CRISIS IN VENEZUELA

By
Akhil Rao (19A2HP401)
Shivdath (19A2HP451)
Adithya Madhav ()
Gargi Tarafdar ()
Sourav Varyani ()
Index:

Abstract
Geography
Oil discovery and industry nationalisation
Noticeable segments in politics
Causes of the crisis
Effects of the crisis
Current situation
Key Risks
ACKNOWLEDGMENT:
ABSTRACT:
GEOGRAPHY:
Venezuela is a country in South America and is one among the many parts that make the
whole of Caribbean South America, covering the borders of the Caribbean Sea and the
North Atlantic Ocean, and separating Colombia and Guyana. It is located on major sea and
air routes forming a link between North and South America. Situated at the northernmost
end of South America, Venezuela covers a total area of 916,445 km2 (353,841 sq. mi) and
has a total land area of 882,050 km2 (340,560 sq. mi). It is the 32nd largest country in the
world, about twice the size of California. Venezuela is roughly shaped like an inverted
triangle; the country has a 2,800 km (1,700 mi) long coastline. Amongst all the other
Exclusive Economic Zone of the world, it is the 55th largest with an area of 471,507 km2
(182,050 sq. mi).

The Orinoco Belt is an enclave in the southern strip of the eastern Orinoco River Basin in
Venezuela which lies on top of the world's largest blanket of petroleum. The local name
given for this in Spanish is Faja Petrolífera del Orinoco (which means Orinoco Petroleum
Belt). The Orinoco Belt is situated at Guárico and to the south of Anzoátegui, Monagas, and
Delta Amacuro states, which is following the river line.
With an area of about 55,314 square kilometres, it spreads over about 600 kilometres from
east to west and about 70. kilometres from north to south.
OIL DISCOVERY AND INDUSTRY NATIONLISATION:

The presence of oil was known in Venezuela even before the discovery of the
Americas in 1492. The Spanish and English played a great role in exploring the region’s
resources to find all the crude oil deposits from 1499 to the late 1800s. Later in 1878, the
first oil company “Compania Nacional Petrolia del Tachira” was founded followed by
Caribbean Petroleum Company and Royal Dutch-Shell Oil Company. This was the beginning
of the modern economic history of Venezuela.
World War I was the trigger introducing Venezuela into the world oil market. After
1919, the investment and the exportation of Venezuelan oil increased tremendously. By
1922, Venezuela became an important supplier of oil in the world, and biggest reserves of
oil were discovered in the Lake of Maracaibo. During World War II Venezuela was the most
secure provider of oil to the United States.

In 1908 General Juan Vicente Gomez took power as President and opened the gate
to foreign oil investors. In 1909, The Venezuelan Oilfield Exploration Company was founded
and had a lease of approximate of 27 million hectares.

In September 1960, The Organization of the Petroleum Exporting Countries (OPEC)

was created to co-ordinate and unify petroleum policies among member countries to secure
fair and stable prices for petroleum producers. 1960 was the beginning of the
nationalization of the oil industry. On January 1 st, 1976, President Carlos Andres Perez
founded Petroleos de Venezuela S.A. (PDVSA) (Oils of Venezuela), a state-owned oil and
natural gas company.

During its first year, PDVSA produced 2.3 million barrels per day of oil and the
investments were multiplied by four. In the 1980s, it was considered as a reliable oil
supplier, and was consolidated as one of the most important oil companies around the
world. In the middle 1980s, it began to buy refineries in Europe, United States and the
Caribbean. 1996 brought an investment of more than 2 billion dollars and increased the oil
production by 260,000 barrels per day. Moreover, PDVSA exports 93% of its total
hydrocarbon production. Approximately 54 % of these hydrocarbon exports go to the U.S.
and Canada.
NOTICEABLE SEGMENTS IN THE COUNTRY’S HISTORY:
1958: Venezuela Elects President Betancourt
After the overthrow of brutal, corrupt Venezuelan dictator Marcos Pérez Jiménez, the
nation’s three political parties agree to the Punto Fijo Pact to accept the results of popular
elections, and opposition leader Rómulo Betancourt—widely regarded as the father of
Venezuelan democracy—is elected president. But, as anthropologist Iselin Åsedotter
Strønen has written, the power-sharing agreement also helps establish a system in which
each of the parties is guaranteed a slice of government ministries, jobs and contracts,
and keeps oil revenues in the hands of the government.
1973: OPEC Embargo Brings Billions
The OPEC embargo against the U.S. and other countries causes the price of oil to quadruple,
and Venezuela becomes the beneficiary. As billions more flow into the state treasury,
its per-capita GDP soars throughout the rest of the decade. Two years later, Venezuelan
President Carlos Andrés Pérez signs a law nationalizing, creating a state-owned oil company
called owned Petroleos de Venezuela, S.A. (PDVSA), and compelling foreign companies to
give it a 60 percent ownership share in oil projects.

1989: IMF Bailout

After oil prices plummet due to a glut in the late 1980s, President Perez’s government
struggles under the weight of $33 billion in foreign debt. Ultimately, Venezuela is forced to
accept an International Monetary Fund bailout and impose strict measures that result in
sharp rises in the prices of consumer goods and fares for public transportation. Protesters
take to the streets for demonstrations that turn violent, leading to a nationwide curfew and
suspension of civil liberties.

1998: Hugo Chávez Elected

Firebrand populist leader Hugo Chávez, a former lieutenant colonel in the Venezuelan
military who six years earlier led a failed coup attempt, is elected president, upending a
political establishment that had controlled the nation for decades. Over the next decade and
a half, Chavez embarks on a massive social spending binge to fund his socialist schemes.
Though Chavez wanted to expand the Venezuelan economy by diversifying it, his costly
strategy only augmented the dependence upon exported oil. At the same time, though,
Chavez neglects to spend money maintaining oil facilities, and production declines.

2013: Maduro Challenged by Opposition Leader

After Hugo Chávez dies of cancer, he is replaced by his hand-picked successor Nicolás
Maduro. He soon begins consolidating his power, using authority given him by the National
Assembly to rule by decree. But he isn’t able to halt the decline in oil prices that pull down
the Venezuelan economy with it. As Venezuela’s situation worsens, the Maduro
regime arrests opposition political leaders and shuts down news websites and detains
journalists, leading to criticism from the U.N. and the Inter-American Commission on Human
Rights. In 2017, Venezuela’s Supreme Court, filled with Maduro loyalists, take away the
powers of the National Assembly, increasing Maduro’s control. The following year, he is re-
elected overwhelmingly in an election that a coalition of other western hemisphere nations
says “lacked legitimacy.”

In January, opposition leader Guaidó, head of the National Assembly, invokes the
Venezuelan constitution to declare himself interim president, setting up a power struggle
that is still yet to be resolved.

The 2014 Protests

In 2014, a series of protests began in Venezuela due to the country's high levels of urban
violence, inflation, and shortages of basic goods due to economic policies such as strict price
controls. Mass protesting began in February leading to arrests and killings of student
protesters stimulated their expansion to neighboring cities and the involvement of
opposition leaders. It resulted in nearly 4,000 arrests and 43 deaths, including both
supporters and opponents of the government.

The 2017 Protests

Protests began in January 2017 after the arrest of multiple opposition leaders and the
cancellation of dialogue between the opposition and Nicolás Maduro's government. Post
which the government has dissolved the opposition-led National Assembly.

The 2019 Presidential Crisis

A crisis concerning who is the legitimate President of Venezuela has been underway since 10
January 2019, with the nation and the world divided in support for Nicolás Maduro or Juan
Guaidó

CAUSES OF THE CRISIS:

It is President Maduro and his predecessor Chávez who are the target of much of the
current anger.
 The major factor that affected Venezuela’ economy was that; the Maduro and
Chávez governments used oil revenues to fund their socialist programs but failed to
reinvest in the oil industry to keep the revenue flowing.
 The Maduro government did not consider their currency’s value in the international
market and improperly adjusted its value.
 On 5th February 2003, President Chávez imposed currency controls that gave him
power to control the exchange rate, limiting Venezuelans' access to foreign
currencies. As a result a currency black market developed since Venezuelan
merchants relied on the import of goods that required payments with reliable
foreign currencies
 In 2013, Chávez looped three zeros off the Bolívar currency followed by another
chopping of five zeros by Maduro, like Zimbabwe.
 President Hugo Chávez' policies relied heavily on oil revenues to fund large
quantities of imports and production under his rule dropped because of his price
control policies and poorly managed expropriations. His successor, Nicolás Maduro,
continued most of Chávez' policies until they became unsustainable when oil profits
began declining in 2014.
 A socialist policy, Price Control, targeted to help the poor has backfired badly. Since
the businesses producing these items no longer found it profitable to make them.
 The National Assembly was largely rendered powerless by the creation of the
National Constituent Assembly in 2017, which is exclusively made up of government
loyalists. It resulted in a loss of democracy.

EFFECTS OF THE CRISIS:

 A rise in poverty, crime rate, emigration, infectious and preventable diseases,
death rate, detention, unemployment
 The annual inflation rate reached 1,300,000% in the 12 months to November
2018, according to a study by the National Assembly.
 Political corruption
 Due to the shortage of food and medicine people have been left hungry. More
than a million have tried to flee the country.
 Many companies have been shut down resulting in mass unemployment.
  Forming policies stopping general population from leaving the country and
barring, imprisoning prospective political candidates to stop them from
contesting in elections. Such actions violate human rights.
 While most countries in the world are not convinced with cryptocurrency,
Venezuela had released an official cryptocurrency named Petro.

CURRENT SITUATION:
 Venezuela's economic and political crisis will stretch into a sixth year in 2019.
Declining oil production, hyperinflation and a poor business environment will keep
the economy in a deep recession.
 The administration of President Nicolás Maduro has result in further inflation
through fiscal policy and drive escalating unrest as it isolates the political
opposition. A range of economic reforms will not have much effect on the crisis, and
in some cases will make matters worse.
 Hyperinflation and a general loss of confidence will depreciate Bolívar. Despite a
recent devaluation and re-denomination of the currency the parallel market value of
the currency remains weak.

 Political risk will remain extremely elevated due to severe shortages of essential
goods and failing public services.
 Since 10th January 2019, when Nicolás Maduro declared himself acting president. More
than 50 countries have recognised him as the legitimate president, among them the
 US and many nations in Latin America. While Russia and China among others have
stood by President Maduro.
 Nicolás Maduro has also asked the military, a key player in the current situation, to
join hands with him promising them amnesty.
 The country defaulted in November 2017 and has since accumulated more than
USD6.1bn in arrears. Creditor action, namely the acceleration of principal payments
and attempts to seize Venezuela's external assets, including oil shipments might
result in severe damage.

KEY RISKS:
 The chances of a military uprising against the President Maduro’s regime remain
substantial, given the collapse in living conditions in the country. A failed coup in
May and assassination attempt against Maduro in August underlines this threat.
 Maduro is increasingly likely to remain in power past 2019, relying on a combination
of purges, patronage, a fractured opposition. This would have a decidedly negative
impact on the country's economy, given the governing party’s track record of
economic mismanagement.
 The US has imposed sanctions on the Venezuelan oil sector, potentially cutting
Venezuela off from its largest export market.
 Unless debt payments are made international reserves will further decline, while
external support from Russia and China appears to be already drying up.
 Amongst this economic turmoil the government can still improve the substantial
economic imbalances using the hydrocarbon (crude oil) reserves, which would, in
turn, stabilise the country's political crisis. But improper handled this could result in
further devastated economy.
Economic Recovery in Venezuela unlikely until 2022 with the current policies and reforms

Akhil’s
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https://www.aljazeera.com/indepth/features/2017/07/venezuela-maduro-constituent-
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https://www.forbes.com/sites/rrapier/2019/01/29/charting-the-decline-of-venezuelas-oil-
industry/#79a0b5044ecd

https://www.bbc.com/news/world-latin-america-49248564
https://www.bbc.com/news/business-45258262