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Venezuela’s Collapse

Venezuela’s Collapse

(Bloomberg) -- Venezuela has more oil than Saudi Arabia and more poverty than Colombia. Once one of Latin America’s richest countries, it’s now plagued with shortages of everything from toilet paper to antibiotics and food. It’s been a steep downward spiral since the heady days when the late President Hugo Chavez set out to use an oil boom to light a socialist path to prosperity, not just for the poor in Venezuela but across Latin America. Chavez died in 2013, about a year before oil prices fell sharply. His protégé and successor, Nicolas Maduro, 56, has tightened his hold on power as opponents complain of economic mismanagement, corruption and political oppression. His critics inside and outside the country are pushing back, pressing for Maduro’s ouster. 

The Situation

Juan Guaido, 35, the president of the opposition-dominated National Assembly, announced Jan. 23 that he would assume Maduro’s powers temporarily, a move recognized by the U.S., Brazil, Canada, Colombia, Peru and Chile. Guaido invoked a constitutional amendment that allows for the head of the legislature to lead a caretaker government until new elections can be held. The Assembly had already declared Maduro’s rule illegitimate following his re-election in May, which was widely seen as a charade. Maduro has dismissed actions by the Assembly, which was stripped of its power in 2017 by a Supreme Court largely loyal to the president, but the body remains recognized as a legitimate source of authority by regional powers. After the legislature offered blanket amnesty to any officials who helped bring down the regime, a score of national guardsmen attempted a rebellion, though it was stamped out Jan. 21. The battle for power is taking place amid an economic crisis. Venezuela’s economy has contracted for five years straight. Average daily oil production has decreased by about 1 million barrels in that period. Inflation is forecast to reach 10 million percent in 2019. The hard times and a crackdown on dissent have driven almost 3 million Venezuelans to leave the country. In 2017, one aid agency said more than 11 percent of children under age 5 were suffering from moderate to severe malnutrition, yet Maduro has rejected humanitarian aid. Venezuela defaulted on a portion of its debt in 2017, and creditors are demanding more than $9 billion in overdue bond payments. The U.S. and the European Union have imposed sanctions against the country for human-rights abuses, political repression and graft. 

Venezuela’s Collapse

The Background

Chavez, a former paratrooper jailed for two years after leading a failed coup in 1992, was first elected president in 1998 and revolutionized Venezuelan politics with fiery anti-U.S. rhetoric. He nationalized thousands of companies or their assets, reducing the country’s capacity to produce anything but oil. He channeled revenue to the poor and expanded Venezuela’s influence in the region by doling out cheap oil. He used widespread support to transform a pluralistic democracy into a largely authoritarian system. When the oil bonanza ended in 2014 under Maduro’s rule, the country could no longer rely on oil revenue, which accounts for 95 percent of foreign-currency earnings, to pay for imports. That created widespread scarcities and fueled discontent.

The Argument

Unpopular at home and increasingly isolated from the rest of the world, Maduro has held onto power despite not having much of a plan for turning the country around. He has deepened ties with authoritarian allies such as Russia, China and Turkey, but they have provided only limited support. Maduro said he hoped to  negotiate a debt restructuring, but U.S. sanctions prevent American investors and banks from participating, complicating the process. Expatriates, diplomats and others have proposed responses to the worsening crisis, including military intervention, similar to the U.S.’s removal of Manuel Noriega from the presidency of Panama in 1990. When Trump in 2017 mused openly about the idea, Latin American countries quickly objected. Some Maduro critics instead hope for a military coup, while others find military rule unacceptable. Still others have suggested that the U.S., Europe and Asia could ban imports of Venezuelan oil and hasten Maduro’s demise. But that would worsen the humanitarian crisis.

The Reference Shelf

  • QuickTake explainers on Venezuela’s fights with Exxon and Conoco, its struggle against default, and the likely effects of a ban on imports of Venezuelan oil.
  • A Bloomberg series on “Life in Caracas” under Nicolas Maduro.
  • A Council on Foreign Relations report explains the economic, financial and humanitarian crisis.
  • A New York Times magazine article on Venezuela’s descent into crisis.
  • A Congressional Research Service  report on Venezuela’s travails.
  • Opposition scholars blog about Venezuela’s problems at Caracas Chronicles.

Nathan Crooks contributed to an earlier version of this article.

To contact the editor responsible for this QuickTake: Lisa Beyer at lbeyer3@bloomberg.net

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