Venezuelan Economy and Politics
Since the discovery of oil in 1922, the production and export of it have been the bedrock of the Venezuelan economy. Venezuela’s position as one of the largest producers and exporters of oil in the world has allowed for periods of great economic prosperity, but in recent times, corruption, oil production quotas, falling oil prices, and political changes have resulted in hyperinflation and an ensuing economic crisis that has forced many Venezuelans to leave their country.
One of the main causes of hyperinflation in Venezuela was price controls that the government placed on necessities, such as food and medical supplies. The low prices often resulted in domestic producers going out of business, resulting in goods needing to be imported by the government. When oil prices dropped in 2014, the government ran out of money. To compensate for this, they began printing more currency, which made the value of the Bolivar worthless. As a result, it costs more and more bolivars to buy basic goods and services.
There are many effects of hyperinflation. Goods become scarce, especially foreign items, as the cost of importing them becomes prohibitive. Businesses go under and unemployment increases. This results in falling tax revenues, which means that the government will have problems providing basic services. People hoard what they can against future price increases, causing greater scarcity of goods. Cash becomes worthless, banks go out of business and people lose their savings.
The US dollar has replaced the Bolivar in Venezuela. The dollar is accepted in most places, either as cash or via money transfer apps, and Venezuelans with access to foreign currency are able to alleviate the worst of the shortages. Unfortunately, this excludes the approximately 50% of Venezuelans who do not have access to foreign currency and also results in poorer Venezuelans receiving less of the money sent to them from abroad after money changers take their cut. Additionally, the cost of goods is still rising, and even with the ability to purchase goods in dollars the income of an average Venezuelan doesn’t go very far. In 2021 the GDP per person in Venezuela is estimated to be $1630 (compared with $69,380 per person in the US) (Source: International Monetary Fund).