By D. W .G. Kalani Tharanga, JadeTimes News
Venezuela’s deeply troubled economy has emerged as a central issue in the upcoming presidential election, with President Nicolás Maduro striving to persuade voters that the country is on a path to recovery after years of turmoil. Thanks to recent measures aimed at reducing the cost of living, the economic outlook appears slightly improved. Notably, Venezuela bid farewell to the hyperinflation that saw prices soar by more than 400,000% annually in 2019. While annual inflation remains high at around 50%, it is significantly more manageable.
Maduro has been eager to claim credit for this improvement, arguing that it demonstrates the effectiveness of his policies. However, these policies have not addressed the fundamental structural issues plaguing the economy, particularly its historic over reliance on oil. As the US Council on Foreign Relations points out, oil has subjected Venezuela to a volatile boom and bust cycle since its discovery in the 1920s.
A Shift in Leadership, Hope for Economic Revival
Opponents of President Maduro are advocating for an economic revival through a change in leadership, with electoral rival Edmundo González offering a vision of a new beginning. Jason Tuvey, deputy chief emerging markets economist at Capital Economics, suggests that an opposition victory could lead to renewed international trade and financial relations. This shift could also result in the lifting of US economic sanctions, which were imposed following Maduro’s widely criticized 2018 re election. These sanctions have hampered the state run oil company PDVSA's ability to sell crude oil internationally, forcing it to rely on black market transactions at steep discounts.
However, reversing the economic decline of the past decade will be a formidable challenge. Tuvey emphasizes that significant investment is needed to boost oil production, especially with peak oil demand on the horizon. He asserts that Venezuela's economy will essentially be starting from scratch, unable to return to its previous heights of 15 to 20 years ago.
Legacy of the Bolivarian Revolution and Economic Inequality
The 25 year old Bolivarian Revolution, initiated by the late President Hugo Chávez, promised numerous reforms but failed to diversify the economy beyond oil. Instead of fostering a broad based economy, both Chávez and Maduro exploited PDVSA's funds to finance social programs, neglecting necessary investments in oil production. This mismanagement, compounded by US sanctions, has led to a significant drop in oil output.
Economic hardship has driven over 7.7 million Venezuelans to flee the country in search of better opportunities. For those remaining, some improvements are visible. An informal dollarization has stabilized the economy, with US dollars becoming the preferred currency for retail transactions. However, this has created a two tier economy where those paid in bolívars feel increasingly marginalized. High profile events, such as Colombian reggaeton star Karol G’s sold out concerts in Caracas, highlight this disparity, with ticket prices far out of reach for the majority earning less than $100 a month.
The Road Ahead, Debt, Sanctions, and Recovery
Venezuela faces substantial challenges in addressing its massive foreign debt, estimated at $150 billion. The country has been in partial default since 2017, and promises of debt restructuring by Maduro have yet to materialize. The legitimacy of any future debt negotiations hinges on the outcome of the election, as the US does not recognize Maduro’s presidency post 2018. Bruno Gennari, emerging markets strategist at KNG Securities, notes that a leader acceptable to Washington is crucial for a US approved debt restructuring to proceed.
Venezuela, once the wealthiest country in South America, stands at a pivotal juncture. The election outcome could either pave the way for a complex recovery process or prolong the current economic struggles. Regardless of the result, the nation’s days of economic glory are firmly in the past, and any path to stability will require addressing deep seated structural issues and restoring international trust.
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