The Forthcoming Humanitarian Crisis in Venezuela
By admin April 27, 2016

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Venezuela’s economic crisis is not new news. Food and drug shortages as well as other basic daily goods have become part of reality for the Venezuelan population. The crisis, however, is not contained or limited to consumer goods. The country is out of electricity. Guri hydroelectric dam, which provides 75 percent of Venezuela’s electricity, has been experiencing an unprecedented low water level. Venezuelan President, Nicolas Maduro, and other government officials blames the drought and El Niño for the energy crisis. The crisis has been so rampant that the government announced two-day working weeks recently. Vice President Isturiz announced on Tuesday that there will be three days per week of mandatory leave for all non-essential public workers to deal with chronic power shortages across the country.


Venezuela’s resources are so low that even the cash economy is at the risk of implosion. Although inflation rate is estimated to be as high as 700% by the end of 2016, and as a result, shortage of and demand for cash is accelerated, the highest Venezuelan currency note (‘Bolivars’) is still worth 100 bolivars. The central bank commissioned studies as early as 2013 to assess the possibility to introduce 200 and 500 bolivar bank notes. However, the new denominations have never been ordered. On the black market, a 100-bolivar bill has no more value than 10 cents. It is no surprise that Venezuelans have to carry gym bags to pay for a dinner out. Steve Hanke, a professor of applied economics at Johns Hopkins University, who has studies hyperinflation, asserts that governments often add zeroes to bank notes to retain confidence in their currency in times of hyperinflation. However, failing to update the denominations put the cash economy itself to break down.


While the most fundamental driver of the series of crises in the Venezuelan economy is correctly attributed to the fall of oil prices, Venezuelan opposition blames Maduro’s government for mismanagement. The opposition has also started to collect signatures and necessary forms to impeach Maduro. The current political actions, even if they are implemented successfully, will not result in a turning point in the Venezuelan economy. Any leader after Maduro would be confronted with a collapsed oil industry combined with the energy and financial crisis. Current levels of minimum wages are now only 20 percent of the cost of feeding a family of four. Supermarkets are emptier than ever as lines grow each day in front of them.


If the cash economy collapses in Venezuela, then the chronic economic crisis will turn into an outright humanitarian crisis. With too much risk, even the bank note printing companies would avoid Venezuela. With the current trends, Venezuela would be prone to failed institutions, transnational criminal networks, and a corrupt government. In such a situation, Venezuela would need foreign help to even feed its population on a daily basis. Once that critical day arrives, the Venezuelan problem would no longer be an issue of public policy or mismanagement of the economy. In that scenario, the international community would be dealing with a completely failed state.


For more information:

Venezuela blackouts: ‘We can’t go on living like this’

Venezuela Opposition Starts Gathering Signatures to Oust Maduro

Venezuela Doesn’t Have Enough Money to Pay for Its Money

Venezuela economic crisis means fewer meals, more starch

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