The situation in Venezuela has been steadily worsening and is perhaps one of the most serious crises in the 21st century. All socio-economic indicators point to a serious crisis. GDP is has halved since 2013, putting tremendous pressure on the people of Venezuela. After hovering in the 4 digit territory for some time, inflation is expected to touch 1 million percent this year. What is happening in Venezuela?
The origin of this crisis can be traced back unsustainable external debt. Venezuela is a major oil producing country. While oil prices were going up, the debt seemed to be economically viable. However, ever since oil prices started falling, Venezuela was slowly plunged into a crisis. After defaulting on its external debt, raising new funds and rolling over debt have become extremely difficult. As the government started printing money in order help push the economy, inflation was an outcome. Capital account controls and US sanctions have amplified the various pressures in the economy. In an effort to manage their currency, the government launched its own cryptocurrency. These efforts have proved to be insufficient to restore investor confidence and attract investments.
In an effort to gather international support, Venezuela has reached out to Russia and China. Both of them have been willing to support Venezuela and prevent the situation from deteriorating further. After visiting Beijing, President Maduro was able to persuade China to lend $5 billion. While oil prices have recovered of late, the situation in Venezuela hasn’t improved as oil production has continued to decline reaching production levels lower than those in the late 1990s. Several internal pressures prevent the government and the state owned oil company from realizing the benefits of rising oil prices. As oil is subsidized within the economy, with significant domestic consumption, it appears as a cost centre. A significant part of the remaining production is given to Russia and China as a part of their debt arrangement.
Its inability to raise foreign capital has put pressure on its reserves. In order to ease its balance of payment pressures, imports have been significantly cut. This has led to shortage and scarcity of basics such as food and medicines. Combined with an expansionary monetary policy, inflation continues to sky rocket. With severe shortages, black markets have appeared to bridge gaps. However, goods in these markets are sold at extremely high prices, making it unaffordable to bulk of the population. These shortages have had a painful impact on the lives of citizens. It its estimated that 87% of the households have been plunged into poverty. Citizens have been losing weight as their food intake has reduced. Nearly a third of the population eats less than 2 meals a day. Some news reports suggest that citizens have been breaking into zoos in search of animal meat.
This has also had an impact on the health of the people. There has been a spoke in the infant death rates and maternal mortality rates. In ability to access medicines has impacted patients dependent on regular medications. The worsening situation has forced people to migrate to other countries. According to the UN, nearly 2.3 million people have fled Venezuela since 2015. Colombia, the neighbour to the south west, has seen an inflow of nearly 1 million people. Peru, Ecuador, Brazil, Argentina and countries in North America have been destinations where people are migrating to. As people don’t have enough money, many are known to have walked for days to reach their destination. There has been significant help from the international community with over $150 million being mobilized by the United States and EU. The UNHRC and other organs of the UN have been working with governments to help ease pressures of these flows.
Such large inflows have thrown up significant challenges for the governments. There is increased pressure on education and health facilities in regions with huge migrant inflows. The governments and locals have been sympathetic to the migrants and have accommodated them in their countries despite pressures on scarce resources. Governments also making arrangements to help assimilate migrants into their countries. The Colombian government has issued work visas to nearly half a million migrants, helping them get jobs and earn a living. In Chile, the government has issued special visas allowing Venezuelan migrants to work. Other governments have also taken positive measures to help migrants find jobs and settle down, giving them a shot at a ‘normal’ life.
There is no easy solution to this crisis. It would require significant effort and measures at various levels before things go back to ‘normal’ in Venezuela.
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