Capital

Market
Venezuela Economic Crisis-Case Study

Submitted by:
Angel Mae Signo
Ma. Jessa Sumodobila
Eva A. Taganas
Princess Monic C. Tagsa
Samuel G. Tandog Jr.
Laravel P. Ticong

Submitted to:
Prof. Ruben Josol, MBA
 Venezuela Economic Crisis-Case Study

Table of Contents

Contents Page Number

 Overview 2
 Case Evaluation 3
 Proposed Solution 3
 Conclusion 4
 Recommendation 4
 References 5

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 Venezuela Economic Crisis-Case Study

Venezuela Economic Crisis: Overview

The main purpose of this case is to address the current economic crisis in Venezuela and
involvement of two leaders- President Hugo Chavez and Nicolas Maduro in the crisis. Venezuela,
the most populated nation in South America, bordered by Colombia and Brazil, faced in its
modern history, the biggest economic crisis. This country has changed from democracy to
dictatorship and is involved in high crime rates against humanity as well as military conspiracy.
The main reason for the economic crisis in Venezuela is populist policies, which further resulted
in water and food scarcity, massive unemployment, hyperinflation and oppositions from United
States and other trade sanction. Critics of the government say that the cause of their economic
crisis is “years of economic mismanagement, and corruption.

President Chavez was well known as the most controversial leaders of Venezuela, as his policies
were against the basic principles of free market economy. His action includes two things
namely, expropriating and nationalization of international companies. The poor people as well
as the farmers support the Chavez’s leadership for his vision that was to ensure affordable food
to all Venezuelans. However, the criticism from ruling United Socialist Party which imposed
currency and price controls lead to sharp decline in the farmland as well as oil industry. The
production of main crops namely corn, rice, sugar cane and beef had fallen down drastically.

After ruling near about 14 years, Chavez died in 2013 and his hand-picked successor, President
Nicolas Maduro took over his presidency position in April 2013. Maduro had never cared and
participated in any decision related to boosting of country’s economy. The report states that
approximately 27000 people died due to violence and crime in the year 2016. Moreover, the
poverty line escalated and in 2013, the GDP of the country was valued as -1.4% (Trading
Economics, 2018). It leads to political instability and in 2013; the inflation rate was accounted
as more than 650% (Statista, 2018) which is shown below:

Source: Statista, 2018 (Venezuela Inflation Rate from 2012 to 2022)

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 Venezuela Economic Crisis-Case Study

Venezuela Economic Crisis: Case Evaluation

Analyzing past catastrophe losses in Venezuela is complicated by the country’s troubling

economic conditions. Venezuela has been in an economic and political crisis for several years,
with economists regarding the fall as the single largest economic collapse outside of war in at
least 45 years (Kurmanaev 2019). The causes behind Venezuela’s collapse are complex and
have been attributed to years of poor governance, political corruption, and misguided economic
policies.

Chavez was elected President in 1998 from socialist platform. He reduced poverty by 20% and
expand its social services. Oil production was on peak in late 1990s and early 2000s, after that
it started to decline. Due to two months oil strike, exports and foreign exchange reserves
declined. He fired thousands of PDVSA experienced workers who participated in industry strike
in 2002-2003, which deprived company from many technically skilled persons. Beginning in
2005, Chavez provided subsidized oil in several countries in the region including Cuba, through
an alliance known as Petrocaribe. It resulted in depleting petroleum reserves and almost
doubled government debt. On January 21, 2003 the bolivar was devalued at a record low i.c.
Bs1891.50/$ which was Bs722/5 one year earlier.

The crisis accelerated in 2014, coinciding with falling global oil prices and the election of
President Nicolas Maduro following the death of Hugo Chavez. The fail in oil prices helped
trigger a recession and runaway inflation, which continue today. Venezuela’s economic decline
has led to a devastating decrease in household purchasing power, food and medicine
shortages, and the mass emigration of million Venezuelans.

Venezuela Economic Crisis: Proposed Solution

Since, the main causes of the crisis in Venezuela are the mismanagement of government funds
and corruption such as the overdependence on oil, and the policies imposed by the government
that is why Venezuela has been driven into an economic and political crisis that made the
country have extreme poverty, hyperinflation, low economic growth and mass emigration in
most of the people in order to seek for a food and job. The following are the proposal solutions
to end the economic crisis, specifically, the Venezuela such are:

 Ban the ridiculous currency system and develop a new currency system.
 Encourage domestic trade to boost productivity and increase domestic demand instead
of centralizing power in state-owned enterprises.
 Increase efforts on maintaining public order and establish government authority.
 Cancel the price controls and too much social welfare.
 Encourage free markets.
 Develop potential profitable industry.

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 Venezuela Economic Crisis-Case Study

Venezuela Economic Crisis: Conclusion

 A socioeconomic and political crisis that began in Venezuela during the presidency of
Hugo Chavez continued until the presidency of Nicolas Maduro.
 It is marked by hyperinflation, escalating starvation, disease crime, and mortality rates,
resulting in massive emigration from the country.
 Objectively, that the money has no firm basis to give it a value.
 Subjectively, that the people holding the money lack confidence in its ability to retain its
value.

Venezuela Economic Crisis: Recommendations

As stated throughout this report, Venezuela has experienced a long period of economic
recession and many hardships that followed it. Although the crisis has yet to come to an end,
many things could be done to help the economy of Venezuela and the people who live there. It
has been made clear that the government of this country has no control as everything is
decided by President Nicolas Maduros. It has been a struggle for Venezuelans to remove him
from power, and although things may not completely be resolved for this country until then,
there are some policies that may help mitigate the effect of the damage done to their economy.
One policy recommendation would be to stabilize the currency of this country. As stated
previously, this specific currency decided by Maduro has only been accessible to the military
and Maduro’s allies, and this decision has become the most damaging imbalance in the
economy. Yet, if the currency becomes stabilized there would be an end to the prolonged
balance of payments crisis and an end to most corruption that resulted from overvalued
exchange rates. There would then have to be a policy to eliminate the price controls. As there
have been controls on basic needs such as food, they would need to be reduced to eliminate
the shortages. These two policy recommendations may result in an end to the extreme poverty
and hyperinflation that has come because of the Venezuelan crisis. Yet, until they are freed
from the rule of Maduro there must be plans to stabilize the country after his dreadful time in
power.

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 Venezuela Economic Crisis-Case Study

Reference:
 Bahar, D., Piccone, T., & Trinkunas, H. (2018). Venezuela: a path out of misery.
Brookings Institution, Foreign Policy, Washington: The Brookings Institution.
Collapse in Venezuela-Basic. (2021). Retrieved 31 March 2021, from
https://modeldiplomacy.cfr.org/preview/51/overview
 https://www.worldvision.org/disaster-relief-news-stories/venezuela-crisis-facts
 https://www.forbes.com/sites/realspin/2017/02/03/why-venezuelas-currency-crisis-is-a-
case-study-for-bitcoin/?sh=4029644d19b2
 https://www.researchgate.net/publication/
326680853_Venezuelan_economic_crisis_crossing_Latin_American_and_Caribbean_bord
ers

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