Venezuela experienced a severe financial crisis due to its overdependence on oil revenues and mismanagement of funds. When oil prices fell in 2014, it drastically reduced government income and led to shortages of food and medicine as subsidies could no longer be maintained. The government printed more money to pay for goods and services, resulting in hyperinflation that reached nearly 400,000% in 2019. Sanctions by the US further exacerbated economic problems. The crisis has led to increasing poverty, malnutrition, and mass emigration from Venezuela.
2. All About Venezuela
In 1970s, Venezuela was among the top 20
richest counties in the world.
It had 303 Billion oil barrel reserve in 2019,
which is 17.9% of the entire oil reserve of the
world.
During the presidency of Hugo Chavez in
1999, oil prices were at boom, which
generated a huge revenue as this was the
main source of income for the country.
These revenues were used for social
activities, food subsidies and social programs.
3. Venezuela Financial Crisis
Oil was the main Cash Cow of Venezuela, 95%
of revenue comes from oil.
The government didn’t invested in development
of oil business or to find other source of income.
Hence, oil production capacity decreased.
In 2013, under presidency of Nicolas Maduro,
the oil prices started decreasing drastically.
Hence, dropping GDP
.
Oil prices have been falling since 2014, which has left the government unable to maintain the system of
subsidies that functioned during the oil boom years.
Hugo subsidise the food and medicines below manufacturing cost, which resulted in huge loss to the
private players and they stopped production of food and medicine. Hence, during the inadequacy, the
government has to import those from other countries.
4. During the crisis, it slowly became difficult for the government to import food and medical
supplies. As the oil prices were decreasing.
This resulted in the food and health crisis in Venezuela. 50% of the medicines are not
available.
To overcome this, Maduro government started printing more notes to cover expenses,
despite that its production output and service output was not performing.
This resulted in Hyperinflation.
The inflation rate in 2016 was 800%, it grew to 80,000% in 2018, and 3,80,000% in 2019.
The Venezuela government stopped providing statistics on GDP and inflation, to hide their
failures.
On the top of it, USA put sanction on oil industry, central bank and gold mining industry. As a
result, Venezuela faced difficulty in trade and international transactions with USA and other
countries.
Venezuela Financial Crisis
5. Venezuela has bad economic conditions
Rapidly increasing hyperinflation
Excess debt
Food and health crisis
Nearly 45 lakhs people (15% of population) have abandoned.
Increasing political instability
Huge amount of revenue depends on India, as only India is importing oil in large
quantity.
Corona virus has not affected Venezuela intensely. If the things started worsening, the
situation will be critical.
Current Scenario
6. The main cause for the financial crisis in Venezuela was that:
Didn’t paid attention to oil business or used them to develop other sources
of revenue.
Not paid attention to corporate development.
Printed more notes to cover expenses, instead of finding solution the crisis.
Conclusion