How once-mighty Venezuelan economy collapsed
CARACAS: How did Venezuela, once Latin America’s richest country, sink into ruin? As the country faces a presidential election Sunday, here are a few key elements in the unravelling of its economy.
The country with the largest oil reserves on the planet enjoyed more than a decade of abundance between 2004 and 2015, pulling in some US$ 750 billion while the price of crude soared.
Heavily dependent on oil, which accounts for 96 per cent of its foreign earnings, late president Hugo Chavez took advantage of the oil boom to borrow heavily.
Venezuela issued some US$ 62 billion in sovereign bonds from the state oil company PDVSA, according to the consultants Ecoanalitica, and borrowed also from China and Russia. External debt increased fivefold to US$150 billion.
Foreign reserves were 42.3 billion in 2008, now reduced to a quarter of that.
Government spending soared, so much that in 2012 the budget deficit rose to 15.6 per cent of GDP, while oil was selling at a record US$103.42 a barrel.
That deficit “was the equivalent of Greece at its worst,” said Oxford University economist Orlando Ochoa.
And the situation has not improved, with the def icit oscillating between 15 and 20 per cent of GDP since 2013, according to Humberto Garcia, president of the National Academy of Economics.
The government says it spent US$718 billion on social programs between 1999 and 2014.
The social ist leadership imposed an iron fist on the economy, nationalizing entire sectors such as cement and steel, while expropriating hundreds of companies.
It brought in strict exchange controls in 2003, which allowed it to monopolize the dollar exchange and artificially overvalue the local currency, the bol ivar. — AFP