Venezuela has one of the largest oil reserves in the world, but it is facing its worst economical crisis. Being what was once South America’s richest nation, hyperinflation, declining oil production, and the burdens of debt have reached the country at its lowest point. Recovery plans are in the process of being made internally and externally.
Decrease in Oil Production
Oil production is Venezuela's main source of income, and accounts for 98 percent of its exports. The decline in oil production started during the presidency of Hugo Chavez and since then, the production has fallen to only 1.3 million barrels a day in 2019, from 3 million barrels a day in 1999. This was caused by insufficient investments and the poor management of Venezuela's most significant industry. Consequently, this resulted in corruption, a lack of resources and supplies, as well as a strike that resulted in a loss of skilled workers. Moreover, sanctions and penalties put forth by the U.S. restricted the country for gathering funds from American investors and prevented them from exporting to their biggest customer, the U.S..The diminishing crude oil production and sale has started to cause Venezuela's economy to collapse.
Venezuela's inflation rate significantly increases every year, boasting at annual rate of 373,000 percent. For instance, the price of a coffee has risen from 0.8 bolivars in 2018, to a staggering price of 3000 bolivars only a year later, in 2019. After the 2014 crash in oil prices, inflation rates rose quickly, as the country did not have any financial resources to fall back on. Also, the Bolivar, Venezuela's national currency, has lost most of its value, and is basically worthless. Many of its citizens are forced to leave the country and those who stay, are forced to turn to illegal markets for basic necessities.
Venezuela’s debts have amalgamated to $157 billion in 2018, with creditors demanding more than $9 billion in payments. The decrease in oil revenue has contributed to the country's inability to pay off its debts, with last year’s total debt to be approximately 150% of its GDP. Initially, the government relied on the assumption that oil prices would be consistent at a high price. With oil prices crashing and sanctions that have cut off the country from its most profitable industry, Venezuela found itself in an ocean of debt.
What can be done?
The U.S. would lift its sanctions if Guiado would assume real power. Then, the country could gather funds from the International Monetary Fund (IMF) and the World Bank to start using oil revenue to invest in other developing industries. A loan by an international bank would allow the central bank to stop printing currency and that would allow them to stabilize the Bolivar. By stabilizing the currency, the inflation rate would start to slow down and regain some of its initial value. Debts would need to be paid off, but the government would have to have sufficient funding to take care of its citizens’ basic needs to stimulate the local economy again. However arduous this process may be, it is necessary for Venezuela to gain funding enough for itself to stimulate other industries, to support its citizens, and to regain control of their own economy.