Economic problems of Venezuela


First of all, Venezuela has been one of the most promising country in terms of economic standards. Venezuela used to be a democratic country like Canada and during this time the country was growing rapidly since the 1920’s. This country was the richest South-American country because of their production of oil which is a valuable resource for economy. Presently, Venezuela has a population of 31.4 million people, unemployment rate of 7.7%, inflation rate of 1087.5%, and a GDP of 380.7 billion with a -14% economic growth. All of those stats signified that their current economy is really bad.

The changing point that destroyed Venezuela’s economy is the global price of oil drop. After that, Chavez print more bolivars which amplified the problem. One tenth of the population fled because the country was. Venezuela currently faces hyperinflation that causes a big economic crisis, which could partly be rectified by adopting the URV approach like Brazilinstead of bolivars and by… The terms that will appear are hyperinflation, purchasing power, standards of living, and international economic cycle, nationalization,currency,socialism, URV… Firstly, an evaluation and description about the economic crisis will be introduced and then two solutions to this problem will be advanced to solve the economic crisis.


Currently, Venezuela is facing hyperinflation which means the price for goods is so high that no Venezuelans can afford to buy foods or any medical support nor drugs to heal. The average citizen has now a purchasing power of only be able to buy a couple of kilograms of flour. Economist said the poor governance, corruption and misguided policies of President Nicolás Maduro and his predecessor, Hugo Chávez, have fueled runaway inflation, shuttered businesses and brought the country to its knees”.

The problem does not from only economic issues. Venezuela did not diversify his economy which signify that their economy is really vulnerable in there is a change in the international cycle of economics. The president Hugo Chavez had a good economy because in the 2000’s the price of oil was stable and highly in demand. Therefore, they could afford to spend money on health and poverty programs that help the citizens to get better standards of living. However, the president Hugo Chavez at this time did not manage well the money and did not save for the future, he instead spend all of the money on programs without having in mind that if the price of oil changes in

the future the country will get awful consequences. In 2014, the oil price plummets which leaves the country with little exports of oil and the new president Maduro was not prepared because the president before him did not save any money.

According to Patricia Sagba, oil is capital intensive-business which means that to secure a better future production, the president had to reinvest his money and a portion of windfalls into his company of oil: Petróleos de Venezuela. The president Chavez did not invest, and it leads to the problem. Moreover, Maduro and Chavez have implemented policies that remove expertise in the oil sector. The three main socialist policies that lead the country to an economic crisis are the following: “Widespread nationalization of private industry, currency and price controls, and the fiscally irresponsible expansion of welfare programs”.

Just to make things worse, Chavez nationalized the agricultural sector to reduce poverty. Nationalizing the country was a big mistake because it destroyed the production of many industries. There’s no government that can run efficiently thousands of industries. He instead please the voters by selling low prices products and hired more employees than necessary. Therefore, the nationalization of the agricultural sector causes a decreased of 75% while the population increased by 33%. After nationalizing the agricultural sector, his regime decided to nationalize water, electricity, oil, banks, construction, supermarkets, and other sectors. In those sectors, the government decided it was a good idea to pay better payrolls to the employees and give away low cost products. As a result, the oil production decreased, some enterprises went bankrupt, and the country faced blackouts.

In 2013, the president Chavez decided to implement what’s call a foreign currency control scheme. This policy sets an exchange rate that is overvalued between the Venezuelan dollar and the US dollar. As a result, this policy increased the inflation because overvaluing the money decreased the currency of Venezuela and leads the country to print more money. The main objective of this policy was to reduce inflation, but it turns out to do the opposite. Since 2013,the bolivar lost 99% of its initial value and is now worthless. This cause can be explained by the fact that currency control needed to keep available US dollars to importers. Therefore, a black market begins to act and control the currency to get profits out of it which ruins the country even more.

The socialist government also introduced price ceilings on several basic products like toilet paper and milk. To continue, the low prices were good for poor people and even a bigger proportion of the population could afford to buy the products. However, several industries left the country because it was not affordable for them to stay because of the price ceiling. The industries decided to stop their production and the amount of product was reduced. At the beginning, this policy seems to be appropriate and well done. Unfortunately, the availabilities for basic products drop and the civilians had to wait in lines for hours just to get what they need, while the rich people could have advantages. The number of products available was too low and the production of the products was too slow to satisfy a growing population which result in a disaster.

After, the government tried to resolve the problem by printing more money and helps the social program. They even created welfare program to include massive social-public work and it creates even more corruption in the streets. In reality, the welfare programs increased the cost of living instead of helping the country. In general, a corrupt government and regimes don’t cause hyperinflation or shortages throughout the country, but a corrupt government with extreme social policies and clear misjudgment can lead directly to a disaster. Moreover, the price of oil had drop. To solve hyperinflation in the country the Venezuela sells 2 or 3 times as much oil to reduce it.

In summary, the foreign currency control and the nationalization that leads to shortage of products and expertise completely destroyed the Venezuela’s economy. In 2017, the output of Venezuela drops because of the US Sanctions which restricted their power to borrow from the American investors and from the US markets. When a country is affected by an economic crisis, the country is supported by other countries. However, the US decided to impose sanctions that block the investors to restructure its economy. The price drop of oil affected the economy, but not as much as the socialist policies of the government that only opens more door for corruption. Venezuela is the best example that giving products for almost free is not the solution to reduce poverty and also to invest for long terms can save the outcome of a country when its economy is not doing great.