Venezuela's journey from South America's richest to poorest economy is a tale of missed opportunities and controversial decisions. Despite possessing the largest oil reserves in the world, an estimated 303 billion barrels, Venezuela's economy has plummeted to the bottom of the region. So, how did this happen?
The story begins in the early 20th century when Venezuela's discovery of vast oil reserves in 1922 propelled it to the forefront of South American economies. However, the path to economic ruin started with a significant misstep in 1976. The Venezuelan government's decision to nationalize all foreign oil companies and place them under the state-owned Petróleos de Venezuela, S.A. (PDVSA) was the first step in the wrong direction.
Surprisingly, the economy didn't immediately collapse. As Robert Wright, a visiting professor of history, explained, "It takes a while even for a socialist to screw it up." But the seeds of destruction had been sown.
The next chapter unfolded with the election of Hugo Chavez in 1998. Chavez introduced "Plan Bolivar," which, on the surface, seemed like a compassionate antipoverty program. However, it was a veiled move towards full-blown socialism.
In 2002, the Chavez government fired top executives and 18,000 skilled workers from PDVSA, many of whom emigrated. The oil business was then handed over to political cronies, not experts. This decision led to the decline of the state-owned business, first slowly and then very rapidly.
"They didn't run it like a business," said Steven Blitz, chief global macro strategist. "They didn't reinvest in the company to keep it going." Production plummeted from 3.7 million barrels a day in 1970 to just 1.1 million recently, according to Statbase.org.
The situation worsened under Nicolás Maduro, who took over in 2013. In an attempt to appease the population, the government provided services, but this led to hyperinflation. Trading Economics data shows inflation peaked at a staggering 375,000% in 2019.
The government's mismanagement of the oil industry, which it saw as a cash cow, eventually led to a decline in revenues. With no other significant sectors or major banks to fall back on, the economy crumbled.
Over the past decade, Venezuela has faced multiple sanctions from the U.S., further hampering its rulers and economy. During Maduro's tenure, the number of Venezuelans fleeing the country skyrocketed, from 700,000 in 2015 to approximately 7.9 million last year, according to the International Organization for Migration. Many of these refugees were highly skilled workers, the very people Venezuela needs now.
"The people who ran Venezuela had a singular view," Blitz said. "They thought the party would never end." But it did, and now, with Maduro's ouster, many are hoping for a new beginning.
