The Rise and Fall of Venezuela: Chapter 1

Oil has a very clear correlation with money. Just look at countries in the Middle East such as the UAE, Kuwait and Saudi Arabia etc. Blessed with extremely large reserves of oil, they have used this to their advantage by means of exports and trade deals to attain mind-boggling amounts of wealth. A life of luxury hotels, supercars, advanced technology, mansions, and buildings that quite literally touch the sky. 

Such was Venezuela. With access to just over 18% of the world's oil reserves, Venezuela housed the largest oil deposits in the world, helping them become one of the richest countries in the world after the overthrowing of their military dictatorship in 1958. Throughout the 1960s and '70s, the country grew exponentially richer as a result of this lucrative industry they stumbled upon and the trading opportunities. This was made even more beneficial for them when the prices of oil quadrupled during the '70s and international demand for the good shot up. 

Venezuela were making money at rates no country had ever seen before, and the oil just kept flowing. So where did it all go wrong?

Well, the fact that the country had huge oil deposits may have been a short term gain, though in the long run, was the start of a huge downfall. The country had become almost too reliant on oil for their wealth generation, and failed to diversify their economy i.e. other industries in Venezuela were not as strong or stable. Other countries such as the UAE and Norway, which also have high oil reserves, have managed to avoid this by investing into other industries such as tourism and hedge funds. This 'monopolisation' of a single industry in a country led to what economists coin the Dutch Disease. Because of the extreme weakness of other industries, the nation found themselves importing almost everything they needed, from food to cars to clothes, as opposed to developing them. This led to high levels of spending, which was done by using the money made from oil exports. 

This was exacerbated greatly by the economic and energy crisis during the late 1970s, in which the demand for oil globally reduced significantly, especially when oil prices were at their highest. The 1980s proved to be even more taxing on the country, where the price of a barrel of oil fell from $35 to $10 in only 6 years time ($110 to around $24 in today's money). 

Profits were a thing of the past. Money reserves were empty. The country was in a debt of almost $33 billion. In an act of desperation, they turned to heavy loaning, starting with the International Monetary Fund, or the IMF. To get an IMF loan, a country would have to follow a set of rules, involving deregulation, welfare cuts, and the privatisation of almost everything. A good example of the effects this had was when bus fares rose 30% overnight as a result of removed price controls. 

As you could probably imagine, the citizens of Venezuela were anything but pleased; early 1989 saw the people of the country take to the streets in mass rioting and protest. In response to this, police crackdowns and brutal retaliation resulted in the deaths of hundreds of civilians. 

The Venezuelan government thought in this situation it would be best to artificially increase the value of the Bolivar, their national currency. At the outset, this served well as it meant import charges were a lot cheaper. However, the local industries were unable to cope and compete with the international companies the country was importing from - not only were they already weak (as a result of Dutch Disease discussed earlier), they could not match the suddenly cheap prices. Middle and lower class citizens struggled greatly, further fraying the relation between the citizens and government. The rich, on the other hand, resorted to capital flight. This is where they could buy lots of US dollars with the new high-value Bolivar, and set up bank accounts in other countries to store the loot. 

As if the situation wasn't dire enough, the 1990s saw politicians become even more corrupt, as they took any profits and funds raised for their personal benefit rather than the stabilising of the country's economy. The poor got poorer; the rich got richer. There truly was no hope or scope for improvement. Everything seemed to be falling apart. 

In the next and final part of this blogpost, we'll be looking into the events of the late 1990s up until modern day, and explore the rule of a tyrant who would change the course of the country's history forever.