CRF Blog

Backgrounder on Venezuela’s Economic Fractures

by Bill Hayes

Backgrounders from the Council on Foreign Relations are primers on pressing world issues. They usually include histories, summaries, images, graphs, video, and links to additional resources.

A recent Backgrounder was on Venezuela’s Economic Fractures.

Hugo Chavez’s transformative presidency left behind an economic model that has sown deep, heated divisions within Venezuelan society. The country’s oil reserves — among the world’s biggest — largely sustain the state-controlled economy, in which social development and affordability for the poorest sectors of society are prioritized. But stringent currency and price controls and a thriving black market for U.S. dollars have contributed to inflation, stagnant production, and frequent goods shortages, catalyzing vocal discontent with the government’s economic management. Crashing oil prices in late 2014, paired with reduced output, threaten to diminish the country’s main source of income.

The oil squeeze and fears that it could trigger a default come months after mass protests rocked Caracas. A year after Chavez’s death in March 2013, demonstrators railed against his hand-picked successor, Nicolas Maduro, voicing frustration over the flailing economy, soaring crime rates, and the government’s crackdown on the opposition. The demonstrations — Venezuela’s most intense in more than a decade — resulted in more than thirty deaths. The Maduro administration has scrambled to make economic adjustments, but analysts say these moves alone are not enough to stabilize the economy. Meanwhile, Venezuela’s volatility threatens its regional relationships with oil beneficiaries and trade partners. [more]