Updated: Feb 15, 2021
Can there be two presidents in a country? Most of you will say no, but if you ask the people of Venezuela, they might beg to differ. Yes, you read it right; Venezuela has two presidents reigning together! They say that excess of anything is bad and that is very much evident in this country. This country ranks number one with having the greatest number of excessive things - corruption, crime, oil, money supply, inflation, poverty, and beautiful women. This should technically not happen.
Hello there, and welcome to my blog! Venezuela is a Latin American country situated in South America. Since 2013, Nicolas Maduro has been the Venezuelan president and thus he has the country’s assets under his command, however, in January 2019, Juan Guaido (the mean-opposition leader) declared himself the president of Venezuela, and was supported by 50 other nations, including the US. We will discuss this conflict further in the blog, however, let us look at the background of Venezuela.
Venezuela is famous for two things: it is the only country in the world with the highest oil reserves, surpassing Saudi Arabia, and secondly, its beautiful women like I mentioned earlier. Venezuela has the highest number of beauty pageant winners. In the last few years, Venezuela has become infamous for some aspects. It has been classified as the most miserable country in the world because of its extremely poor state; has defeated the poorest countries of Africa. And, it only continues to get poor every year. Furthermore, Caracas (capital of Venezuela) is known as the crime capital of the world. Finally, Venezuela is infamous for its high inflation rate. Typically, a country’s inflation rate is between 1%-5% for example, India’s inflation rate is 4%, America’s inflation rate is 2%, but the Venezuelan inflation rate is…1,000,000%! Is this real?! In economics, inflation is a general rise in the price level in an economy over a period of time. So, is it even possible that the prices of goods and services in a country rise by 1,000,000 units every year? In 2019, according to a CNBC report, the inflation rate of Venezuela touched 10 million percent.
If you were to buy something for 1 Bolivar (Venezuelan currency) then today that same product may cost you, 10 million Bolivars. This state of the country is due to hyperinflation. In economics, Hyperinflation is very high and typically accelerating inflation. Hyperinflation would only cause a country’s inflation rate to go up to 50%-60% at its max, however, with Venezuela, it is 10 million percent. 80% of the population has no constant food source. 90% of the population lives below the poverty line and the remaining 10% has migrated from the country already. The status of the country can be further discussed but it would make this blog too long.
The richest country became the poorest in one decade. Yes, in 2010, under the presidency of Hugo Chavez, Venezuela was soaring in its economics. So much so that it paid off its entire debt to the world bank in one go! The question then arises, how did the country with the highest oil reserves become the world’s poorest country? Let’s take a ride to 1999 when Hugo Chavez was declared the new president of Venezuela. And with his arrival, he was known as the lucky charm of Venezuela. As soon as he took over the presidency, the price of oil soared from $10 to $140! Yes, you are thinking right, Venezuela hit a LOTTERY! Chavez was a good human being and his one and only aim was the social welfare of the Venezuelan population. He started free health-check ups, subsidies on food and education and etc. While doing this, he was warned by economists to not over-spend but he believed in ‘making hay while the sun shines’, however he should have considered ‘saving it for a rainy day’. His confidence jumped over the thin boundary to over-confidence and while the oil price was at its peak, he repaid the World Bank debt in one shot.
Here we go to the Venezuelan destruction story, Chavez nationalized all the oil companies in Venezuela. In economics, nationalization is the process of transforming privately owned assets into public assets by bringing them under the public ownership of a national government or state. We all know what happens to companies under government management - they are plagued by corruption, mismanagement, bribery, fraud and etc. And yes, from this point onwards the Venezuelan economy saw a downfall. This was also because the Venezuelan economy depended on oil. 50% of the GDP was from oil, 95% of exports were also oil. And so, if the oil prices were high, then so were the standards of living. In 2013, when Maduro took over the presidency, he did not reduce the country’s expenditure in the thought that the oil prices will go up again. However, this did not happen, and hence, to neutralize the deficit, he committed the ultimate sin. He decided to print more currency.
There is a direct relationship between money supply and the level of prices. So an increase in money supply will increase the level of prices (inflation). The country kept on printing money, without realizing that goods and services available in the market were still the same. This is where poverty started because, with too much money and too few resources, there were auctions for basic necessities goods. Why can’t Venezuela use its oil reserves to cure this problem? This dates back to Sir Chavez’s nobility when he nationalized the companies. The country did not think of spending on machinery to extract oil when the oil prices were falling and so now they cannot drill out their oil.
This is the mysterious story of the world’s richest and poorest country. Please share it if you found it interesting!