The State of the Venezuelan Economy

For those of you who may not know, Venezuela is in the midst of a massive economic crisis that is leaving people without basic necessities. Inflation is expected to reach 720%, up from 275% at the end of 2015. GDP has been contracting since 2014. Drought has left the government to rationing out water, and because Venezuela relies on hydroelectric dams to produce much of its energy, the drought has caused power shortages. The government has been running huge budget deficits on social programs that they can no longer afford, as high as 29% of its GDP in 2014. Unemployment is at 17%, and is expected to only get bigger.

So, how did Venezuela get here? The most immediate answer is the decline of the price of oil, which accounts for a large majority of Venezuela’s exports and plurality of the government revenues. The Venezuelan government was able to spend lavishly on its programs because the high price of oil brought in a lot of revenue. When the price of oil dropped, the government found itself in a hole that it could no longer dig itself out of.

However, to say that the falling price of oil is the sole reason for its economic woes ignores a large part of the picture. The far-left economic policies of Hugo Chavez, the President of Venezuela from 1999 to 2013, play a huge role in the economic quagmire the Venezuela is dealing with. In my next post, I’ll examine what these policies were, and how they led to the economic crisis we see today.

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