Venezuela was once one of the wealthiest countries in the world. It prospered economically in the 1950s, recording the world’s fourth-largest per capita GDP based on its abundant oil resources, but could not overcome the limitations of its oil-dependent economic structure and began to become increasingly unstable in the 1980s. The economic crisis came due to falling oil prices and the government’s reckless spending, and the 1983 Black Friday crisis caused the Venezuelan bolivar to plunge by 75%, causing a severe economic shock.
When Hugo Chávez came to power in 1999, Venezuela abolished its neoliberal policy and implemented a popularist socialist policy called the Bolivar Revolution. The government nationalized major industries, concentrated oil revenues on the welfare of the poor, reduced the poverty rate by nearly half, expanded free education and medical care, and strengthened housing supply. However, the government’s strong price control policy led to a contraction of private investment and a weakening of the domestic industry base.
The structure in which more than 90% of Venezuela’s economy depends on the oil industry was a fatal weakness, and the country’s economy began to collapse in earnest in 2014 as international oil prices plunged. Free welfare policies and public spending, which Chavez’s government expanded, became unsustainable after falling oil prices, and the government tried to fill the budget deficit by issuing large amounts of money, but ultimately created hyperinflation (30,000% in 2018).
Nationalization and the government’s tough regulatory policies have undermined businesses’ competitiveness and deepened corruption, further exacerbating the economy. After Chavez’s death in 2013, Nicolas Maduro came to power, but economic difficulties have been acute due to economic sanctions and falling international oil prices. In 2018, inflation reached 80,000%, a national crisis deepened, including food and medicine shortages, rising crime rates, and collapsing infrastructure, and millions of people have fled as refugees.
Venezuela’s downfall demonstrates the dangers of an economic structure that relies solely on resources without industrial diversification. It also suggests that expanding welfare spending without a sustainable funding plan could lead to a severe fiscal crisis, and that excessive government intervention and nationalization policies could undermine economic vitality. Corruption and concentration of power leave many lessons in that they can deepen the crisis.
TOMOYU 