Boom to Bust: The Fall of Venezuela
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Case Code: ECON056 Case Length: 15 Pages Period: - Pub Date: 2016 Teaching Note: Available |
Price: Rs.500 Organization : - Industry : Government & Non-Profit Organisations Countries : Venezuela Themes: Venezuela, Hugo Chavez, Nicolas Maduro, Oil Prices, OPEC, PDVSA, OPEC, Doha Meeting |
Abstract Case Intro 1 Excerpts
Excerpts
The Chavez Era
The political, social, and economic fall of Venezuela (Refer to Exhibit I For Overview Of The Economy) could be traced to 1999 when Hugo Chavez (Chavez) became President of the country. Chavez came to power on the strength of three main promises that he made to the public: writing a new constitution and improving the state, fighting poverty and social exclusion, and eliminating corruption. In 1999, Chavez set up a Constituent Assembly to write a new constitution. The members of this Assembly were all Chavez’s followers; and they went on to dissolve the democratically elected Congress and dismiss all the members of the Supreme Court, the Attorney General, the General Comptroller, and most of the judges in the country. All these positions were filled with bureaucrats loyal to the President. Corruption in government became worse than ever before...
Inheritance of Mess
In 2013, fresh elections were held. Maduro beat the opposition leader by less than 2 percentage points. However, there were complaints of vote-rigging; critics started claiming that the new president had adopted Chavez’s tactic of misusing state resources. Maduro expelled three US diplomats for allegedly organizing a massive power outage in the country. By 2014, there was total unrest in Venezuela. Scenes of anti-government protests by students became commonplace; dozens died in clashes with security forces during such demonstrations. From mid-2014 when the Venezuelan economy collapsed, Maduro had been claiming that he had prevented many coup attempts from either the US or the Venezuelan opposition. However, the US government dismissed such claims and said they were just a way to distract the Venezuelans from the country’s real problems....
The Fall of Venezuelan Economy
As per analysts and industry experts, Chavez, who had held the office from 1999 until his death in 2013, along with his successor, Maduro, had relied heavily on oil revenues. Therefore, under their leadership, the economy was built on the assumption that they would be able to generate enough revenues from oil exports to finance a comprehensive system of social welfare benefits. According to some researchers, the country’s dependence on oil products grew from 70% of its export basket in 1998 to 98% in 2013 during the Chavez-Maduro era...
Various Faces of Venezuela's Crisis and Impact
Many economists believed that the policies of state ownership, unregulated spending, subsidies, and domestic price controls were responsible for the crisis facing the country in 2016. From 1999, the country’s GDP followed a zigzag trend till 2013. From then on, it started declining...
Upcoming Challenges
Though the Maduro government had inherited the mess created by Chavez and his loyalists, Maduro himself failed to improve the situation and, in fact, allowed it to worsen. Apart from facing political instability, it looked as if the government would have to face various challenges in the coming years in its bid to stabilize the society and the economy...
A Long Path to a Recovery
Analysts believed that with the crisis becoming so serious, the chances of a clean, quick recovery were remote. However, adopting better policies could help the government and the Venezuelans to buy some time. Economists believed that the country was left with two options – it had to either find someone to lend plenty of money to help it in making payments, or tighten imports to a much greater extent. Venezuela could prevent a default if any of its allies like China, Russia, or Iran bailed out the government...
Exhibits
Exhibit I: Overview of Venezuela’s Economy
Exhibit II: Difference between Government Revenues and Expenditures of Venezuela
Exhibit III: Inflation (%) (Average Consumer Prices)
Exhibit IV: GDP Trend of Venezuela
Exhibit V: Unemployment Rate (Percent of Total Labor Force)
Exhibit VI: Oil Price Needed to Balance Budgets
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