Mike Grott is a summer intern at the World Affairs Council of Pittsburgh. Entering his junior year at the University of Pittsburgh, he is majoring in Economics and Business Administration.
Mix together a sizeable amount of fraud, a decent serving of supply shortages, and a pinch of hyperinflation, and what do you get? A recipe for economic and political disaster in Venezuela. Over the past few years, the South American country has been slowly sinking into a ruinous hole. But how, exactly, did the country reach a point where the government operates only two half-days a week and the people value toilet paper as if it were gold? It has plunged under the direction of a fractured Chávistan formula, consisting of a curious combination of socialist corruption, economic mismanagement, and broken infrastructure.
Despite prior political popularity, the Chávista regime (taken over by Nicolas Maduro after the 2013 death of founding leader, Hugo Chávez) is facing a sharp decline in approval and significant international criticism as its country spirals into a catastrophic collapse. The president, with visible opposition, is cracking down on adversaries left and right, while also exercising the government’s strong hand in dealing with current conditions. Though much of this chaos can be attributed to Maduro’s harsh restrictions and disconnect with the people, much of the disastrous climate is a direct result of the Chávez socialist-authoritarian legacy. Throughout his time in power, Chávez managed to nationalize multiple industries, replace businessmen with loyal party members, and seek the people’s support through expensive and unaffordable state programs. The energy sector is the ultimate example of wasted potential and Chávistan mismanagement. Venezuela, with some of the largest oil reserves in the world, continued to suffer a declining industry throughout the 2000’s. The reason for this lies in a lack of commercial investment (due to government ownership) and insufficient funds to pay for refining. Maduro has tried to cut production during his presidency in an attempt to reconcile budgets – nonetheless, with the dwindling of a nation’s most important industry comes the inevitable downfall of those around it.
In the midst of extremely long lines, planned power outages, and a failing market, Venezuelan citizens must also come to terms with the fact that their currency, the bolivar, is plummeting in worth by the second. As early as 2013, the Chávez government – already drowning in debt – began importing plane-loads of bills and pumping out an inordinate amount of bolivars. This led to massive price increases, which turned simple transactions into arduous exchanges that warranted full buckets of currency. In 2015, the averaged inflation rate was 150%, and experts expect the level to skyrocket to a whopping 700% by the end of 2016.
And what is best served on the side of this hyper-inflated dish? Another delectable round of government deceits. Maduro’s regime declines to confess true exchange rates and instead acknowledges a value for the bolivar that is wildly inaccurate. For instance, the officially stated conversion rate between U.S. dollars to bolivars is 1 to 10, yet a dollar in everyday Venezuelan markets is being sold for a thousand bolivars. In fact, many state-subsidized business owners are finding it more lucrative to sell their government-supplied dollars on the black market instead of actually utilizing the funds to stock shelves. Citizens – who have already lost faith in the future and the government – can no longer take comfort in any remaining savings or income based in the bolivar, a currency that has only assisted in amplifying Venezuela’s economic destruction.
With mounting resistance, bills, and disorganization, more than ever the South American nation of Venezuela resembles a dish gone terribly wrong. More than ever, the country is in need of a new recipe that will fire up its economy and stir up institutional stability.