Venezuela: A Cautionary Tale
June 17, 2022
Hugo Chavez rose to power in Venezuela two decades ago on the promises of socialist reforms improving the lives of average Venezuelans. After two decades of broken promises, Venezuela is now facing a serious hyperinflation crisis, which is partly responsible for the fact that as of 2019, according to Andrés Bello Catholic University in Caracas, 96% of Venezuelans live under the poverty line.
Mo Money, Mo Problems:
The Country has taken to redenominating its currency everytime exchange rates have gotten out of hand to ease transactions, but this is not a real solution. First, in 2008, after the Bolivar, Venezuela’s currency, reached an exchange rate of 2,150 to one U.S. Dollar, the country replaced it with an exchange rate of 1,000 to one. Its successor was anything but stronger, despite being ironically named the “Bolivar Fuerte,” meaning “Strong Bolivar,” in Spanish. Over ten years, the new currency faced serious inflation too, leading to its own replacement, at a rate of 100,000 to one, in 2018. The Fuerte’s successor, the “Bolivar Soberano,” or “Sovereign Bolivar,” lasted only three years until 2021. In that time, hyperinflation became so severe, denominations, which had started as low as two Bolivares Soberano, had reached the 1,000,000 mark. Finally in 2021, the most recent redenomination of currency occurred, at a rate of 1,000,000 to one. Currently, this new currency, named “Bolivar Digital,” despite no aspects of its physical paper currency being digital, shows no sign of fixing the country’s problems.
Hyperinflation has led many Venezuelans to flee the country for neighbors like Columbia. Since the currency is so unstable, at one point facing ten million percent inflation according to the IMF, there has been a growing shift towards using the United States Dollar for transactions. Bloomberg’s Nicolle Yapur reports 60% of transactions now occur in the dollar, which negatively impacts the government’s ability to regulate the economy. Unrest inside Venezuela has gotten progressively worse, with World Population Review ranking Venezuela as having the worst crime rate in the world. Quality of life in Venezuela, considering its aforementioned poverty rate, is devastating. In January of this year, NPR reported on how the economic crisis is shattering this generation of Venezuelan youth. Specifically noted, a May 2021 survey from Caritas Venezuela, finding 42% of youth measurements taken on poor neighborhoods in the country showed signs of wasting and stunting. Analysts point to the economic policies of the country and land redistribution programs as causes of food shortages.
The United States, while providing humanitarian support to the people, is attempting to isolate the government. Recently, the U.S. refused to invite Venezuela to an Americas summit they are hosting. The State Department has made clear they do not recognize Nicolas Maduro, Chavez’s right hand man, as the leader of Venezuela, choosing to accept Juan Guaido, an anti-Maduro politician instead. It seems difficult to imagine a feasible solution to this crisis as long as, under an authoritarian government like this, there are no reasons for foreigners to bring investment and resources.