LONDON – The South American state of Venezuela is in deep trouble.
The country, which was once hailed by many on the Western left as a shining example of socialism in action, is crumbling, both economically and politically.
The scale of the country’s fall can be seen in cold, hard data, some of which is truly shocking.
In 2017, Venezuela’s economy is 35% smaller than it was in 2013 in terms of gross domestic product and 40% lower in GDP per capita terms, as noted by Harvard economist Ricardo Hausmann, who was the country’s minister of planning in the early 1990s, in a piece for Project Syndicate.
Hausmann reflected on the scale of the contraction in a recent article for Project Syndicate, writing that the shrinking was “a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%.”
He continued: “It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993).”
Beyond the headline numbers, things are even more stark. Here is Hausmann once again:
“Clearly, a 40% decline in per capita GDP is a very rare event. But several factors make the situation in Venezuela even bleaker. For starters, while Venezuela’s GDP contraction (in constant prices) from 2013 to 2017 includes a 17% decline in oil production, it excludes the 55% plunge in oil prices during that period. Oil exports fell by $2,200 per capita from 2012 to 2016, of which $1,500 was due to the decline in oil prices.”
Economically speaking, Venezuela’s main problem is that it relies far too heavily on oil exports as a means of generating economic prosperity.
When times were good in the oil markets and oil was worth more than $100 a barrel the country was able to grow rapidly and offer its citizens a great quality of life.
But three years on from the crash in oil prices, the country simply cannot do that anymore, and its citizens are suffering. Venezuela certainly had problems before the oil-price crash, but the downturn accelerated and exacerbated those issues.
Fresh trouble has been sparked in the country this week by an election decried by critics as illegitimate and designed to give the unpopular government of President Nicolas Maduro powers to rewrite the country’s constitution and sideline its opposition-led congress.
The US labelled Maduro a dictator and accused him of “seizing absolute power,” and it imposed sanctions on the country, potentially compounding the state’s economic woes.
At the same time, inflation in the country is still growing uncontrollably, while the country’s currency, the bolivar, devalues at an almost unbelievable rate.
While the official rate of exchange between the US dollar and the bolivar is roughly 10 bolivars to the dollar, in reality it is more like 10,000.
A recent analysis by CNN Money showed that at the end of July a dollar was worth 10,389 bolivars, up from about 3,000 at the start of the year and 8,000 just a week before.
Inflation could exceed 1,600% by the end of 2017, according to some estimates, and many restaurants have stopped publishing prices because costs are rocketing so fast.
Restaurants, however, are but a dream for the vast majority of Venezuelans. Associated Press correspondent Hannah Dreier recalled on Wednesday how food shortages were so bad that a bakery near where she lived in Venezuela’s capital, Caracas, allowed people to line up outside not to buy bread but to rummage through its bins for scraps.
“People waited for their turn to hunt through black bags of bakery garbage,” Dreier wrote. “A young woman found a box of muffin crumbs. A teenage boy focused on finding juice containers and drinking whatever remained.”
As The Economist – which ran a special report on the country last week – writes: “Over the past year around three-quarters of Venezuelans have lost weight, averaging 8.7kg per person, because of a scarcity of food.”