Venezuela in Crisis

Demonstrators rally against Venezuela's President Nicolas Maduro in Caracas, Venezuela. Carlos Garcia Rawlins/Reuters

President Nicolas Maduro’s efforts to consolidate power amid a deepening economic and humanitarian crisis have drawn widespread international condemnation.

Last updated March 23, 2018

Demonstrators rally against Venezuela's President Nicolas Maduro in Caracas, Venezuela. Carlos Garcia Rawlins/Reuters
Backgrounder
Current political and economic issues succinctly explained.

Introduction

Venezuela is in the midst of an unprecedented economic and political crisis marked by severe food and medicine shortages, soaring crime rates, and an increasingly authoritarian executive. Critics of President Nicolas Maduro and his predecessor, Hugo Chavez, say Venezuela’s economic woes are the fruit of years of economic mismanagement; Maduro’s supporters blame falling oil prices and the country’s “corrupt” business elites.

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In 2016, opposition lawmakers took a majority in the legislature—the National Assembly—for the first time in nearly two decades. However, the Maduro government has taken steps since to consolidate the president’s power, holding heavily disputed elections to replace the legislature with a constituent assembly comprised entirely of government supporters. Maduro’s actions, which have been met with massive protests and international condemnation, threaten to delegitimize the results of the 2018 presidential election.

Chavez’s ‘Bolivarian Revolution’

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Venezuela

Humanitarian Crises

Economic Crises

Political Movements

Chavez, a former military officer who launched an ill-fated coup in 1992, was elected president of Venezuela in 1998 on a populist platform. As a candidate, he railed against the country’s elites for widespread corruption, and pledged to use Venezuela’s vast oil wealth to reduce poverty and inequality. During his presidency, which lasted until his death in 2013, Chavez expropriated millions of acres of land and nationalized hundreds of private businesses and foreign-owned assets, including oil projects run by ExxonMobil and ConocoPhillips.

Chavez, whose rhetoric often drew inspiration from Simon Bolivar, the Venezuela-born revolutionary of the nineteenth century, aimed to align Latin American countries against the United States. He led the formation of ALBA, a bloc of socialist and leftist Latin American governments, and established the Petrocaribe alliance, in which Venezuela agreed to export petroleum at discounted rates to eighteen Central American and Caribbean states.

Chavez also greatly expanded the powers of the presidency. Shortly after he took office, voters approved a new constitution that allowed him to run for another term, removed one chamber of Congress, and reduced civilian control over the military. In 2004, two years after he was briefly removed from office in a coup, Chavez effectively took control of the Supreme Court by expanding its size and appointing twelve justices. In 2009, he led a successful referendum ending presidential term limits.

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Chavez remained popular among the country’s poor throughout his presidency, expanding social services including food and housing subsidies, health care, and educational programs. The country’s poverty rate fell from roughly 50 percent in 1998, the year before he was elected, to 30 percent in 2012, the year before his death.

Maduro, who narrowly won the presidency in 2013, pledged to continue his former boss’s socialist revolution. “I am ensuring the legacy of my commander, Chavez, the eternal father,” he said after the vote.

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Venezuela

Humanitarian Crises

Economic Crises

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An Oil-Based Economy

Venezuela is highly vulnerable to external shocks due to its heavy dependence on oil revenues. Oil accounts for about 95 percent of Venezuela’s export earnings and 25 percent of its gross domestic product (GDP).

The state-run petroleum company, Petroleos de Venezuela, S.A. (PDVSA), controls all the country’s oil exploration, production, and exportation. As global oil prices fell from $111 per barrel in 2014 to a low of $27 per barrel in 2016, Venezuela’s already shaky economy went into free fall. That year, GDP dropped 10 to 15 percent and inflation soared to an all-time high of 800 percent. By late 2017, revenue had dropped by $100 billion and the country owed some $150 billion to foreign creditors while it held just under $10 billion in reserves.

By late 2017, the country owed some $150 billion to foreign creditors while it held just under $10 billion in reserves.

Many critics fault the Chavez government for squandering years of record oil income and accuse PDVSA of gross mismanagement and cronyism. In 2017, more than fifty employees associated with the national oil industry had been arrested on charges of corruption and embezzlement. In November of that year, Maduro appointed military general and loyalist Manuel Quevedo to the helm of both PDVSA and the oil ministry, prompting accusations of undemocratic consolidation of power.

In February 2018, Venezuela became the first government to issue its own cryptocurrency, the petro, which is nominally backed by the country’s vast petroleum reserves. Maduro has said the petro will help Venezuela circumvent U.S. sanctions, but economists are skeptical about its ability to alleviate the country’s economic troubles.  

Price Controls and Shortages

Venezuela’s economic crisis is marked by soaring inflation and shortages of food, medical supplies, and staples like toilet paper and soap. Experts say the government’s strict price controls, which were meant to keep basic goods affordable for the country’s poor, are partly to blame. Many manufacturers in the country cut production due to limits on what they could charge for their goods.

Another policy contributing to the country’s economic problems are currency controls, first introduced by Chavez in 2003 to curb capital flight. By selling U.S. dollars at different rates, the government effectively created a black market and increased opportunities for corruption. A business that is authorized to buy dollars at preferential rates to purchase priority goods like food or medicine could instead sell those dollars for a significant profit to third parties. In December 2017, the official exchange rate was ten bolivars to the dollar while the black market rate was more than nine thousand bolivars to the dollar.

Imports reportedly fell to $18 billion in 2016, down from $66 billion in 2012, as foreign-made goods became increasingly expensive. Many consumers are faced with the choice of waiting for hours in line for basic goods or paying exorbitant prices to so-called bachaqueros, or black market traffickers.

Experts say widespread expropriations have further diminished productivity. Transparency International, which ranks Venezuela 166 out of 176 on its perceived corruption index, reports that the government controls more than five hundred companies, most of which are operating at a loss. (By comparison, Brazil, which is more than six times as populous as Venezuela, has 130 state-run companies.)

A Humanitarian Crisis

Observers have characterized the situation in Venezuela as a humanitarian crisis. In 2016, the Venezuelan Pharmaceutical Federation estimated that 85 percent of basic medicines were unavailable or difficult to obtain. Hospitals lack supplies like antibiotics, gauze, and soap. Infant mortality in 2016 increased 30 percent and maternal mortality 65 percent over two years prior, according to government figures. Diseases like diphtheria and malaria, previously eliminated from the country, have reemerged.

Poverty has also spiked. In 2016, a local university study found that more than 87 percent of the population said it did not have enough money to buy necessary food. Another study found that 30 percent of school-aged children were malnourished. According to a 2016 report from Human Rights Watch, the Maduro administration “has vehemently denied the extent of the need for help and has blocked an effort by the opposition-led National Assembly to seek international assistance.”

Infant mortality in 2016 increased 30 percent.

Poverty and lack of opportunity are exacerbating Venezuela’s high rates of violence. In 2016 Venezuela experienced its highest-ever homicide rate at 91.8 homicides per 100,000 residents, according to the Venezuelan Violence Observatory, an independent monitoring group. (The U.S. rate, by comparison, is 5 per 100,000.) Maduro’s administration has deployed the military to combat street crime, but rights groups and foreign media have reported widespread abuses, including extrajudicial killings.

The humanitarian crisis has spilled across Venezuela’s borders, with as many as five hundred thousand fleeing in the past two years. Many have crossed into neighboring Colombia and Brazil, while others have left by boat to the nearby island of Curacao.

Political Turmoil

Amid the crisis, the Maduro administration has become increasingly autocratic. In 2016, opposition lawmakers, under the Democratic Unity Roundtable (MUD) coalition, took the majority in the National Assembly for the first time in sixteen years, but Maduro took several steps to ultimately dissolve them.

In September 2016, Venezuela’s electoral authority ordered the opposition to suspend a campaign to recall the president. The following month, the Supreme Court stripped the National Assembly of powers to oversee the economy and prevented the release of eighty political prisoners, including opposition leader Leopoldo Lopez.

In March 2017, the judicial branch briefly dissolved the National Assembly. The court revised its order days later following an international outcry, but kept the legislature in contempt. A week later the government barred opposition politician Henrique Capriles, who narrowly lost to Maduro in the 2013 presidential election, from running for office for fifteen years.

Maduro’s consolidation of power threatens to delegitimize the results of the upcoming presidential election.

On July 30, Maduro’s government held an election to replace the National Assembly with a constituent assembly that would have sweeping authority to rewrite the country’s laws and constitution. Supporters of Maduro won all 545 seats, an outcome disputed by the opposition and independent observers.

Maduro’s Socialist Party won 17 of 23 gubernatorial elections in October and nearly 90 percent of mayoral elections held two months later. The races were condemned as “neither free nor fair” by the U.S. State Department and boycotted by the three main opposition parties over allegations of electoral fraud. In retribution, Maduro banned the dissident parties from participating in the 2018 presidential race. In January 2018, Maduro announced he would run for a second six-year term.

Maduro’s consolidation of power threatens to delegitimize the results of the upcoming presidential election, which is set for May. In February, former state Governor Henri Falcon of the MUD’s Progressive Advance Party announced he would compete against Maduro, defying his own coalition’s boycott of the election and earning him an expulsion from MUD. According to a February 2018 survey by Caracas pollster Venebarometro, more than 60 percent of Venezuelans consider neither Falcon nor Maduro a desirable presidential candidate.

More than 130 people have been killed and 4,800 arrested in clashes between police and demonstrators since April 2017. In response, the government issued an indefinite ban on all protests. Government security forces have attacked, detained, or expelled journalists, according to the Committee to Protect Journalists. That year, Venezuela became one of two countries in the Western Hemisphere, along with Cuba, to be rated as “not free” by Freedom House.

The Region Reacts

Mercosur, an economic and political bloc comprising Argentina, Brazil, Paraguay, Uruguay, and Venezuela, suspended Venezuela in 2016. In March 2017, the secretary-general of the Organization of the American States (OAS) recommended suspending Venezuela from the bloc unless the Maduro administration moved to hold elections. Venezuela announced its withdrawal from OAS the following month.

The Donald J. Trump administration imposed sanctions on Vice President Tareck El Aissami and eight members of the Supreme Court in the first half of 2017, and days before the July election it added to that list more than a dozen current and former officials. After the vote, Trump sanctioned President Maduro, making him just the fourth foreign leader to receive such a penalty. In August, the administration imposed the most robust sanctions yet, which effectively block U.S. financial institutions from investing in new Venezuelan or PDVSA bonds. The measures, coupled with Maduro’s refusal to seek help from the International Monetary Fund, led the government to announce in November that it would restructure and refinance all foreign debt. Venezuela officially defaulted on $200 million in debt interest payments later that month. Despite tensions between Washington and Caracas, the United States remains Venezuela’s largest trading partner.

Meanwhile, the Maduro administration retains the support of allies in Bolivia, Ecuador, and several Caribbean nations. China has lent Venezuela more than $60 billion since 2001, and is the South American country’s largest creditor. The Chinese Foreign Ministry issued a vote of confidence in November 2017, stating that “Venezuela’s government and people have the ability to properly handle their debt issue.”  

Venezuela has sought significant ties with Russia in recent years. Before oil prices fell in 2014, Venezuela was set to become the largest importer of Russian military equipment by 2025. Moscow is becoming Caracas’s “lender of last resort” in exchange for increasing amounts of crude oil. In August 2017, the Russian state oil company Rosneft was reselling approximately 225,000 barrels of PDVSA oil per day, or 13 percent of total Venezuelan exports. A bilateral agreement struck in November to restructure more than $3 billion of Venezuela’s debt to Russia reaffirmed Moscow’s support.

Claire Felter and Rocio Cara Labrador contributed to this report.

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Resources Up

Michael Shifter, president of the Inter-American Dialogue, gives an overview of Venezuela's crisis in Foreign Affairs.

The New York Times looks inside the country’s failing hospitals.

Bloomberg’s Andrew Rosati follows bachaqueros in the country’s capital.

The Financial Times examines Venezuela's epidemic of violence.

The Economist discusses the value of the petro and its implications for emerging sovereign cryptocurrencies.

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