- REUTERS/Marco Bello
Venezuela has been teetering on the edge of political and economic disaster for some time now.
But the situation hit a critical point Wednesday as Venezuela’s political opposition called for massive protests on the heels of President Nicolas Maduro’s declaration of a 60-day state of emergency over what he described, per Reuters, as “plots from Venezuela and the United States to subvert him.”
And it doesn’t seem as if things will be improving in the near term.
“With every passing day, Venezuela, the most imperiled [oil] producer, moves closed to the brink of a political and economic meltdown,” RBC Capital Markets’ head of commodity strategy, Helima Croft, wrote in a note.
“Political challenges and mounting debt continue to stress an already challenging situation and there appears to be no end in sight.”
- REUTERS/Marco Bello
Venezuela, an OPEC member that has the world’s largest oil reserves, has been struggling with ongoing political, security, and economic issues.
On the economic front, things went south after oil prices collapsed in 2014. The country heavily relies on the commodity for its export revenues, and it previously relied on oil’s higher prices to fund many of the government’s social programs. Most notably, a bombshell New York Times report elucidated how the country’s economic crisis had led to a huge public-health emergency.
Venezuela has also been suffering from water and electricity cuts amid a prolonged drought. The government has come up with some unorthodox strategies to combat the situation – such as changing daylight saving time, urging women to cut use of hairdryers to save electricity, and forcing holidays for state employees.
Most recently, the Associated Press’s Hannah Dreier reported how a 42-year-old Venezuelan man, Roberto Bernal, was burned alive over $5 – but “amid the general haze of violence, Bernal’s killing didn’t even stand out enough to make the front pages or provoke comment from local politicians.”
- Carlos Garcia Rawlins/Reuters
And the country’s economic future does not look good.
Croft detailed that the country was also flirting with a potential debt crisis in the back half of the year.
As she explained in a note to clients:
The state-owned oil company PDVSA faces a $1.3 billion debt payment in October and an additional $2.9 billion one in November. Maduro may already be making contingency plans for a PDVSA default. In February, the government announced the creation of a new military controlled oil and mining company, which some analysts speculate could be used to strip the PDVSA assets in the event of default or bankruptcy.
As for the larger scheme of things, data from the central bank suggests that Venezuela’s gross domestic product contracted by 5.7% in 2015, and International Monetary Fund figures suggest that it will shrink by 8% in 2016.
- RBC Capital Markets
Meanwhile, inflation is expected to rise from a world high of 275% in 2015 to a mind-blowing720%in 2016, according to a January estimate from the IMF.
And because of this insanely high inflation, Venezuela is likely to once again be the most “miserable” country in the world. (Arthur Okun’s “Misery Index” adds together a country’s unemployment and inflation rates. The higher the number, the more “miserable” a country is.)
In short, things are not looking good.