How Venezuela can be saved
The world has witnessed many sharp economic declines over the years, but Venezuela’s is surely one of the worst to date. The country has experienced a loss of real (inflation-adjusted) gross domestic product (GDP) greater than that of most war-ravaged countries during the Second World War, and its inflation rate is expected to reach 10 million percent this year.
Under these conditions, food — 90 percent of which must be imported — is so scarce that the average Venezuelan is estimated to have lost 11 kilograms, and an estimated 3 million citizens (representing around 10 percent of the population) have fled. Power outages, water and medicine shortages, and near-famine have been persistent features of President Nicolas Maduro’s brutal and incompetent reign.
With the world’s largest oil reserves, Venezuela counts on hydrocarbons for over 90 percent of its export earnings. But its oil output has fallen from a peak of about 3.5 million barrels per day in the late 1990s to around 1.3 million in 2018, with production expected to decline to 700,000 in the next couple of years.
In fact, even when the oil price has been rising, the country’s output has declined, owing to a lack of maintenance and investment, theft of material, Maduro’s appointment of inexperienced military allies as managers, and the outmigration of oil workers, who can earn much more elsewhere.
In January, Maduro held his second inauguration after winning a fraudulent presidential election last May. In response, many Latin American countries, along with Canada, the US, and some EU member states, have recognized the speaker of the National Assembly, Juan Guaido, as Venezuela’s legitimate president, in accordance with the country’s constitutional line of succession.
In the face of mass protests, Maduro has continued to resort to the intimidation, imprisonment and starvation of opposition figures, while bribing military leaders for their support. Yet the question is not whether Maduro can hang on, but for how long. His regime cannot last indefinitely and, when it falls, Venezuela will have pressing needs.
For starters, the country will require humanitarian aid on a vast scale. Hospitals must be resupplied, schools reopened, and public transportation and other vital services restored. And food must be made available to a severely undernourished population.
At the same time, Venezuela will need reforms to end rampant inflation, restore macroeconomic stability, and revive economic activity. It will also require financial support to import supplies and repair machinery and equipment.
The challenge, then, is to restore a stable macroeconomic environment and business climate while simultaneously improving the lot of Venezuelan citizens, so that they will continue to support political reforms.
One hopes that Venezuela’s next leaders and the international community understand the nature of the challenge, and will take the steps needed to maintain social peace during the reconstruction. Venezuelans can finally see light at the end of the tunnel. But difficult days lie ahead.