Venezuela is speculated to be the next spot for potential economic meltdown. With almost 80% of the population below the poverty line, shortage in food and skyrocketing inflation rates, what we fear is taking its shape at a blistering rate. The currency (Bolivar) has been depreciating consistently, especially in the past few years. The most prominent source of their GDP- the oil-has seen an inflammatory decrease in its prices. Venezuela’s foreign debt has further depreciated the reserves. The Leftist-Rightist Socialistic sentiment seems to have been hindering the already shrinking growth rate.
This situation is not just a matter of numbers, it is about the social life of people, it is about their sustenance and their living standards. With the deprivation of a basic necessity like food, the economic planning over the years seems to me as a miscalculated approach.
ANALYSIS OF THE ECONOMIC PLANS OF HUGO CHAVEZ –
Hugo Chavez had been the President for almost 15 years until 2013. He is widely known for his socialistic economic policies. And I think 15 years of economic policy making by the same party with not even a slight change in ideology can make or break the economy. There will definitely be a long term effect to it, either good or bad. For Venezuela it has mostly had a negative effect. Chavez’s rule can be characterised by populism and authoritarianism. He was hostile to private investment and the foreign countries feared the risk of default. As most of the industries were state run, the scope of high profitability of individuals narrowed down. Though socialistic views are pro working class, the problem of not having proper foreign/private investment has further led to the downfall of the economy. He was also known to follow partisan politics. Incredulous amounts of money and resources were sanctioned by him as party fund. There were disturbances in the monetary system of the country. Following an oil strike Chavez tried to impose stricter exchange rates. But now due to the complicated exchange rate system and a huge devaluation in the currency, the Bolivar is one of the weakest among its South American peers.
The on and off political instabilities like the militant coup, have had adverse effects by degrading the stability and public trust. The poverty rates crossed 50% and even reached 74% at this time. Corruption prevailed due to complexities in procedures and the followers of the party were prioritised. Chavez’s overspending tirade was perhaps lucrative for his political career, but not for the country’s economic future. Not only did his rule put the capitalist countries far away from investing but the overspending led to macroeconomic disturbances- high inflation rates, depreciation of currency,and poverty. These problems continued in Maduro’s government as well.
STEPS THAT CAN BE TAKEN TO CURB THE EFFECTS OF THE CRISIS-
It is pretty difficult to get back to normal after a bad economic situation. Any changes in governance or any structural change will take its time to be imbibed in the society. This time gap is mainly because, different people have different needs, ideologies and willingness to adapt to a change. The following reforms, I think , from my little knowledge, could workout for Venezuela in the long run.
- Improved Governance-
The situation has been mainly caused due to lack of proper governance. Mismanagement of resources and money is the potential culprit of the situation caused. This is not the first time that Venezuela finds itself in midst of a crisis. The first thing is the government should do is to give people hope that they would be out of the crisis with collective effort. They should learn from the past mistakes and try not to repeat them. Whatever they are going to do must be sustainable and optimistic.
- Employment Generation or Incentives to unemployed-
No employment means, no money for self sustenance. In the present situation, the inflation is very high, therefore, the people need to have a job to run their household. If the government cannot accommodate jobs, they should provide the people with allowances. The government can focus more on creating jobs in the secondary sector. Venezuela has the natural resources required for industrial production. More focus on it would definitely be of some help.
- Importing goods of shortage and domestic production-
Venezuela is running out of basic essentials. Food and medicine are the two commodities the government should ensure to provide the people with. Production at this moment wouldn’t be a feasible idea. But, in the long run, they should try to be self sufficient in their necessary goods. Presently, it would be practical to import from their neighbouring countries to meet the demand.
- Privatisation of industries-
Privatisation would enable producers to get more profit. This would also allow free flow of markets. The government should be willing to support the firms financially so that they can run their business smoothly in the initial stage. This should be done in smaller scale, because the people would be in dearth of capital required for a larger holding. This would also help generate employment in the time ahead when the firms are subject to external economies of scale. This would also reduce the burden on the government and they can concentrate more on governance.
- Easing the rules and regulations-
It would be profitable to deregulate the many restrictions imposed on carrying on business activities. Apparently, there is a lot of corruption, reptapism and favouritism in the name of bureaucracy. Easing the rules would enable people who are economically sound to start their own business and it would help in capital formation in the country.
- Less expenditure and more savings-
When the people start to consume less and start saving in banks, it would not only accrue them interests but it would help in the revival of the banking sector. This would allow the banks to credit those who need to finance their businesses or who are in need of money. In this way people may satiate their basic needs.
Social security allowances is another way of providing the old age people and BPL citizens, with their basic needs.
This crisis is a best example of how bad governance affects the economy. It is just not about the economic security of people but, about their psychological struggle in running their family in a state of distress. This would ultimately lead to increase in crime rates. Venezuela should have focussed and improved the other sectors as well. They depended heavily on oil and when the market prices declined, the economy almost trembled. It is time they concentrate on good leadership and proper heterodox approaches. In my view continuing to be socialist in ideology will continue to derail the economy. We all know where Soviet Union ended up!