People are dying of hunger in Venezuela

The government's fixing of food prices does not allow farmers to meet their production costs. So they have progressively stopped producing.

Demonstration against President Nicolás Maduro on April 20 in Caracas. / Juan Barreto/AFP

Juan-Carlos Dorado, an economist with financial services company Natixis, explains Venezuela's economic problems to La Croix.

Twenty people have been killed in riots in Venezuela in the space of three weeks. What is the economic situation there?

Juan-Carlos Dorado: Very serious. Venezuela's intention to meet the payments on its external debt has resulted in an unprecedented contraction of imports.

Yet, more than 95% of the country's daily consumption is imported because the government has fixed the prices of food products at a level which does not allow farmers to meet their production costs. So they have progressively stopped producing.

The salaries fixed by the government have failed to increase at the same rate as inflation, which is 800% per year. People can no longer afford to buy basic products. They are literally dying of hunger.

A payment default in inevitable. The government has been able to honor its debt payments until now essentially thanks to China and Russia. However, it still faces important payment deadlines.

Bonds issued by the state oil company, PDVSA, arrive at maturity in October and November. Yet Venezuela's reserves have been reduced by three-quarters or at least ten billion euros. And China is increasingly reticent to financially support the government.

How did this situation come about?

J-CD: When Hugo Chavez came to power in 1999, he gambled everything on his policy of social assistance. The manna of oil revenue was extremely important to this approach and the government somehow "forgot" to diversity the economy.

Then, the price per barrel plunged from $US147 to $US50 while the government failed to invest in increased oil production, which dropped from three to two million barrels a day.

Moreover, the businesses that Hugo Chavez nationalized in nearly every sector became inefficient and were undermined by corruption.

How might the situation develop now?

J-CD: The answer is essentially political. Venezuela has an authoritarian government. A few military leaders hold all power. Economic instability has caused increasingly strong social protests.

The dissolution of the National Assembly by the Maduro government led to very strong internal pressures. Most countries of the Organization of American States are pressing it to hold elections. This double pressure leaves room to hope for change.