The Backdrop

Venezuela has been engulfed in a political and economic crisis for decades, resulting in the largest economic collapse in a peaceful country since 1950, with poverty rates as high as 95% and the mass exodus of over 7 million citizens. In April of 2023, Colombian President Gustavo Petro hosted leaders from 20 countries to discuss the ongoing crisis. The summit is significant both politically and economically, with Petro explicitly calling for an end to economic sanctions to help restore the Venezuelan economy, and with the ejection of former opposition leader Juan Guaidó from the talks. Could this represent a potential turning point for the nation’s future?

Political Division

Venezuela has been a politically divided country for many years, with this division deepening in 2019 when previously unknown politician Juan Guaidó declared himself interim president of Venezuela, primarily with support from Western nations. Recently, however, the international community is following the opposition’s decision to replace Guaidó and no longer recognizing him as president. The Maduro government and the new opposition have been willing to negotiate with each other since Guaidó’s replacement, illustrating that the nation’s fierce political divide may now be salvageable. 

Relations with the International Community

The positive response of some nations, particularly the US, may be motivated by the global energy crisis caused by the Russian invasion of Ukraine, prompting a search for new sources of oil. This coincides with the recent elections of several left-wing leaders in Latin America who are willing to resume relations with President Nicolás Maduro. As the political context shifts to incentivize nations to work with the Venezuelan government, international and domestic political divisions appear to be decreasing in severity. 

Overreliance on Oil

Venezuela relies heavily on oil for its income, especially since the nationalization of its oil industry in 1976. Oil funds were utilized by Maduro’s predecessor Hugo Chávez for a variety of social programs that helped to reduce poverty in Venezuela while oil exports boomed; although inflation remained high. These advancements were primarily due to money from oil exports that the country quickly became reliant on, exposing them to economic shocks with fluctuating oil prices. Indeed, after Chávez’s death in 2013 and the election of Maduro, global oil prices plummeted, and Venezuela fell into a recession. Inflation saw a dramatic rise, and basic goods became even more difficult to acquire. Although the composition of the economy has changed somewhat in recent years, it remains heavily reliant on oil for income. 

Dual Currency

Hyperinflation has led to a serious devaluation of the Venezuelan Bolívar, causing many to resort to the US dollar and thereby leading to a dual currency system. Attempts to stabilize the Bolívar by the Maduro government, including removing 6 zeros from the currency in May of 2023, have failed thus far. This forced the government to informally accept the influx of foreign currency. Their failure to do so in the past, however, has led to an informal economy of US dollars, whereby people buy dollars on the black market. Significantly, in 2021, 6 in 10 transactions relied on dollars. The price of dollars on the black market even fell below the value offered by the government, forcing Venezuelans to turn to this alternative, including when sending money back home from abroad. While this is evidently concerning, the influx of dollars in the economy has arguably helped to moderate inflation and generated a certain level of stability. 

Sanctions and Relief

Since 2015, the US has imposed broad economic sanctions against Venezuela, ramping up in 2017 under the Trump administration and with the addition of sanctions from the European Union again in 2019. By lowering the country’s oil production, sanctions adversely affected “poverty, inequality, international trade, child mortality, undernourishment, life expectancy, and human rights.” The resulting collapse impeded the government’s ability to import food and other essential goods, resulting in a major humanitarian crisis impacting everything from electricity and water supplies to schools and hospitals. Imports were further reduced by the economic blockade set up by the Trump administration that blocked critical medical imports and food, leading directly to the deaths of over 100,000 citizens. According to the UN, these sanctions represent “international crimes that threaten the Venezuelan people.”

There are signs that sanctions could be reduced, however, as in late 2022 the Biden administration eased certain oil sanctions in Venezuela after cooperation between the government and the opposition resumed. Furthermore, along with the EU, the UK, and Canada, the US pledged a “willingness to review sanctions” if cooperation continued.

Economic Growth

Partially because of reduced sanctions, and partially due to loosened currency controls introduced by Maduro in 2019, the economy has experienced a turnaround in the last 2 years. The inflation rate, while still one of the highest in the world, has undergone a striking reduction from its height of 65,000% in 2018, dropping from 686% to 234% from 2021 to 2022 alone. Remarkably, the nation’s GDP even grew in 2022 by an estimated 10%. Against the backdrop of enormous GDP contraction of over 75% in the previous 8 years, this growth is promising, resulting in an equally remarkable drop in the poverty rate to just over 50% from its previous figure as high as 95%. 

The Future of Venezuela

Venezuela still has a long way to go before it recovers the ground it has lost in the last decade, both politically and economically. Since much of the nation’s turnaround can be attributed to changes in the international community, Venezuela remains vulnerable to the intentions of these same actors. For instance, the situation could quickly deteriorate if the US decided to reverse its recent sanction relaxations, if the price of oil or the value of the dollar drops, or if the recent influx of foreign capital slows down. Furthermore, the growth that has been experienced has not been felt by Venezuela’s poorest, many of whom remain unaffected by the economic improvements and disenfranchised by the ongoing political divide. While these problems remain, a pathway to the end to the crisis and a return to acceptable standards of living for Venezuelan citizens is much clearer than before, even if this path is a lengthy and perilous one.