Venezuela’s Economic Crisis: The Outcome of Decades of Mismanagement

Venezuela’s Economic Crisis: The Outcome of Decades of Mismanagement

By Ricardo Guanipa D’erizans
July 01, 2019

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For Venezuelan economy expert Ricardo Hausmann, director of the Center for International Development at Harvard University, and former chair of the International Monetary Fund-World Bank Development Committee, Venezuela is a unique case, as it exceeds the worst economic depressions in the world, in addition to the massive migration of more than 4 million citizens.

“The chaos in Venezuela is an event of historical magnitude, which has only happened in countries like Azerbaijan, Liberia, Libya,” Hausmann told Diálogo. “But within a context of civil wars or state decline.”

Venezuela is experiencing a large-scale economic crisis. In late May, the Venezuelan Central Bank published figures for the first time since 2015, evidencing the country’s economic situation and confirming the collapse of the Venezuelan economy.

According to these new statistics, inflation is out of control and exceeded 130,000 percent in 2018 — the highest mark in Venezuela’s recent history, but much less than the 929,000 percent the Central Bank estimated in 2018. Data showed a 52 percent contraction of the Gross Domestic Product between 2013 and 2018, which represents a decline of the Venezuelan economy by more than half in five years.

These numbers confirm that the Venezuelan economy has been spiraling downward for years. Other data show severe drop in oil exports from the country that depends on oil and has the largest oil reserves in the world, from $85 million in 2013 to $30 million in 2018 — when Nicolás Maduro took office. This demonstrates a decline that far precedes the first U.S. sanctions imposed in August 2017.

According to Hausmann, Venezuela was already perceived as an economically broke and bankrupt country. “The latest emission of Venezuelan debt bonds was launched by Maduro in May 2017, three months before the sanctions. Bonds were issued with an interest rate in dollars of 47 percent,” Hausmann said. “The only way to pay for those Venezuelan bonds was to starve the population. That’s why the United States prevented Maduro from continuing to have access to international financial markets so as to prevent him from continuing to indebt the country so irresponsibly.”

The collapse of the Venezuelan economy, Hausmann insists, came in 2013, specifically between 2004 and 2013 when oil price increases. Rather than save, the country allowed the oil boom to create greater national debt.

“Foreign public debt went from $25 billion to $160 billion,” Hausmann said. “This brutal increase in foreign debt made external markets refuse to loan to Venezuela in 2013, because it already had a huge debt. That’s how recession really started: Venezuela was already overly indebted.”

“We are in this crisis not because of the U.S. government’s sanctions. We are in this complex humanitarian crisis because of the economic mismanagement of a Cuban communist model, as well as high levels of corruption,” Lawrence Castro, a representative of the Venezuelan National Assembly and MERCOSUR’s parliamentary member, told Diálogo.

“At the National Assembly, the figures we work with represent dilapidated money, from this ill-fated revolution, of about $380 billion, which is pretty serious. Today, thanks to Interim President Juan Guaidó and the National Assembly, we were able to curb the theft occurring in several national companies from Nicolás Maduro, Iris Varela, Diosdado Cabello, Tareck El Aissami, Tarek William Saad, among others. The reality is that here corruption and the communist management of the [country’s] economy have been the reasons why we are going through such calamities.”