Mired in a year-long economic and political crisis, Venezuela has sunk deeper into the abyss, as massive debt and hyperinflation have created dire conditions for the country’s 30 million people.
Since the death of Hugo Chavez in 2013, Venezuela has been headed by the increasingly unpopular former vice present Nicolas Maduro, whose economic mismanagement during the oil-price collapse has led to a massive socioeconomic crisis defined by food and medicinal shortages, daily blackouts and rising crime.
With oil revenues drying up, the government has relied on drastic measures to save money and combat growing water and electricity shortages. Some of those measures include changing daylight savings time, forcing a two-day work week for government employees and urging women to scale back on their use of hairdryers. Maduro’s government has also had to cut back on public services and defund social programs popular among the Venezuelan population.
The deepening crisis has also spread to the currency markets, where 10 bolivares are now worth $1. According to the AFP news agency, this means hamburgers being sold in the country for 1,700 bolivares will set customers back $170. According to the International Monetary Fund (IMF), Venezuela’s inflation rate has reached a staggering 720%. This has forced residents of Caracas, the country’s capital, to spend long hours queuing for basic food supplies, which remain in painfully short supply.
The ongoing food crisis has forced US multinational corporation Coca-Cola to halt all production in Venezuela due to a chronic shortage in sugar, the key ingredient in the company’s line of soft drinks.
“Ninety percent of the production requires sugar. We are not going to shut our central office right now. We are not leaving Venezuela,” the company said.
Empresas Polar, one of Venezuela’s most renowned breweries, has also been forced to shutdown production to a massive shortage in barley needed to make beer.
Citizens have also complained of shortages in milk, rice, pasta and vital medicines. Locals report that bare supermarket shelves are a common sight in cities throughout the country.
For his part, President Maduro has raised the minimum wage in an effort to help consumers keep up with inflation. Earlier this month the president announced a 30% increase in the minimum wage to 15.051 bolivares. That followed a 25% increase at the beginning of March.
Despite these efforts, Venezuelans appear to be losing patience with Maduro. A petition calling for the ousting of the present surpassed 2 million signatures less than a week after being launched by the country’s opposition parties. This puts opposition leaders one step closer to removing the embattled president from office. According to analysts, another 20% of the population must sign the petition for a recall election to proceed. The opposition leaders must also secure more votes than Mr. Maduro received in the 2013 elections, according to Venezuelan law.
Adding to Mr. Maduro’s rap sheet is a massive fiscal deficit that is on course to hit 25% of gross domestic product (GDP) in 2017. The country’s fiscal deficit currently sits around 24% of GDP. What’s more, Venezuela’s economy is forecast to contract 8% this year, according to the IMF’s latest World Economic Outlook (WEO) report. That’s four times worse than the average rate of decline for South America as a whole. The country’s GDP is forecast to contract by a further 4.5% in 2017.
The IMF expects inflation in Venezuela to surpass 1,600% in 2017.
With oil prices staging a large recovery over the past two months, some market participants are hopeful that the Venezuelan economy will be able to slowly regain its footing. However, analysts warn that oil is not the answer, given that energy dependence has been a major reason behind the country’s deepening crisis.
US crude oil futures rose around 4% last week to settle at $48.41 a barrel. Brent crude also staged large gains last week to settle at $48.72 a barrel.
Power outages have begun to affect Venezuela’s oil production. According to analysts, Venezuela’s oil production is set to decline up to 200,000 barrels per day this year. Supply disruptions in the Latin American country, combined with disruptions in places like Canada and Nigeria, have supported the latest rally in oil prices.