What’s happening in Venezuela? The Venezuelan crisis step by step

For a few years now, we have been trying to avoid this post. We refrained from any articles to address the political, economic and social situation in Venezuela on purpose. We’re a Spanish school, this is blog about language, and we didn’t think that was our place. But when a Spanish-speaking country is faring so poorly that it caused a migration wave the UN already compares to the refugee crisis in the Mediterranean, we can’t stray from this painful, at times deeply personal, issue. To make this easier for every Hispanophile out there, we broke down the cause and effects of the Venezuelan crisis into 7 steps.

  1. Context

This is the ground zero of the Venezuelan crisis. To understand what is happening, we need to give you historical context. Venezuela was once amongst the richest countries in Latin America - it has the biggest proven oil reserves in the world, productive soil and minerals (such as gold). In fact, oil accounts for 96% of the Venezuelan GDP.

Venezuela was never a country of emigrants; on the contrary, it welcomed thousands of refugees after WWII. The political situation in the country was marked by periods of civil unrest and coups throughout the 80s, the 90s and 00s. In 1989, a wave of protests in Caracas became known as the ‘Caracazo’. An increasingly divided society issued in the following years.

In 1992, president-to-be Hugo Chávez and the army made a first attempt at a coup d’etat. They failed, but the government fell soon after in 1993. Finally, in 1998, Hugo Chávez won the elections with 56% of the popular vote.

  1. El Chavismo

When Chávez rose to power, he brought his ideologies and personality cult with him. He branded it “the socialism of the 21st century”, but it became widely known as “chavismo”. The “chavismo” is correlated with the “bolivarianismo”, which takes its name from Simón Bolivar, which fought for Venezuelan independence from Spain - so, in essence, Chávez pegged his image to that of a highly popular historical figure.

Even though Venezuela was a rich country by Latin-American standards, there was a huge inequality among classes. The poor, who lived in “barrios”, hardly made any profit with Venezuela’s extraordinary natural resources. Chávez sought to change this - he promised new schools, better medical treatment and a fairer, more equal society. But how?

First, Chávez made profound changes in Venezuela’s political system. Before 1998, Venezuela used to have a House and a Senate. In 1999, a Referendum approved a new constitution. When it came into place on 20th November 1999, Venezuela started to have a unicameral legislature.

Afterwards, Chávez nationalized several companies and centralized power in Caracas. With oil revenues, he also created a highly subsidised economy. For decades, Venezuela had the cheapest oil in the world - even the poorest could afford it at subsidised rates. Certain products could only be sold at regulated prices. He opened free schools and tried to improve life quality in Caracas’ slums.

Patria, Socialismo o Muerte - Homeland, Socialism or Death written on PDVSA facilities

  1. The 2002 coup

These measures were met with strong opposition. In 2001, strikes followed one another. In 2002, a protest in Caracas resulted in armed confrontation between Chavistas (those who supported the president) and the opposition. Chávez, the leader of the 1992 coup, was seized from power. However, the coup didn’t last. Just 3 days later, Chávez was back in power with the support of the army.

If society was already polarized, it became more so after the coup. Chávez’s government reacted quickly. It fired 18.000 employees from PDVSA, the country’s state-owned oil company - about 40% of its workforce - and put it under military control. Further controls were put in place, including strict currency controls. The goal was “preventing capital flight”.

Meanwhile, oil prices continued rising. With a non-stopping flow of foreign money, Chávez’s government took over 61$ billion from PDVSA and put in place several “missions” to improve living conditions among the country’s poorest, which renewed his popularity. Yet, no investment or effort was put into diversifying the economy. Venezuela imported everything with its oil dollars, and then those products where sold at highly subsidised rates.

Products sold at regulated prices, date unknown.

  1. New currency: the Bolívar Fuerte (BsF)

Following the currency controls in 2003, the bolívar began its downfall. To keep up with its programs and subsidies, the government devalued the bolívar at least 5 times, which disrupted the economy and decreased trust from foreign investors. The government maintained an artificial exchange rate which was not accepted anywhere else. People started exchanging bolivares for international, stable currencies (like the US dollar) on the black market.

Although 60% of Venezuela’s economy is still in private hands today, small business owners faced numerous challenges in the 00s. There was a limit to how much raw materials one could buy, which in turn limited sales - for example, many bakeries could not find enough flour to meet demand. A number of basic products had to be sold at regulated prices, which increased the popularity of alternative products. Rice, for example, was a regulated product; aromatized rice was not. Little by little, Venezuelans adapted to escape tight regulations.

Products with regulated prices (incl. oil) were much cheaper than in neighboring countries. So it didn’t take long before Venezuelans crossed the border to Colombia to sell their products for a much higher price to make money. As a result, in 2007, the inflation rate in Venezuela was soaring. Chávez took action: he cut 3 zeros from the old bolívar and created the new bolívar fuerte (“strong bolívar”). Turns out, the name could not be more deceiving.

In 2010, reports of human rights abuses in Venezuela began circulating worldwide. It was around this time that people began to flee in large numbers - especially those with higher education, which led the country to a brain drain. But as oil prices continued high, Chávez’s government was still able to keep up with many of the programs they had put in place. He was still popular enough to win elections for a 4th time in 2012, with 55% of the popular vote.

In the shadow of Hugo Chávez: Nicolás Maduro gives Dilma Rousseff, then president of Brazil, a portrait of Chávez.

  1. Death of Hugo Chávez

But Chávez’s already frail health got in the way of his plans. “El comandante” passed away in 2012, after 14 years in power. His legacy was undeniable: in 1998, Venezuela’s GDP was 97$ billion. In 2012, it was 371$ billion. Life expectancy had been 59.3 years, but it rose rapidly to 74.4 in 2012. His second in command, current president Nicolás Maduro, was elected in 2013 with 51% of the popular vote (against 49% for Capriles).

Political pundits agree that Maduro lacks his predecessor’s charisma or the ability to connect with the people of Venezuela. But there’s one more indicator of the regime’s decrease in popularity - for the first time since 1998, the opposition gained control of the Assembly.

Shortages at Central Madeirense, one of Venezuela’s main supermarket chains.

  1. Oil prices downfall

Just before Chávez’s death in 2012, Venezuelan oil would sell for 112$ a barrel (down from 147$ in 2008). But oil prices went down in 2013. Global growth decreased, which means there was less demand for energy. China, in particular, slowed down significantly. The trend would not reverse for years - at some point in 2016, Venezuelan oil sold for 56$ a barrel, exactly half the price. The GDP fell 42%.

The situation became even worse when production also fell. Since no money had been invested on infrastructure or maintenance, PDVSA’s output was a fraction than what it could be. (As of today, production is the lowest in 30 years, with one of the largest refineries working at 13% of its capacity. In June 2018, for the first time in its history, PDVSA had to import crude oil to meet demand.)

In a heartbeat, the economy collapsed. Businesses which could not compete with the imported products had closed a long time ago. Others had left the country, for fears of nationalization or lack of trust in the BsF. And without the oil money, Venezuelans could not afford to import products any longer. As soon as oil prices fell in 2013, shortages were rampant. Around 40% of essential goods were missing from shelves, a number that rose to 80% on regulated products in 2015. Crime rates rose, making Caracas the “murder capital of the world”.

Economists compare these shortages to those felt in Russia after the fall of the Soviet Union or in Albania, also after the fall of communism. Previously essential goods became commodities, while others could not be obtained at all. The shortages did not spare anyone - hospitals, schools, lower and middle class families. Power cuts became common-place to save money, and so did water cuts. Hospitals stopped purchasing medication or medical equipment.

Many Venezuelans searched for food in garbage bags and bins due to shortages.

  1. Hyperinflation in Venezuela

Shortages led to more inflation: when products did appear, their prices skyrocketed. To meet payment deadlines, the Venezuelan government resorted to printing money, which only devalued the bolívar. As a result of this deadly cocktail, the inflation was rising by three digits in 2015.

Human rights associations reported that most Venezuelans were malnourished and most could not afford to eat more than twice per day. An impressive 75% had lost weight unintentionally in the past year. Medicines for chronic illnesses like hemophilia, hypertension, hyperthyroidism or diabetes were impossible to find, even in hospitals. Drugs to treat cancer or immunosuppressants followed.

Infant mortality rose 30% in 2016 due to the malnourishment of young mothers and successive shortages of formula, medications and vaccines. There were outbreaks of diseases that had long been eradicated, such as malaria, diphtheria or measles. At this point, other countries deemed the situation a “humanitarian crisis”.

In desperation, many took to the streets to protest against the government. Others fled to neighboring Colombia and Brazil, while others crossed by land to destinations as far off as Peru, Ecuador, Santiago de Chile or Buenos Aires (Argentina). The United States and Europe (Spain, Portugal and Italy) also received thousands of Venezuelans trying to escape.

By then, inflation had reached four digits. As the bolívar fuerte plummeted, importing goods became increasingly expensive. The country officially entered in hyperinflation on November 2016. This was met by even tighter controls: regulated products could only be purchased once or twice a week on certain days (people were assigned days according to their ID cards) and food boxes (CLAP) were distributed once a month to the poor. Yet many products disappeared altogether, because regulated prices don’t even cover the costs.

In 2018, the IMF predicted inflation in Venezuela would reach 1 000 000%, something comparable to what happened in the Weimar Republic, in Hungary in 1946 and more recently in Zimbabwe 2009. On average, prices are doubling every 26 days. Around 2.3 million people had fled the oil-rich nation since 2016. Approximately 4 million left since 1999.

Venezuelans crossing by foot to Colombia.

  1. Petro & Bolívar Soberano

In August 2018, president Nicolás Maduro announced a brand new set of actions to recover Venezuela’s economy. Back in February, the government released the Petro, a cryptocurrency backed by the country’s oil and gold reserves. It’s worth roughly 60$, but it wasn’t well-received by investors worldwide.

Now, Maduro announced a new currency, the bolívar soberano. It will chop off 5 zeros of the old currency, the bolívar fuerte (that’s 8 zeros in 10 years, between the 2 presidents). But the difference is that this new bolívar soberano will be backed by the Petro: 1 Petro equals to 3,600 bolívares soberanos. This is effectively a 95% devaluation of the Venezuelan currency, which will affect imports and exports.

Speculation led Venezuelans to stock up in food before the currency change, while thousands took to Ecuador and Peru on foot. In turn, both countries (Ecuador and Peru) announced they would change their requirements to enter the country. Whereas before Venezuelans could enter just with their ID cards, now they will need passports - which are hard to get, because the country can’t deal with the amount of passport requests.

Thousands of Venezuelans rushed to the border before regulations changed. But the UN came forward urging regional powers to receive fleeing Venezuelans, comparing it to the Mediterranean refugee crisis. While in Ecuador a court has halted the process, Peru is now giving fleeing Venezuelans refugee status, asylum or humanitarian visas.

Hopefully, you can now understand why thousands of Venezuelans are leaving their homes with little more than the clothes they have on. This is already the biggest migration crisis in South America, and it does not show any signs of stopping.