Humanitarian Crisis Looms in Venezuela

Venezuela is out of food


At the start of this year, it was projected that Venezuela would have the second fastest shrinking economy, with the fastest being Libya. Since that time, things have gotten from bad to worse. It is now apparent that Venezuela is just about out of food. the stark reality is that the socialist country does not have enough food to feed its population. This situation did not develop overnight, but was created by a series of poor decisions and bad policies.


With a population of over 30 million (2014) and just eleven kms (7 miles) at the closest point to Trinidad, I believe that we should be concerned. However, the capitals of these two countries (Caracas and Port of Spain) are more than 300 miles apart.

Venezuela’s (PDVSA), a nationalized oil company (NOC) is one of the biggest in the world in terms of its oil reserves. NOCs are partially or completely government-owned firms wherein the state retains the profits derived from oil production. It may come as a surprise to learn that 90 percent of the world’s oil reserves are under state control. The chart below provides some perspective:


real oil giants

This country boasts of the cheapest gasoline in the world. But what good is that if you are unable to get just about anything else easily? Up until February 19, it was virtually free, it cost a fraction of a US cent per liter. Customers usually tipped the gas attendant more money than it took to fill their tanks.


President Nicolás Maduro has since increased gas prices to 1 bolívar per liter from .07 bolívars for low-grade fuel, That’s the equivalent of about US 10 cents per liter, or US 38 cents per gallon (premium gas is 60 cents per liter now), a price that drivers outside Venezuela can only dream about. But for drivers there, it is an essential shift: from paying basically nothing to something, the first increase since 1995.


But at the same time that he also implemented a long-expected devaluation of the currency. this is the change that is expected to drive inflation up dramatically, and making what little that is available even more unattainable. José Guerra, a former central bank official who is now a legislator opposed to President Maduro, said the price increase and attendant currency devaluation did not go far enough and would do little to help Venezuela pay it mounting debts abroad or pay for social programs at home. “Venezuela is at risk of default,” he said. “This is not an economic plan.”


Some of the poor decisions that has driven this country to the brink:


[1] In 2013, many began to suspect that the outlook for Venezuela was grim when prepping became illegal. The Attorney General of Venezuela, Luisa Ortega Díaz, called on prosecutors to target people who are “hoarding” basic staples with serious sanctions.


[2] Farmers in Venezuela were forced to hand over their crops last summer. They assumed control of essential goods like food, and began putting retail outlets out of business. Then, once they had control of the sales outlets, they began forcing farmers and food manufacturers to sell anywhere from 30-100% of their products to the state at the price the state opted to pay, as opposed to stores and supermarkets.


[3] Socialist legislator, Ricardo Molina, called for the government to expropriate Polar, Venezuela’s largest private food corporation: “we have to intervene on private sector enterprises.” Venezuela previously forced a Polar food distribution center in Caracas to shut down in July, putting 12,000 tons of food, six million liters of soft drinks, and 2,000 jobs at risk.


[4] President Nicolás Maduro’s administration decided to sell off some US$1.5 billion worth of Venezuela’s gold reserves in order to obtain some cash and meet bond obligations which expire in February. As economist and opposition lawmaker José Guerra explained, selling gold can be considered a normal operation, but not now, when Venezuela is in “desperate” circumstances.


[5] The government decided to ration electricity in shopping malls, which will now enjoy power supply for only four hours a day. Contrary to what you may think, this is not a trivial measure. Venezuelans are now left with even fewer safe places for leisure and cultural activities.

[6] President Maduro is refusing to adopt emergency policies. He is also unwilling to resign, therefore rejecting two possible and rational courses of action which could potentially save his political life.


[7] Hugo Chávez’s socialist government started spending more money on the poor, with everything from two-cent gasoline to free housing. Now, there’s nothing wrong with that — in fact, it’s a good idea in general — but only as long as you actually, well, have the money to spend. And by 2005 or so, Venezuela didn’t.


[8] Chávez turned the state-owned oil company from being professionally run to being barely run. People who knew what they were doing were replaced with people who were loyal to the regime, and profits came out but new investment didn’t go in. That last part was particularly bad, because Venezuela’s extra-heavy crude needs to be blended or refined — neither of which is cheap — before it can be sold. So Venezuela just hasn’t been able to churn out as much oil as it used to without upgraded or even maintained infrastructure. Specifically, oil production fell 25 percent between 1999 and 2013.


[9] Because of [8] it was spending more on its people but producing less crude. So it did what all poorly run states do when the money runs out: It printed some more. And by “some,” I mean a lot, a lot more. That, in turn, became more “a lots” than you can count once oil started collapsing in mid-2014.


Some of the results of these actions:


[1] Just over a year ago, it became even more apparent that the country was falling when long lines for basic necessities such as laundry soap, diapers, and food became the norm rather than the exception. Thousands of people were standing in line for 5-6 hours in the hopes that they would be able to purchase a few much-needed items.


[2] This January, the government told citizens that they would need to produce their own food. The Ministry of Urban Farming was created to oversee this. While self-reliance sounds great, it isn’t so great in Venezuela. Just so the urban farmers don’t get too self-reliant, a registry of the crops and livestock will be required. (And obviously, they’ve already proven that they have no issue forcing farmers to hand over what they’ve produced.)


urban gardens


[3] The International Monetary Fund indicated that their economy shrinks 10 percent one year, an additional 6 percent the next, and inflation explodes to 720 percent. It’s no wonder, then, that markets expect Venezuela to default on its debt in the very near future. The country is basically bankrupt.


[4] The result of all this money-printing, is that Venezuela’s currency has, by black market rates, lost 93 percent of its value in the past two years.


Its Debt To China


Venezuela unwisely used the period of high oil prices to quadruple its public foreign debt, in order to fuel a domestic spending boom. By 2012, when Venezuelan oil averaged $103, the country was spending as if the price was $194, running up a fiscal deficit of 17.5 per cent of gross domestic product. That is why the economy went into crisis in early 2014, when the oil price was still $100. The recent drop has just made a hopeless situation worse. Who gave the country the rope with which to hang itself? Mostly China.


China started to lend massively to Venezuela in 2007. Since then it has lent more than $45bn, of which about $20bn is still outstanding. After a visit to Beijing on January 8, President Nicolás Maduro said he had won further “investment”. What makes China unusual is not just the amount it is willing to lend but the way it lends. First, Beijing has chosen to be opaque: we know neither the terms of the loans nor the uses of the money. The debt is repaid in oil, making Wall Street bondholders junior to China.

The Venezuelan public has little information on where the money is being spent. There are railways that were announced but abandoned, plants that never went far beyond the ribbon-cutting ceremony. There are allegations of corruption: in 2013, eight people in Venezuela were arrested for appropriating $84m from the Joint Chinese-Venezuela Fund.

Second, the debt was never authorised by the Venezuelan parliament due to the specious argument that it was not debt, but “finance”, because it was not to be paid in dollars but in oil. As a consequence, spending the money was never part of the national budget, thus escaping all forms of control and bypassing oil-revenue sharing rules, which would have transferred part of the income to opposition state and local governments.


Third, PDVSA — the national oil company — was asked to pay back a debt it had not borrowed. Since it could not afford to forgo the income on the oil it sent to China, it ended up borrowing the equivalent of tens of billions of dollars from the central bank, fueling Venezuela’s inflation problem. China ignored the lessons that many official lenders have learnt the hard way. There are reasons why these lenders delegate to the IMF the macroeconomic assessment of borrowers: lending into unsustainable policies only quickens the day of reckoning.


If China had been prudent, it would have made sure that the money it provided was invested in projects that could pay for themselves. Otherwise, the loans can only be repaid through future austerity. Other official development banks have learnt that the political points gained when lending can quickly evaporate when it is time to collect on old loans. China may be a new player in the world of international development finance, but it has behaved, at least in Venezuela, in ways that are an exaggerated version of the worst of old development finance.




The nationals of Venezuela are being pulled to their limits, and are in lack of basic living supplies. This is a potentially volatile situation where civil war or revolt can break out. Drastic and urgent measures are needed to avoid a collapse of this economy which now seems to be inevitable. If it comes to the worse, are we in T&T prepared to deal with thousands of refugees who in desperation may decide to make that 7 mile trip to our shores?

Posted by: Trini 2D Bone on