When we think of Latin America, one might think of the endless possibilities to experience a culture which has drastically evolved over the centuries. A culture which has erected monuments that have withstood the test of time, engineering marvels. One might think of the splendid colonial buildings which were built with the sweat and blood of native people. Latin America is a culture which is a testament to our capacity, over decades, to blend vastly different views of the world. Nowadays we can observe within a single structure the history of Latin American culture. Latin America has however also been plagued by mismanagement of public finances alongside its various dictatorships set up by the United States during the Cold War. In recent times, one country which used to be a close and wealthy US ally has taken a U-turn. This country is Venezuela, and unlike the other dictatorships that have plagued Latin America, Venezuela is one which has proclaimed socialism as an ideal social model. We will look into the history of Venezuela and try to understand the formation of this government and why we are now seeing a unique financial and humanitarian crisis.

Let’s first look at the state of Venezuela in 2018. You will see long lines in front of government-run grocery stores of people hungrily waiting to find the bare necessities to survive. Indeed, Venezuelans have lost on average more than eight kilograms during what is now with humor called the “Maduro diet“. You will see a woman pulling out her right breast to show the extent of damage which her cancer has inflicted on her. A cancer which was not life-threatening assuming treatment was available. Venezuelans now also need to worry about what we might consider a trivial ailment, as even the most elementary medicine is scarce to the average population. In 2017 the “mother of all marches” was on the streets of Caracas the capital of Venezuela, a protest fueled by despair. The government of President Maduro has struggled to keep the protests at bay, and nowadays halfway through 2018, you might think he managed. The reality is that angry Venezuelans who would have attended these marches simply cannot afford to do so. In the face of severe shortages of essential supplies including water, the military has now taken a habit to hijack trucks transporting potable water and supplying themselves alongside with members of the government. Now the military has control of key water provisions around the capital further strangling people.

You might not believe me when I tell you that Venezuela was once the richest country in Latin America, that with less than thirty million people and flaunted the fourth highest GDP per capita in 1960. The wealth was gathered by an oil empire developed by foreign companies starting from 1910, a source of inequality and anger amongst the locals. José Rafael Pocaterra a Venezuelan journalist called them the “New Spaniards”. Nowadays Venezuela has the largest proven oil reserves despite being only the eleventh largest oil producer with a shy 1.97 million barrels a day and is the only oil-producing economy expected to have shrinking GDP, indeed by some 6.7% at the end of 2018. Maduro and Chavez (and their predecessors) have not managed to diversify the Venezuelan economy out of oil even despite Maduro’s little bird flying over his head and historical evidence of social pressures being created out of a petrostate. Venezuelan exports were centered on oil at a 98% level at the time of the oil price drop starting in 2014. The crude petrol price drop from $90 in mid-2014 to $36 in January 2016 catastrophically affecting Venezuela’s capacity to fund its various social programs and much-needed imports due to a dramatically underperforming agriculture. Along the oil price drop, the Venezuelan economy has tanked in tandem. The Venezuelan crisis is however significantly more complex than this simple bijection, as it is not the first time that such an oil price crash impacts the country, recall 1980. The concept of Dutch disease can be accurately used to describe part of the turmoil which has struck Venezuela. There is, however, a key difference in contrast to the past, the structure of the government and its ideology based economics. I will further explain this with the appropriate historical context.

Venezuela, like most Latin American nations, had an economy mainly based on agriculture which was modernized under the colonial era. This primary industry was a core economic fuel sustaining the newly independent Venezuela. The Spanish-American movements for independence were sparked by the collapse of the Spanish Monarchy after it was taken over by Emperor Napoleon Bonaparte of France. The process of independence for Venezuela (along with Columbia and Ecuador) started in 1810 and was lead by Simon Bolivar, a national symbol. Nowadays the official name of the nation is the Bolivarian Republic of Venezuela and its (soon to be extinct due to rampant inflation where a cup of coffee now costs a million Bolivars starting from 28th June 2018 which a year ago cost 450 Bolivars) currency the Bolivar. Over the decades, Venezuela has experienced severe political instability with various dictatorships and government overthrows. Over this period of time, the Venezuelan government had accumulated significant debt owed to western powers. In the time of President/Dictator Juan Vincente Gomez, a military strongman, he took advantage of this debt to give concessions to foreign oil companies in order to exploit the large oil resources. Using the revenues he managed to strongly reduce the national debt level, fund infrastructure investment and as one may expect, greatly increase his personal wealth. As such, the beginning of a renewed anger towards western powers and their new form of colonialism was developing. One key reason for that was the increasing levels of inequality at the time, where only a few elites working in the oil industry would see the benefits of this financial ascension. Let’s look into this period which is a foundation or rather the justification for much of the ideologies sported by President Hugo Chavez, the father of today’s Venezuela.

The ascent of oil money in Venezuela increased inequalities in the country and deepened the crevasse between social classes. This is the end product of what is called Dutch Disease. Venezuela became a key player in world oil exports. The industry was so profitable in contrast to other sectors, that oil exports constituted the quasi-totality of government revenues. This policy of mass exports, however, lead to a currency appreciation. The impact of this is disastrous, indeed exports become more expensive leading industries within Venezuela to become uncompetitive, even locally. Imports become increasingly advantageous for locals forcing core, production-based industries to shrink and potentially collapse. This economic cocktail also gives the bitter taste of heavy inflation where basic goods become hard to afford due to a buildup of reserves. Adding to the issue of a new oil-based culture, the government of Gomez failed to allow the spoils from natural resources to trickle down to the lower classes. Despite pharaonic infrastructure projects and decreases in debt levels, much of Venezuelans were still poor and illiterate. What his government however achieved was to put in place strong property laws and welcomed wholeheartedly foreign investments and immigration.

After the death of Gomez in 1935, while still in power, much of the same economic policies were followed under both dictatorships (however much less harsh) and a three year attempt at democracy called El Trienio Adeco which was started with a coup d’état in 1945 and ended by another coup in 1948 from where stemmed a new dictatorship eventually under Marcos Perez Jimenez. One example of the social divide was under the dictatorship of General Lopez Contreras, heir to Gomez where countrywide strikes in the oil industry paralyzed production. Lopez forced the laborers to return to work by using the army. Following the unrest, oil companies attempted to improve the living conditions of its workers following the standstill. Venezuela at the time of Perez was a strong US ally, with a laissez-faire approach to the economy. The dictator allowed US oil firms to settle in Venezuela and further exploit its natural resources whilst ensuring he would take part of the benefits. This support of American companies allowed him to be awarded the Legion of Merit by the United States. During Perez’s violent and murderous regime (1952-1958) where political freedom was scarce, pretentious displays of wealth were taken on with the benefits of oil, in particular, various elegant and opulent structures were built which had little public benefit. Throughout this time, Venezuela was a land of open markets and no price controls which allowed for a “natural” economy, one which however was highly polarized financially. This regime of great inequality further sowed the bases for a socialist uprising, the one Venezuelans live in today.

The Perez regime fell after a military coup along with the support of protests in Caracas which left at least 300 dead. Perez fled the country with much of the treasury, leaving the country to rebuild its reserves. The governments that followed up until Hugo Chavez upheld a democratic tradition. During this time, socialist ideals ingrained themselves in Venezuelan society, ideals where the motivations were not unfounded, but the lessons of history hastily forgotten. This new discontent leads to the rise of Hugo Chavez and the economically unsound policies he put in place along with his successor, the current President Nicolas Maduro.

Sources in order of appearance:

2018 New York Times: I Give and You Give: Venezuela’s Leader Dangles Food for Votes: https://www.nytimes.com/2018/05/18/world/americas/venezuela-election-president-maduro-food.html

2017 The Atlantic: In Venezuela, the ‘Mother of all Marches’: https://www.theatlantic.com/photo/2017/04/in-venezuela-the-mother-of-all-marches/523725/

2017 CNN : UN: Venezuelan protesters endure excessive force, other rights violations: https://edition.cnn.com/2017/08/08/americas/venezuela-unrest/index.html

2018 Bloomberg: The Army Took Over the Spigots, Forcing Thirsty Venezuelans to Pay : https://www.bloomberg.com/news/features/2018-06-25/thirsty-venezuelans-forced-to-pay-for-water-as-army-takes-over

: https://www.bloomberg.com/news/features/2018-06-25/thirsty-venezuelans-forced-to-pay-for-water-as-army-takes-over Trading Economics: https://tradingeconomics.com/venezuela/gdp-per-capita

Biografias y Vidas: https://www.biografiasyvidas.com/biografia/p/pocaterra.htm

Focus Economics: 2018 & 2019 Economic Outlook for the Top Oil Producing Countries: https://www.focus-economics.com/blog/economic-outlook-for-the-top-oil-producing-countries

Encyclopedia Britannica: https://www.britannica.com/biography/Hugo-Chavez

2013 HuffPost: Nicolas Maduro Assures Hugo Chavez Appeared to Him as a ‘Little Bird’ To Bless Him (Video) : https://www.huffingtonpost.com/2013/04/03/nicolas-maduro-hugo-chavez-little-bird_n_3007965.html

: https://www.huffingtonpost.com/2013/04/03/nicolas-maduro-hugo-chavez-little-bird_n_3007965.html OPEC: http://www.opec.org/opec_web/en/about_us/171.htm

OilPrice.com : https://oilprice.com/oil-price-charts

Macrotrends: http://www.macrotrends.net/1369/crude-oil-price-history-chart

Financial Times Lexicon: http://lexicon.ft.com/Term?term=dutch-disease

Encyclopedia Britannica: The Independence Movements : https://www.britannica.com/place/Venezuela/The-independence-movement

: https://www.britannica.com/place/Venezuela/The-independence-movement 2018 Bloomberg: Venezuela Hyperinflation Index Reaches the One Million Mark: https://www.bloomberg.com/news/articles/2018-06-28/venezuela-hyperinflation-index-reaches-the-one-million-mark

Cambridge Latin America Studies B.S. McBeth: Juan Vicente Gomez and the Oil Companies in Venezuela 1908 – 1935

2000 by Fernando Coronil: Review: Understanding Venezuela’s Crisis: Dutch Diseases, Money Doctors, and Magicians

2011 Analitica: El Trienio Adeco : http://www.analitica.com/entretenimiento/el-trienio-adeco/

: http://www.analitica.com/entretenimiento/el-trienio-adeco/ Encyclopedia Britannica: https://www.britannica.com/biography/Marcos-Perez-Jimenez

Encyclopedia Britannica: https://www.britannica.com/biography/Eleazar-Lopez-Contreras

U.S. Library of Congress: The Transition to Democratic Rule: http://countrystudies.us/venezuela/6.htm

https://www.economist.com/obituary/2001/09/27/marcos-perez-jimenez