Venezuelan Crisis : What went wrong with the no.1 Oil reserver in the world?

At present Venezuela has the largest oil reserve capacity I.e 303 billion barrel oil reserve 18% of the total world’s oil reserve. There was a time when Venezuela was considered as one of the top 20 richest countries in the world. So what happened then? Why at present time it is among top 20 poorest countries in the world?

In 1999, Hugo Chavez became the president of Venezuela who was very kind hearted person and mostly focused on social welfare. From 1999 oil prices started rising and went up to $100 per barrel. Oil was the main source of income for Venezuela. Their 95% revenue was from the oil business.  Most of the revenue from the oil was used by the government in social welfare programmes. When they faced any crunch of money, they used to borrow it from Russia and China. As they were earning huge revenue from oil business, they didn’t face any difficulties in importing. In return China took oil less than the market price from Venezuela.

In 2013, after the death of Hugo Chavez, Nicolas Maduro became the president of Venezuela. After some time, oil prices started falling and thus the revenue of the govt. had gone down drastically as it was their main source of income. Earlier the govt. didn’t focused on finding any alternative source of income, nor developed their oil producing capability. All the revenue was engaged towards social programmes and providing subsidies to the people. The government was selling medicines and food items less than the manufacturing costs by providing subsidies. As the govt. was selling products at lower prices, the private companies started incurring huge losses, hence companies stopped the production of medicines and food items.

In case any shortage occurred, govt. imported it from other countries. But soon after incurring the losses the govt. found it difficult to import. This has resulted to food crisis in the country where people were not getting food to eat. And more than 50% medicines were not available.

After 2013, as the oil prices declined drastically country started facing economic crisis. The GDP growth became negative in the year 2014 i.e -3.8%, and in the year 2018 it further reduced to -19.6% and is continuously falling till date.

To meet the expenses, govt. started printing more and more currencies . A country can print more money only when  their production output and service output rises, but it was opposite in case of Venezuela, and they kept on printing the notes, which resulted in Hyper-Inflation. Inflation went to 800% in the year 2016. In the year 2018 it went upto 80,000% and further in the year 2019 inflation rose 3,80,000%. If we compare these rates with US and India, the rates were 0.3% & 4.5% respectively.

Bolivar is the currency of Venezuela. If we convert bolivar in US dollar, it was 1USD = 8 bolivars in the year 2010 which is currently 1USD= more than 20,000 bolivars. The shops in the country are not accepting their own currency and prefer dealing in Pesos and Dollars. Many people have also left the country and more are migrating to nearby countries. Overall the situation of the country is very bad.