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Venezuelan economic crisis of 2016

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During 2016, the economy of Venezuela entered a state that news outlets variously described as "collapse", "chaos", or "starvation". The collapse was caused by a combination of the fall in oil prices, the socialist economic policies of Hugo Chavez and Nicolás Maduro, economic mismanagement, and price controls.

Shortages in Venezuela leave store shelves empty

Effects

Effects included a refugee crisis, with many fleeing in boats, massive inflation, electricity blackouts, and a dramatic increase in crime, particularly homicide. From 1 November to 28 November 2016, the black-market value of a United States Dollar rose from 1467 to 3480 Bolivars. Hence, the 100 bolívar fuertes note, the largest note in circulation at the time, saw its value fall to roughly 3 U.S. cents. Even in 2015, people were carrying backpacks full of cash to pay for purchases, and the problem became worse in 2016, with people often visiting multiple ATMs in order to get cash. Hungry crowds stormed supermarkets and attacked food trucks. Some residents crossed into Colombia and Brazil, legally or otherwise, in order to purchase food. Some wealthy residents shopped online for food, which arrived from Miami, while others were able to purchase food at upscale stores in Caracas, with prices tied to the value of the U.S. Dollar.

Because of the shortage of food, some parents gave away or abandoned children they were unable to care for.

A few professions remained profitable. Bitcoin miners were able to earn large sums of money due to the subsidised price of electricity, but they feared for their safety. Many poor people found work in gold mines, but Malaria was also prevalent. People close to the regime earned money through drug trafficking, though some ended up in U.S. prisons. Some fishermen turned to piracy to survive. This also led to many people being murdered. Others found work in the Venezuelan black market, allowing them to earn money, but also risking prison.

Causes

The Chavez-Maduro regime believed that the source of all of Venezuela's problems was the partnership between the U.S. and Venezuela's business elite. To combat this, the government enacted sweeping reforms regarding business regulation in an attempt to revitalise an otherwise stagnant but slowly sinking economy. However, after the enactment of such policies, the only significant export business that survived effectively was oil, which represented 96% of Venezuelan exports as of 2011. While oil prices were high, the oil exports were enough to pay for necessary imports, but after the drop in oil prices, this was no longer true. Making matters worse, Venezuelan crude oil is of poor quality and trades at a discount to standard blends. For example, in January 2016, when oil prices were around $30 a barrel, some Venezuelan blends were as low as $15, which was less than the cost of production. The country could no longer afford to pay its oil workers sufficiently, and some even sold their uniforms to buy food. This in turn caused oil production to decline. From 3.28 million barrels a day in 1998, it fell to 2.4 million barrels in 2015, and to 2.15 million by June 2016.

Furthermore, many rural farms were seized by the government, however with little to no effective action after seizure. By 2015, domestic food production had fallen sharply. Hence, when oil prices fell, Venezuela neither produced domestically nor could afford to import sufficient food.

Government Responses

In December of 2016, the Maduro government accused Caracas stores of raising prices by 300 to 500 percent. The government ordered the stores to lower their prices, saying it was acting to "guarantee fair prices for the people." Some shoppers were pleased, even though they had to stand in long lines to make purchases. Some store owners said this would drive them to bankruptcy. The Government also accused Venezuelan toy distributor Kreisel of charging too much for its toys. As punishment, the Government seized 6 million toys, which it said it would distribute fairly to the poor for Christmas. The Government also announced that because of inflation, on 15 December 2016 it would introduce six new banknotes, with values ranging from 500 to 20,000 bolívars.

On 11 December 2016, Maduro announced that the 100-bolívar fuertes note would no longer be legal tender within 72 hours. He justified this by saying that gangs were holding warehouses full of notes in Colombia, though economists questioned this, asking why anyone would hold large amounts of a currency that had lost 60% of its value in the last two months. Residents responded by standing in long lines to exchange their bills.

On 18 December, it was reported that planes carrying the new bills had failed to arrive. Maduro blamed "sabotage" by Venezuela's "enemies" and postponed the exchange until 2 January 2017.

See also

References

  1. "Hungry Venezuelans Flee in Boats to Escape Economic Collapse". The New York Times. 25 November 2016.
  2. "Venezuelans face collapsing economy, starvation and crime".
  3. Stolk, Raúl (25 May 2016). "Venezuela Has Become a Starvation State".
  4. "My Venezuela Nightmare: A 30-Day Hunt for Food in a Starving Land" – via www.bloomberg.com.
  5. Bremmer, Ian. "These 5 Facts Explain Why Venezuela Could Be on the Brink of Collapse".
  6. Reporter, Nick Robins-Early World News; Post, The Huffington (2 June 2016). "What's Behind The Economic Chaos In Venezuela".
  7. "Venezuela Reaches the End of the Road to Serfdom".
  8. McDonnell, Patrick J. "The biggest worry in crisis-ridden Venezuela: crime".
  9. "Venezuela's Murder Epidemic Rages on Amid State of Emergency".
  10. CNN, Osmary Hernandez and Rafael Romo. "Venezuela blackouts: 'We can't go on'". {{cite web}}: |last= has generic name (help)
  11. Gillespie, Patrick (29 November 2016). "Venezuela's currency is in 'free fall'".
  12. Grillo/Caracas, Ioan. "Why Venezuelans Are Carrying Backpacks of Cash on the Streets".
  13. "Want Groceries in Venezuela? First Stop at Six ATMs" – via www.bloomberg.com.
  14. Dickinson, Elizabeth (21 September 2016). "On the Venezuelan-Colombian Border, the Tide Has Turned".
  15. "Venezuela reopens Colombian border to allow shoppers to cross". 18 July 2016 – via www.bbc.com.
  16. "Venezuelans are storming supermarkets and attacking trucks as food supplies dwindle".
  17. rt-egb, teleSUR /. "Rich Eating Well in Venezuela, Basque Executive Shows".
  18. http://www.reuters.com/article/us-venezuela-children-idUSKBN1441TB
  19. "Bitcoin Miners Make Big Profits but Fear for Safety in Venezuela - CryptoCoinsNews". 30 November 2016.
  20. "The Secret, Dangerous World of Venezuelan Bitcoin Mining". 28 November 2016.
  21. "Hard Times in Venezuela Breed Malaria as Desperate Flock to Mines". 15 August 2016 – via The New York Times.
  22. http://www.nbcnews.com/news/latino/venezuela-pirates-terrorizing-fishermen-industry-crumbles-n693586
  23. "The US government is zeroing in on a suspected 'global hub of drug trafficking'".
  24. Córdoba, José De (3 August 2016). "Venezuela's Maduro Promotes General Indicted by U.S. on Drug-Trafficking Charges" – via Wall Street Journal.
  25. Hong, Nicole (19 November 2016). "Venezuelan President's Nephews Found Guilty on Drug Charges" – via Wall Street Journal.
  26. Toro, Moisés Naím and Francisco. "Venezuela Is Falling Apart".
  27. http://abcnews.go.com/ABC_Univision/News/ways-chavez-destroyed-venezuelan-economy/story?id=18239956
  28. http://www.vox.com/2016/5/26/11774482/venezuela-socialist-collapse
  29. https://www.washingtonpost.com/news/worldviews/wp/2016/08/02/how-the-crash-in-oil-prices-devastated-angola-and-venezuela/?utm_term=.81c0b015dc22
  30. http://money.cnn.com/2016/07/12/investing/venezuela-crisis-oil-production-plunges/
  31. http://www.reuters.com/article/oil-latam-prices-idUSL2N14Z2ZF
  32. http://www.reuters.com/article/oil-latam-prices-idUSL2N14Z2ZF
  33. http://www.indexmundi.com/energy/?country=ve&product=oil&graph=production
  34. http://fortune.com/2016/10/05/venezuela-oil-pdvsa-food-shortage/
  35. http://www.npr.org/templates/story/story.php?storyId=106620230
  36. http://www.bbc.com/news/world-latin-america-35642365
  37. https://www.bloomberg.com/news/articles/2016-09-01/venezuelan-credit-dashboard-attention-shifts-to-final-quarter
  38. http://www.cnbc.com/2015/10/13/food-inflation-its-getting-hard-for-venezuela-to-feed-itself.html
  39. https://www.yahoo.com/news/venezuela-orders-stores-christmas-spirit-064847254.html
  40. http://www.abc.net.au/news/2016-12-11/venezuela-seizes-4m-toys-to-give-children-at-christmas/8110440
  41. http://www.bbc.com/news/business-38201575
  42. http://www.economist.com/news/finance-and-economics/21711937-nicol-s-maduros-latest-act-economic-sabotage-cancelling-100-bol-var
  43. http://www.reuters.com/article/us-venezuela-economy-idUSKBN1460TD
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