A Humanitarian Crisis: Cheap Oil and the Collapse of Venezuela
Today, thousands of protesters march through the streets of Venezuela. They are angry that a recall referendum — at attempt to have President Nicolas Maduro impeached — has been canceled. What sparked this hatred of the Venezuelan government?
The people have been denied adequate healthcare, food, and basic freedoms. In what is being internationally labeled as a humanitarian crisis, Venezuela’s healthcare system has fallen into complete disrepair. There is a severe lack of medication, medical equipment, and staff to handle the medical needs of the country. Medical institutions that were built to offer comprehensive services for nearly any issue are now incapable of fulfilling basic needs.
Surgeries are performed without anesthetic. A lack of medication means that psychiatric patients are not able to receive proper treatment; they are instead kept in a stupor through the steady use of sedatives. Due to limited staff, even patients with cancer must sometimes wait for necessary procedures. This can often mean the difference between life and death. The situation is dire.
The current instability of Venezuela is due in large part to two major factors: Venezuela’s dependence on oil, and political strife:
Cheap Oil Killed Venezuela’s Healthcare System
While there are many factors that can cause a recession, inflation has been one of the key issues for Venezuela. About five years ago, eight bolívares equalled one dollar. Today, it would take well over 1,000 bolívares to match that. Official government statistics dramatically underestimate this change, but black market currency exchange rates reveal the true state of inflation. What happened to the economy?
When the global price of a commodity is high, countries often choose to specialize in that product; when the price of that single commodity decreases, the economy suffers drastically. The root cause of most of Venezuela’s current economic woes is oil dependency. Petroleum constitutes 95% of all the country’s exports — over half of the country’s gross domestic product.
There are many causes for the decreased price of oil. America’s increased domestic production of oil means that oil-dependent countries must compete for Asian markets — forcing producers to drop prices. Furthermore, improved energy efficiency in modern vehicles has led to a decreased demand for oil. When oil sold for over $100 per barrel, Venezuela was prosperous. Over the last couple years, the price dropped to roughly $50 a barrel. Correspondingly, oil-dependent countries like Venezuela have experienced economic chaos.
This has resulted in low wages for workers, including those involved in healthcare. Before the collapse, healthcare administration jobs paid an average of $41,000 a year, roughly half of what is paid in America. They now make less than a tenth of that. Nurses and doctors make pennies. Commuting to work often costs more than what these employees are paid in a day. As a result of meager wages, most trained professionals and graduates have either left the country or are planning to leave the country. This further damages stability.
The Cost of Political Games
As the crashing economy renders Venezuela politically unstable, production further suffers. Nicolas Maduro has harbored a persecution complex since he was selected by Hugo Chávez to lead the country. He also has a history of making statements that are not entirely lucid (for example: at one point, the president suggested that the solution to food shortages is for people to simply eat less). His authoritative government has been criticized for human rights violations throughout the past three years.
Actions by the government have been ineffectual at best. President Maduro has called for a number of drastic cost-saving measures throughout this economic crisis. The work-week for public employees has been reduced to two days a week. School has been canceled on Fridays. Many citizens have been left without power for at least three months this year, as electricity was strictly rationed.
One of the most egregious decisions that Maduro has made is his refusal to accept humanitarian aid of any sort. Donations have been stopped, due to “a lack of proper import permits”, according to the government. In truth, Maduro sees such aid as an affront to his government by political enemies. Humanitarian efforts have been denied due to the possible implication that he is not suited to provide for his people. Given that over one hundred tons of donated medical supplies currently sit in warehouses, inaccessible to ailing Venezuelans in hospitals, many critics are already making that assumption.
Many of the president’s efforts consist of damage control — in the public relations sense of the phrase. This consists of de-emphasizing the problems that ail the nation in addition to downright fabrication. When speaking earlier this year about the state of healthcare in Venezuela, Maduro said “I doubt there is anywhere in the world, with the exception of Cuba, with a better health system than this one”. The comparison to Cuba is ironically appropriate; like in Castro’s regime, people who complain about shortages or express dissenting opinions are frequently detained and questioned. Maduro strictly controls opposition.
The Unlikely Road to Stability
In late October, state-owned oil and natural gas company PDVSA announced that a bond swap with creditors has resolved a great deal of debt for the company. This gives the country a brief reprieve in these difficult times. Venezuela had to let go of a valuable asset in the deal: Citgo Petroleum Corp., a unit of the PDVSA operated by the US.
The fundamental problems of relying on a single, primary resource remain a concern. Very recently, the cost of oil has risen back over $50 — and the cost will likely rise further in the next couple years. However, it has already been shown that a strict reliance on oil leaves the economy fragile. What can the government of Venezuela do to stabilize the economy, and resolve the healthcare problems?
Due to corruption, state-run government agencies would need to be completely rebuilt. The Maduro administration has wasted billions of dollars through corruption and wasteful investments. Even if the GDP drastically improved, citizens would be unlikely to see much benefit. Venezuela still has the largest known oil reserves in the world. The country could leverage this asset by privatizing the oil industry, but the current administration is unlikely to consider this option.
Obviously, there are few paths to stability. In the meantime, it is clear that the government should begin to accept relief efforts in order to begin resolving the humanitarian crisis. People are frustrated. Whichever way this delicate situation turns out, there need to be changes. It’s clear, the current government in Venezuela is not working.