Over the weekend, U.S. special forces executed a daring raid on Caracas, capturing the now-former dictator of the country, Nicolás Maduro, and his wife, subsequently taking them to New York, where both were indicted on multiple charges, including narco-terrorism conspiracy and cocaine importation conspiracy.
What next? After Maduro was captured, President Donald Trump said the U.S. would initially take over the administration of Venezuela. “We will run the country until such time as we can do a safe, proper and judicious transition,” he told reporters at Mar-a-Lago in Florida. “We can’t take a chance that someone else takes over Venezuela who doesn’t have the interests of Venezuelans in mind.”
But fixing Venezuela has some major challenges, not least its currency, the Venezuelan Bolivar. That has weakened by 469 % over the last 12 months alone, according to data collated by Trading Economics.
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The country could solve that by using a so-called currency board that would peg the value of the Venezuelan Bolivar to the dollar, Robert Wright, a visiting professor of history at the University of Austin in Texas, told FOX Business. “There’s been a lot of success using a currency board as it most often stabilizes the currency,” he said.
That stabilization, if it happens, would likely also massively lower the risk of another hyperinflation. In February 2019, the inflation rate reached an all-time high of 344,509.50 %, according to data from the Central Bank of Venezuela collated by Trading Economics. Economists say the true rate was likely even higher.
Venezuela’s economic problems, including its ongoing inflation surges, date back a long way. And the events over the past decades are largely a result of poor economic policies.
The first major one was in 1976, when the Venezuelan government nationalized all oil and gas companies operating in the country, which were then owned and run by Venezuela’s state-owned company, Petróleos de Venezuela (PDVSA). Companies nationalized included those previously owned by Mobil Oil, Exxon Corp. and Royal Dutch Shell, plus many others.
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The Trump administration is not happy about that event, even though it happened a long time ago. “We built Venezuela’s oil industry with American talent, drive, and skill and the socialist regime stole it from us,” Trump said during a news conference on Saturday.
The current situation with PDVSA dates back to the inauguration of Venezuelan President Hugo Chavez in 1999. In 2001, he introduced a so-called “enabling law” that allowed the government to override existing contracts and intervene directly in private enterprise, Pete Earle, director of economics and economic freedom at the American Institute for Economic Research, told FOX Business. “Chavez rejected market economics,” he said. In other words, the president was embracing full-on socialism.
The following year, 2002, it got worse. Venezuelan workers held a general strike to pressure the president to hold another election. The result? The Chavez government dismissed more than 18,000 highly skilled employees, mainly working at PDVSA. “From that point on, the country ceased to be industrial and instead became political,” Earle says.
PDVSA crude oil output collapsed. Production had peaked at 3.5 million barrels of crude oil in December 1997 and has recently fallen to 1.1 million barrels. A part of that is the appointment of political favorites in the regime rather than skilled petroleum engineers.
For the last few years, the economy has blighted the lives of many Venezuelans. “15% of the total population (around 4 million people) urgently need food assistance,” according to the United Nations World Food Programme.
The lack of food dates from 2016 when the supermarket food shelves were empty and zoo animals died of hunger. The following year, news broke that thieves stole animals from a zoo in order to eat them.
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The food shortages were primarily the result of poor economic policies. “It’s absolutely tragic,” Earle says. By 2018, the average Venezuelan had lost more than 20 pounds of weight, he said. Also, there was a sudden return of the malaria epidemic in nine out of 23 of the country’s states. “The nearest likely outcome is preventing chaos and making sure that food and services are added to the mix,” he said.
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