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Brian_Ghilliotti's avatar

What are the roots of Venezuela's economic issues?

Asked by Brian_Ghilliotti (328points) April 20th, 2017 from iPhone

Part of it has to do with expensive price controls, which in the long run hurt businesses by discouraging businesses from producing products that are subjected to price controls. Also, the decline in the value oil has made the process of implementing price controls more costly for the government due to declining oil revenues. A possibile increase in the value of the dollar has forced the Venezuelan government to possibly issue more of its own currency to obtain US dollars to support its oil trade. This creates inflation. Price controls have also discouraged the development of other industries Venezuela could use to sustain economic vitality during periods of weak oil markets. These are some of the reasons I can think of that are causing Venezuela’s economic problems.

Brian Ghilliotti

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6 Answers

elbanditoroso's avatar

At least two major causes, one of which you mentioned above.

1) maduro’s predecessor, Hugo Chavez, made the government and society into a socialist state. As any student of history knows, socialism fails. It is an unsustainable economic system that eventually falters of its own structure. Chavez was not stupid, but he was power-hungry, and he thought that an all-powerful socialist government would keep him in power. He didn’t count on getting sit and dying.

Part of his socialist agenda was to expropriate industry, farmland – basically any and every means of making money in Venezuela came under government control. Well, that, in turn cause smart people to free, and businesses to close. Foreign investment in venezuela dried up because foreign companies couldn’t make any money and whatever they did make was denominated in the failing bolivar instead of dollars.

That in turn led to rampant inflation since the bolivar is essentially worthless.

2) Chavez and Maduro might have survived if oil prices had stayed high. But when oil prices fell, their national income – which was supporting the socialist state – dried up. No money to buy food and no money to subsidize gas. And so on.

So the socialist economy, having taken over any means of producing income and investment, and with no external means of funding (i.e. oil) fails in a spectacular way.

3) The icing on the cake is that as part of the failure of socialism, Maduro essentially turned the country into a dictatorship, taking over the parliament and trying to take over the courts.

Tropical_Willie's avatar

The thing is the economy there is based on oil and gold, and they don’t control the world’s pricing. They currently have over 20 % unemployment. With runaway inflation.

Brian_Ghilliotti's avatar

Thanks for these answers, please keep them coming. Another variable to consider is the value of the dollar, which has been growing in strength for many reasons.

Please see:

As the world becomes more unstable due to US regime change subversion efforts around the world, investors will want to continue to use it as a haven during periods of instability. This will continue, and offset some of the inflationary effects of over printing, as the Federal Reserve would like to do.

The impact of this on Venezuela is that it will need to print more of its currency to obtain the dollars it needs to carry out international oil transactions. This in the face of declining oil revenues, declining oil values, and poor economic policies of the regime. So it will need to do its own currency printing, which generates inflation.

So far, none of these answers considers the reality that the United States would like, and is actively pursuing, the destruction of the so called Socialist regime. Even if replaced, I do not think the next regime will do any better.

The first thing it could do is get out of the global reserve currency (US dollars) trading system.

Brian Ghilliotti

Zaku's avatar

I don’t know the specific details for Venezuela, but I would look first to multinational corporations doing their usual hit & run – send in economic advisors to suggest that their economy will blossom into a “first-world” economy by improving their infrastructure. Offer a “deal” that their “expert economists” estimate will pay for itself via their blossoming economy: have a bunch of infrastructure development done by multi-national corporations, paid for with a huge loan from the World Bank, and possibly some natural resources concessions (and maybe some other bribes/incentives for the people in charge). But guess what? Improving the infrastructure doesn’t actually lead to a blossoming economy – it mainly leads to a huge debt to the World Bank the money for which is paid to the multi-national corporations. So the country is saddled with massive debt to the World Bank, which is used as leverage to get more and more rights to the natural resources on unfavorable terms, more corruption, etc.

IIRC Chavez was one of the few to reject that situation without getting quietly removed from power or immediately assassinated.

cazzie's avatar

Chavez wasn’t just socialist, but he was an isolationist and it wasn’t a democratic socialism he practised, but he claimed himself leader for life and went overboard, essentially putting in so many protectionist systems, like the price controls. He could have made the oil state run, but still worked with the rest of the international economic community, but because he fundamentally disagreed with ideology of the international economic community, he decided to ignore and piss them off, instead. Then, he died and his ideology has crippled his country.

rojo's avatar

Mostly income disparity and class struggle. The rich get richer, the poor get dead until the poor get tired of it and take after the rich.

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