Venezuela's Road to Ruin

February 24th, 2025

Dhruv Arun

The recent inauguration of Nicolás Maduro has signaled a fresh phase in Venezuela's struggle, defined not by prosperity, but rather by profound socioeconomic scars and a persistent financial crisis that remains the main source of public discontent. Even though consumption has increased, the ongoing financial crisis still persists. Yet day by day, the crisis seems to get worse because accusations of electoral fraud have intensified international scrutiny, prompting increased sanctions from entities like the United States and the European Union, pushing Maduro's government toward further isolation, decreasing their ability to stabilize their government effectively.

Venezuela's living standards have also fallen by 74% between 2013 and 2023, a decline so severe that it ranks fifth in modern economic history (outside of war, revolution, or state collapse). The country has also experienced this dramatic implosion during peacetime (not engaging too much in international conflicts) under one government. During the oil boom under Presidents Chávez and Maduro, government spending was deeply pro-cyclical. Large fiscal deficits also ran on, multiplying external debt by six times and saddling the nation with over $100 billion in obligations. And, instead of the government saving for leaner times, they resorted to printing money… This directly increased inflation and eroded the Central Bank's independence that acted as a hidden tax on savings and wages.

Although things seemed to be getting better, and Venezuela experienced a brief period of moderate economic recovery over the past three years, it barely concealed the devastating legacy of a previous and ongoing historic collapse that reshaped the nation. In an attempt to stabilize the economy, Maduro shifted from state-driven policies towards market-oriented reforms. Partial dollarization also revised exchange and fiscal policies and introduced a more business-friendly stance that helped lower inflation and partially restore purchasing power. Yet even with this, the damage to Venezuela's society has already been done, leaving thousands of citizens struggling to recover from years of catastrophic governance and escalating political conflict.

Years of harsh economic controls, widespread nationalizations, and excessive bureaucracy have weakened the economy by over 80% and reduced industrial capacity to just 30% of its former level, leaving the only option for thousands of companies being closed. Additionally, hyperinflation, which peaked at an astronomical 9,500% in 2019, devastated financial stability and contributed to a sharp rise in income poverty, now affecting an estimated 80% of the population. If that wasn't bad enough, income inequality also remains among the worst in the region, with the wealthiest 10% controlling 37% of the nation's income. Furthermore, popular social assistance programs like Barrio Adentro, Mi Casa Bien Equipada, and Mercola's food markets collapsed during the crisis, while the minimum monthly wage dropped from around $400 to $3, with periodic bonuses only slightly raising it to $150.

Since 2015, Venuzvals oil sector has not been standing up too well and it seems to be making issues in venezuela especially worse now. National revenues, heavily reliant on crude oil extraction, hit a critical low as production plummeted from nearly three million barrels per day to just 300,000 barrels in 2019, with only a slow recovery to about 1 million barrels per day underway. On top of that, international sanctions since 2016 have further constrained Venezuela's ability to export alternative trade options or revitalize its oil industry. The long lasting international issues, coupled with the recent domestic issues with oil, has worsened living standards, with millions of Venezuelans fleeing their homeland to seek refuge across South America. Remarkably, remittances from immigrants have now become a significant source of tax revenue, showing how many people have left and significantly weakening the country's ability to produce goods and services.

Since economic mismanagement has been such a persistent problem in Venezuela for decades, a political realignment was triggered in 2015, after which the Socialist Party of Venezuela intensified its grip on state institutions, centralizing power in the hands of Maduro and a select group of loyalists. Despite them introducing initiatives like the Carné de la Patria and CLAP food bags to shore up support, these measures remain insufficient to counterbalance the collapse of productive activity within the country. With democratic institutions hollowed out and widespread corruption being persistent for decades, Venezuela now faces a period marked by political uncertainty and looming economic instability. The nation's economic framework, damaged by decades of catastrophic governance, appears unlikely to recover in any meaningful way as long as these destructive policies remain in place. So the question is, will Venezuela fix their looming issues like corruption and a weakened economic framework, or will they introduce productive policies to reverse something that seems irreversible?