The Human Cost of the Venezuelan Economic Crisis

Published by Caitlyn Hart on

Venezuela is in the midst of the worst economic crisis in the country’s history and the human cost of the crisis can be seen at every street corner. In what used to be one of Latin America’s wealthiest countries, people’s lives have been reduced to one of desperation, as they are regularly going without food, running water and electricity. The Government has declared a state of emergency, with food now being transported under armed guard, and basic necessities being rationed.

As a result of the dysfunctional economy, due to mismanagement and meddling of the government, the Latin American state is in the grip of a humanitarian crisis. There are chronic shortages of food and medicine. Three-quarters of Venezuelans have lost an average of 11 kilograms of body weight in the past few years.

David González (not his real name), told The Guardian, how he had to swallow his pride and sign up for a monthly box of subsidised food sold by the government for about $1. He said: “I didn’t want to be part of that scheme. But I had to change my decision, to literally not die of hunger.”

For many that is simply because food is too expensive. Nine out of ten homes can’t cover the cost of what they should eat as prices are doubling every few days. What one might pay for something as simple as corn meal can cost half the average monthly salary, which is 15,000 bolivars or $0.060.

Acute malnutrition in children has now hit a shocking 16% – which is more than triple the World Health Organisation’s threshold. Caritas, an international confederation of over 160 members, help deliver assistance when a crisis hits. To date Caritas has assessed more than 15,000 children in Venezuela, with 65% showing signs of malnutrition.

The food packages that the government sells at regulated prices only reach around 12.6 million people – a little more than a third of the 31 million population. In a 2017 survey on Life Conditions of Venezuelans, conducted by researchers in the country, more than eight million Venezuelans eat two or more meals a day, which means 61.2% of Venezuelans are going to sleep on an empty stomach. The Health Observatory in 2016, reported that 29 children were dying every day from nutrition-related issues and an increased number were being hospitalised for more severe symptoms of malnutrition – emaciation and diarrhoea.

Yusmarely Acuna, a mother of three, told Caritas: “I don’t have enough to give them three meals a day. I try and feed them at eleven or noon so they’ve eaten before they go to school and then again at seven or eight, so they go to bed with dinner.”

In March, Doctors for Health, a network of medical residents working in public hospitals all over Venezuela, reported results from a survey of 130 public hospitals in 19 states. They found that 44%of operating rooms were not operational, and 60 % of routinely stocked medicines or medical supplies were entirely or partially unavailable in hospitals.mUnder international human rights law, governments have a core obligation to ensure that these medicines are available and accessible to all without discrimination.

This is at a time when doctors are needed more than ever, but healthcare staff, including 20 percent of doctors, have joined the exodus of 2.3 million Venezuelans leaving the nation. Venezuelans, who seek medical treatment from a hospital in their own country, face grim conditions. Doctors, who have remained in the country, are regularly forced to operate using their phones for light because surgical lamps no longer work.

In response to a severe drought in 2016 that sharply limited the generating capacity of the country’s hydroelectric dam, the government began rationing water and electricity. What was supposed to last for four hours a day for a few weeks in 2016 has remained in place to this day, plunging western states into darkness. The outages, which are supposed to last four hours have apparently lasted up to 14 hours some days.

Crumbling infrastructure and lack of investment have hit Venezuela’s power supply and water services for years. In a country that used to be one of Latin America’s most wealthy, people are reduced to filling up water containers in the street from one of the few working pipes and carting it home.

What has caused the Economic Crisis?

According to figures by the International Monetary Fund’s (IMF) latest projections, Venezuela has the world’s worst negative growth rate at -15%, and the worst annual inflation rate of 83,000% calculated in July 2018, which is expected to reach 1 million percent by the end of 2018. The unemployment rate is expected to rise to around 40% in the next few years.

Hyper-inflation can be seen at every bank throughout Venezuela. People are queuing in a cash point queue from hell, where your money is worth less than when you joined the queue. And when you get to the front, all you can withdraw is the equivalent of 12 pence. People are becoming more and more desperate to get their money out of the bank and spend it, before it becomes completely worthless, because prices are doubling every few days.

In case all that wasn’t bad enough, its currency, going by black market rates, has lost 99% of its value since the start of 2012. It’s meant that a run on the currency has turned into a chaotic scramble for survival, it’s what you call a complete social and economic meltdown.

Because it has so much oil, Venezuela has never bothered to produce anything else. Oil revenues account for around 95% of the country’s earnings. However, when oil prices plunged in 2014, to around $50 a barrel, Venezuela was faced with a shortfall in foreign currency.

This in turn made it difficult to import goods at the same level as before, thus resulting in imported goods becoming scarce. As a result businesses increased prices and inflation rose. When you add that together with the government’s willingness to print extra money and regularly increase the minimum wage, in an effort to regain popularity with Venezuela’s poor, you get money which loses its worth rapidly.

The government, under former president Hugo Chavez, wanted to create a socialist paradise, an ideology that has been reinforced by his successor Maduro, following his death in 2013. When the global price of oil was high, between 2005 and 2014, oil profits were redistributed into welfare programmes and house building for the poor, in order for Chavez to achieve this social paradise. For a while it was successful as poverty fell by 30%, unemployment rates were halved, and infant mortality sank.

With profits from oil shrinking, there was no more cash to spend on public welfare and the prospect of a turnaround was bleak given that Chavez had replaced experts in oil production with people loyal to him who essentially financially mismanaged the country’s oil assets. As a result of the mismanagement oil production fell 25% between 1999 and 2013. It has since taken another plunge, to below 1.6 million barrels per day in 2018, which is a reduction of 35% since 2015.

At the root of this economic crisis is the government’s need to consolidate their grip on power. They weren’t content to control the oil business, they wanted to control every business and as a result they nationalised more than 1,200 private companies during Chavez’ rule.

The Venezuelan government has since tried to stop the runaway inflation, that’s resulted from the extra money printing, by forcing companies to sell products for lower prices than they want. The issue here is that no company wants sell things for less than they cost, resulting in businesses leaving their shelves unstocked. The government, hoping to incentivise companies to restock their shelves, has subsidised, a selected number of businesses, by selling them dollars well below the market rates. However, it’s not working as shelves are remaining un-stocked. So, I guess your asking why?

Think about it like this, these companies can either use the $169 the government has given you to buy imported goods, such as milk for say $3 from overseas – that you are only allowed to sell for $2 at home – or you could just sell it for $169 on the black market. In the simplest of terms, it’s not profitable for unsubsidized companies to stock their shelves, but neither is it profitable for subsidized ones to do so when they can just sell their dollars for more than they can resell imported goods.

The government, as well as subsidising companies, have on the 20th of August 2018 issued a new currency knocking five zeros off the old “strong bolivar” currency and naming it the “sovereign bolivar”.  The new currency is part of an economic package of measures, which the government says will help Venezuela’s crippled economy recover. Among these measures are; raising the minimum wage to 34 times its previous level, tying the new sovereign bolivar to the ‘petro’ – a cryptocurrency that is said to be linked to Venezuela’s oil reserves, raising VAT by 4% bringing it to 16% all together, and limiting Venezuela’s fuel subsidies – for those not in possession of a ‘Fatherland ID’ – a government-issued identity card introduced by Maduro’s administration in 2017.

Limiting fuel subsidies means that Venezuela’s fuel prices will rise. Like most oil rich countries Venezuela offers its citizens petrol at well below the international level, but according to Maduro, Venezuelans who have registered and have been issued the ‘Fatherland ID’, will continue to receive fuel at subsidised prices for two more years and only those without ‘Fatherland ID’ will have to pay for fuel at international prices.

However, no matter what the current government does to try and stop their ship from sinking it’s not working. The recent issue of a new currency was supposed to elevate the strain of the economic crisis, but new or old, Venezuela’s money is barely worth the paper it’s printed on. Its only value now is as a childhood distraction from the deprivation of a country that has sunk into an economic abyss.


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