Supreme Court of Justice (TSE), equivalent to the STF in Brazil , to compose a majority with their nominees.

In March 2017, the TSJ assumed functions of the Legislature, accusing the Parliament of disobedience. The lawsuit was denounced as a coup by the opposition and, two days later, the court turned back.

The accusation, therefore, is that there is no independence between the Executive, Legislative and Judicial Powers in Venezuela.

"In Venezuela, the judiciary is politicized and very strong. It has become an executive annex," Rafael Vila, a professor at the University of São Paulo's international relations faculty, told BBC News.

In May 2017, after Maduro summoned the Constituent Assembly, saying that it will renew the state and draft a new constitution, Venezuela once again saw a wave of violent protests take over the country. More than 120 people died and 2,000 were injured.

A year later, to aggravate the crisis, Maduro was re-elected with 68 percent of the vote in a disputed election inside and outside the country. The agent was reappointed to the post in a lawsuit that had 54% of abstention.

At the time, defeated opposition candidate Henri Falcon said he did not recognize the election and accused Maduro of using the state to coerce the poorest to vote.

Falcon accused the government of influencing voting through the Carné de la Patria, a document that allows Venezuelans to collect government benefits and use public services. Maduro promised that anyone who would vote on election day would be entitled to an extra benefit from the government.

The opposition accused the government of buying votes and most oppositionists boycotted the lawsuit. The government said the elections were "free and fair". With many candidates - non-governors unable to compete or arrested, the opposition said that the suit has no legitimacy and that there are indications to distrust electoral fraud.

All this political instability has contributed to aggravate the Venezuelan crisis.

Following the re-election of Maduro, the Organization of American States (OAS) requested the suspension of Venezuela from the entity. Brazil, besides the USA, Canada, Argentina, Peru and Mexico, among others, was one of the countries that requested the suspension of Venezuela from the continental organization, alleging disregard for the Inter-American Democratic Charter and illegitimacy of Maduro's re-election.

The only two suspended countries of the Organization of American States to date have been Cuba, in 62, when Fidel Castro joined the then Soviet Union, and Honduras in 2009, following the coup d'état that President Manuel Zelaya despoiled.

Venezuela had already stepped up to this process and requested its withdrawal from the OAS in 2017, claiming that the organization would be dominated by the American "imperial forces." This fact, however, does not prevent the suspension process from continuing and that the country feels its diplomatic effects. The suspension would mean that all American nations have confirmed that Venezuela no longer follows the democratic order.

If the suspension is confirmed, the country will find it even more difficult to obtain international support, especially in Europe and Asia.

The Inter-American Democratic Charter was created in 2001 and regulates the functioning of the democracies of the 35 member states of the OAS. The document provides for the possibility of suspension in case of non-compliance with the principles that govern it.

(5) MILITARY POWER AND PRESS CONTROL

Another point that contributed to the Venezuelan crisis was the strong presence of the Army in the management of the State.

After opposition candidate Juan Guaidó self-declared new interim president of the country this week, Defense Minister Vladimir Padrino tried to say that the Armed Forces were still alongside Maduro. "Bolivarian National Armed Force at my command, maximum union, maximum discipline, that we will win. Loyal always, traitors never", delcarou.

In 25 years, Venezuela has suffered three coup attempts by the military. One of them was set off by a group of which Colonel Chavez was the leader in 1992.

Arrested after the attempted military coup, he was released years later and managed to elect in 1998.

Chavez brought the Armed Forces to his government. He appointed several generals to positions in state-owned enterprises, replacing specialized technical staff.

One of the companies that had part of its staff replaced by military personnel was the oil company PDVSA, which, according to experts, explains in part the fact that it had not invested in improvements, had not developed.

Chavismo also put military personnel to act as ministers. One-third of Maduro's cabinet consists of military and ex-military personnel.

By the Venezuelan Constitution, the Armed Forces should be apolitical. But the defense minister, Gen. Vladimir Padrino, writes in his dispatches, "Chávez lives, the homeland continues. Independence and socialist homeland."

During the supply crisis that began in 2016, Maduro also passed the control of the production, import and distribution of food to the Army. There are grave allegations of corruption involving control of the military in this key sector in the crisis.

In other cases, chavismo has stifled the supply of newspaper paper for vehicles of opposition publishing line - the Venezuelan government controls, through a state corporation, the importation and distribution of the input.