Venezuela Crisis – An illustrative example of the resource curse factor

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In examining the causes of the humanitarian crisis in Venezuela, many factors must be taken into account. There is one factor, however, that stands out among others: the resource curse factor. The rich resource countries are completely dependent on oil export, as a result of which, they are vulnerable to oil shocks due to global fluctuation of oil prices. Venezuela—known as a petrostate—is a typical example. The government’s income heavily relies on oil and natural gas export, which account for 98 percent of export earnings and 50 percent of GDP. When Venezuela’s oil output and oil production declined in 2019—marking a new low—its humanitarian crisis further deteriorated.

Venezuela brings the story of a country—which within five years went from economic and political instability to a humanitarian crisis. After years of denying, in April 2019, President Nicolas Maduro, finally declared a humanitarian crisis, allowing foreign aid providers to enter the country and helping the population affected. Currently, Venezuelans represent one of the single largest displaced populations in the world—topping to 4 million as of June 2019 (UNHCR, 2019). The refugee number, according to the UNHCR projections, expects to reach 5.3 million by the end of 2019, marking the largest exodus in modern Latin American history (CBS, December 14, 2018).

The political crisis in Venezuela begun in late 2013 following the death of the president, Hugo Chavez. His mistaken policies—economic mismanagement, corruption, and complete dependence on oil export-led to an economic downturn and a rapid economic decline in 2014 as a result of global oil prices collapse. Additionally, in an attempt to stabilize the economy and control prices of essential goods, Chavez had incepted strict controls on foreign currency exchange—which became a tool of corruption for government officials (The Guardian, January 25, 2019).

After taking the presidency, the then-Vice President, Maduro, sought to address the economic crisis by starting to printing money, a policy that led to hyperinflation, collapse of private sector industry, sharp decline in national income, and rapid economic decline (Ellner, June 11, 2019). There was a shortage of food and medicine supplies, as well as power cuts (Council on Foreign Relations, June 2019). The popular discontent with government performance in alleviating the economic distress rapidly grew, leading to massive protests across the country. One year later, the citizens’ dissatisfaction translated into the victory of the opposition, which for the first time in two decades took control over the National Assembly (Id.).

The political situation further deteriorated following Maduro’s reelection in May 2018 in an election deemed as highly controversial—subject to vote manipulation—and boycotted by the opposition (BBC, April 30, 2019). As a result, the National Assembly declared Maduro’s election illegitimate, paving the way for the opposition leader, Juan Guaido, to announce his interim presidency until free and fair elections are held. Here, the international factor entered into play—allied pro and against Maduro. The U.S., EU, Canada, and Organization of American States (OAS) recognized Guaido as interim president whereas China, Cuba, Russia, and Turkey supported Maduro (Council on Foreign Relations, June 2019).

Venezuela is an illustrative example of what is called a resource curse or the paradox of plenty, formerly known as Dutch disease. The resource course refers to the paradox that countries with an abundance of natural resources tend to have negative economic trends, low economic growth, poverty and inequality, corruption, and often are prone to civil wars and political crises (Bloomberg, 2017). Furthermore, the rich resource countries are vulnerable to oil shocks due to the global fluctuation of oil prices. This typically happens in those countries whose governments are completely dependable on oil export. Venezuela referred also to as a petrostate, falls in this group.

In a petrostate, the government’s income heavily relies on oil and natural gas export, economic and political power are highly concentrated in an elite minority, political institutions are weak and unaccountable, and corruption is widespread. Moreover, in petrostates—which are dependable more on export income and less on taxes—ties between the government and citizens are often weak (Labrador, 2019). Consequently, economic indicators tend to be negative. The available data shows that Venezuela is highly dependent on oil, which makes up to 98.0 percent of export earnings and 50.0 percent of GDP; oil output has declined, and Venezuela has missed billions of dollars in debt payments (Id.). Its oil production marked a new low last month due to economic crisis and sanctions, falling by 35,000 BPD in May, plunging to 741,000 BPD for the month, based on the OPEC data (Cunnigham, June 2019).

That said, the Venezuela crisis is primarily linked to its oil-based economy status—oil economy and economic mismanagement—internally and externally driven (Ellner, 2019; Organization for World Peace, 2016). Ellner provides five arguments in support of this assumption: the unrelenting hostility of internal and external adversaries followed by sanctions and military threats; the plummeting of international oil prices; mistaken policies that discouraged private investments and the mismanagement and incompetence of the Maduro government; and socialism’s inherent contradictions and unsustainability. There is no common agreement, however, whether or not the sharp decline in oil prices played a major role in the onset of the Venezuelan crisis (2019). In particular, economists blame Chavez’s policies to finance food, housing, medical services, and educational programs for the poor from oil revenues, an approach—through social-oriented—yet proven harmful in the long-term perspective (Organization for World Peace, 2016).

The root causes of conflict are also attributed to Venezuela’s socialist system and political ideologies—associated with Chavism—and his exclusionary policies (horizontal-inequalities HIs) in addition to the country’s oil-based economy status. They are interrelated and mutually reinforcing (Ellner, 2019; Organization for World Peace, 2016; Labrador, 2019; Lander, 2015). Lastly, some of the drivers—partly—must be sought in Chavez’s policies and discourses of prioritizing political-ideological confrontation and exclusionist policies over social dialogue and inclusion (Lander, 2015).

Those policies however harmful led to the formation and consolidation of an opposition—lined up against government and socialism. Yet, the opposition has been unable to present a platform that would channel the public’s dissatisfaction against the government. The Venezuelan society is currently divided into two groups: those supporting government and those against the government. While Chavez had the ability to unify the society, president Maduro lacks such leadership and unifying skills (Id.).

Negotiations between the government and opposition to resolve the political and economic crisis have resumed recently. Under Norway mediation, the representative for Venezuela, President Maduro, and the opposition leader, Guaido, met in Barbados last week to continue consultations—without any announced agreement. Guaido, who is recognized by more than 50 countries as the Venezuela’s legitimate leader, agreed to set up a platform for ongoing negations, as he said, to “achieve change that can end Venezuelans’ suffering.” (Reuters, July 14, 2019). Norway, for its part, is optimistic that parties will cooperate as they both agreed to “work in a continuous and efficient manner to reach an agreed-upon solution within the framework of the Constitution.” (France 24 TV).

The EU has threatened Maduro’s government with a new round of sanctions, if there are no “concrete results.” (Al Jazeera, July 17, 2019) Same the U.S., which has warned to continue sanctions if Venezuela does not change the leadership. There have been continuing clashes between U.S. and Venezuela ever since President Trump recognized Guaido as the legitimate president, suggesting Maduro leave the office. Most recently, Venezuela’s government officials have accused the U.S. of being involved in a coup with opposition leaders to overthrow the government as well as killing president Maduro, his wife, and other government officials (Washington Post, June 27, 2019.)

Literature cited:

Anthony Faiola, “Venezuela accuses U.S., Israel, in alleged coup plot with assassinations and kidnappings,” Washington Post, June 27, 2019.

BBC, “Venezuela crisis: How the political situation escalated,” April 30, 2019.

CBS News, “Venezuelan exodus to reach 5.3 million by 2019, UN says,” December 14, 2018.

Council on Foreign Relations. “Instability in Venezuela.” Last updated July 18, 2019.

Ellner, Steve. 2019. “Explanations for the Current Crisis in Venezuela: A Clash of Paradigms and Narratives.” Global Labor Journal.

France 24, “Venezuela government, opposition reopen Barbados talks,” July 15, 2019.

Julian Borger, “Venezuela at the crossroads: The who, what and why of the crisis,” The Guardian, January 25, 2019.

UNHCR & IOM. “Refugees and migrants from Venezuela top 4 million” UNHCR, June 7, 2019.

Labrador, Rocio Cara. 2019. “Venezuela: The Rise and Fall of a Petrostate.” Council on Foreign Relation.

Lander, Edgardo. 2015. “Root causes to conflict; Venezuela’s crisis: Exploring some root causes.” Transnational Institute.

Mittelman, Melissa. “The Resource Curse,” Bloomberg, May 19, 2017.

Nick Cunnigham, “Venezuela’s Oil Production Set for Another Drop,” oil Price, June 23, 2019.

Reuters, “Venezuelan opposition returning to Barbados to continue talks with government,” July 14, 2019.

The Organization for World Peace. 2016. “Venezuela’s Crisis: Consequences, Root Causes, And Possible Way Out.”

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