This February marks the 20th anniversary of Hugo Chávez’s rise to power in Venezuela. Unfortunately, under his regime, one of the most prosperous and promising countries in Latin America and the developing world has been in a downward trajectory. How did this happen?
Chávez, a former military officer, rose to power by taking advantage of the social discontent generated by Venezuela’s poor economic performance over the past two decades and running an intense populist campaign of incendiary and divisive rhetoric. However, upon assuming power, Chávez began dismantling democratic institutions. By taking control of all branches of the state, he was able to circumvent the system of checks and balances. Progressively, his government became the authoritarian, militaristic, socialist, and corrupt regime that exists today.
On the economic front, state interventions in the private sector became increasingly common where all types of controls were imposed. Hundreds of private companies, both national and foreign, were interfered with or expropriated under different procedures and millions of hectares of land were seized.
Chart 1: Price of Venezuelan Oil, 1999-2012
At first, everything seemed to work well because the price of oil increased steadily—in a country that has heavily depended on oil resources for decades. At one point, in 2011, it reached $100 per barrel.
Source: Ministerio del Poder Popular de Petróleo
Chart 2: Total External Debt, 1999-2012
Taking advantage of the financial strength provided by the extraordinary oil revenue, the government borrowed massively from international markets.
Chart 3: Venezuelan Imports, 1999-2012
With all those resources, the regime was able to expand public spending enormously, creating a big consumption boom that was increasingly satisfied by imports. Domestic production, severely debilitated and under constant threats, was woefully incapable of satisfying demands in any sector.
Source: Banco Central de Venezuela
Chart 4: Population Under the Poverty Line, 1999-2012
In different degrees, that boom was enjoyed by almost everyone. Poverty had been reduced because a portion of the oil revenue and loans were used to fund a wide variety of social assistance programs. These social programs made the regime more popular and enabled it to advance on its populist agenda.
Source: Encuesta Nacional Encovi
Chart 5: GDP Per Capita, 2013-2018
The good times did not last long. By 2012-2013, the signs of a crumbling model had become apparent. A prolonged depression has ensued since then, rivaling in its magnitude the Great Depression in the 1930s in the United States and most of the worst economic crisis documented in modern economic history.
Source: IMF and own estimates (for 2018 a GDP decline of 15 percent is assumed)
Chart 6: Oil Production and Prices, 1999-2018
As history has repeatedly shown, it is not possible to have sustained economic growth while depending on the price of a single commodity and borrowing money. Moreover, the Venezuelan system became extremely corrupt and incompetent, which further reduced the already-declining resources. Venezuela’s main source of income became increasingly limited.
Source: OPEC and Ministerio del Poder Popular de Petróleo
Chart 7: Total Imports, 1999-2017
As oil revenue fell and international reserves were depleted, the government responded by cutting imports massively. There were not enough dollars to pay for imports, and whatever was available was being used to service the enormous foreign debt and fill the pockets of government officials and collaborators.
Source: BCV, ECLAC, and Torino Capital
Chart 8: Industrial Establishments in Venezuela, 1999 and 2017
This meant that there was not enough foreign currency to import food, medicine, or raw materials needed to supply the companies that had managed to survive. Eventually, the foreign debt payments also became untenable, and the country was declared to be in selective default.
As the years passed, Venezuela became more dependent on oil revenue and loans from international financial markets. However, those two sources of funding have dried up. Still, Venezuela could not produce what could not be imported because either the infrastructure had been destroyed or it could not import the raw materials it needed for production. As a result, Venezuela, which in the 1990s used to produce 70 percent of the food it consumed and import 30 percent, now produced only 30 percent and imported 70 percent.
Source: Conindustria and Reporte 1
Chart 9: Annual Inflation Rate, 2012-2018
Although the Chávez regime did not have enough foreign exchange reserves to cover imports or service its foreign debt, this did not prevent the regime from printing bolivars, the national currency, at an increasingly frantic pace. This fueled massive inflation, which today represents the only ongoing case of hyperinflation in the world.
Source: IMF and Venezuela National Assembly
Chart 10: Monthly Minimum Salaries in Latin America
As a result of this uncontrolled inflation, wages plummeted. Wages in Venezuela are the lowest in the entire region and among the lowest in the world currently—$6 per month. More shockingly, not only is this the minimum salary, it is the country’s median wage. This means that half of the workforce is earning less than $6 per month.
Source: Chile, Ecuador, Brazil, Argentina, Colombia, Mexico, Haiti, Cuba, and Venezuela
Chart 11: Population Under Poverty Line
By 2017 poverty had skyrocketed to record levels. Since data is only available up to that year, the above graph does not even reflect the impact of hyperinflation in 2018. Therefore, it is safe to assume that these statistics are much worse today. Practically the entire country is living in poverty.
Source: Encuesta Condiciones de Vida, Encovi 2016 and 2018
Chart 12: Beyond the Economic Numbers
The terrible crisis facing the Venezuelan people goes beyond economic problems. Venezuela’s infrastructure, a long-time victim of negligence with limited investments, has practically collapsed. Blackouts have become widespread, occurring with increasing frequency and duration in every region. Access to clean running water is consistently declining, limited by continuous interruptions. Approximately 70 percent of public transportation is completely out of service. Telecommunications, from basic telephone services to the internet, experience constant failures.
Source: Comité de Afectados Por Apagones
Chart 13: Homicide Rate, 1999-2017
Crime is rampant in Venezuela as a result of the complete institutional collapse. The country has one of the highest murder rates in the world, as the judicial system and other parts of government meant to provide law and order are not working.
Source: Observatorio Venezolano de Violencia
Chart 14: Migration
Internal discontent is growing, but so is the repression by the regime. The country has around 235 political prisoners, many of whom have been tortured or kept in inhumane conditions. Furthermore, the most important opposition parties have simply been outlawed. Venezuelans, feeling desperate and hopeless, are fleeing from the disaster brewing in their home country. According to the United Nations, at least 3 million, or around 10 percent of the national population, have left the country as of late 2018.
Venezuela has become a case of a failed state, and the repercussions are not limited to the waves of refugees flooding the region. The country has also become an international hub of criminal activity. At least 12 high ranking governmental officials including the Vice President Tareck Al-Aissami have been designated by the U.S. government as international drug kingpins.
Overall, the past two decades under Chávez’s regime have represented a brutal setback in all dimensions of social life for the Venezuelan people. This should serve as a dire warning to those in the region in the potential path of socialist and authoritarian leaders.
Gerver Torres is a non-resident senior associate with the Americas Program at the Center for Strategic and International Studies in Washington, D.C.
Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).