Venezuela

Venezuela, home to the world’s largest oil reserves, is a case study in the perils of becoming a
petrostate. Since it was discovered in the country in the 1920s, oil has taken Venezuela on an
exhilarating but dangerous boom-and-bust ride that offers lessons for other resource-rich states.
Decades of poor governance have driven what was once one of Latin America’s most prosperous
countries to economic and political ruin.

Venezuela has suffered economic collapse in recent years, with output shrinking by three-quarters
and rampant hyperinflation contributing to a scarcity of basic goods. Meanwhile, government
mismanagement and U.S. sanctions have led to a drastic decline in oil production and severe
underinvestment in the sector. But Caracas hopes that Washington’s 2022 decision to allow U.S. oil
giant Chevron to resume operations in the country could signal a potential détente.

Venezuela is an example of a petrostate, where the government is highly dependent on fossil fuel
income, power is concentrated, and corruption is widespread.

Petrostates are vulnerable to what economists call Dutch disease, in which a government develops
an unhealthy dependence on natural resource exports to the detriment of other sectors.
The crisis in Venezuela is an ongoing economic and political crisis that began in 2010. It is marked by
hyperinflation, crime, mass emigration, and starvation. The crisis in Venezuela began with the
presidency of Hugo Chávez in 1999. Venezuela is an oil-rich country and the high oil prices in the
early 2000s brought in a lot of money for the government. Chávez used this money to fund missions
that were aimed to improve economic and social conditions.

Between 2002 and 2008, poverty decreased by more than 20% and the standard of living improved
for many Venezuelans.1

However, Venezuela’s overdependence on oil led the economy to suffer from the Dutch disease.

GDP

In the 2000s, oil prices were increasing and so too did Venezuela’s GDP per capita. The GDP peaked
in 2008 where GDP per capita was $18,190.

In 2016, the Venezuelan economy contracted by 18.6%. This was the last economic datum the
Venezuelan government produced. By 2019, the International Monetary Fund (IMF) estimated that
Venezuela’s GDP contracted by 22.5%.

Inflation

At the start of the crisis, inflation in Venezuela was at 28.19%. By the end of 2018 when the
Venezuelan government stopped producing data, the inflation rate was at 929%.

From 2015, the inflation rate rapidly increased from 111.8% to 929% at the end of 2018. It was
estimated that in 2019, Venezuela's inflation rate hit 10,000,000%!

Hyperinflation has caused the Venezuelan Bolívar to lose its value. Thus, the government has
introduced a new cryptocurrency called the Petro that is backed by the country’s oil and mineral
reserves.

Poverty

Nearly all Venezuelans live in poverty. The last data set available in 2017 shows that 87% of
Venezuela’s population live under the poverty line.4

In 2019, the average daily income in Venezuela was $0.72 US cents. 97% of Venezuelans are
uncertain as to where and when their next meal will come. This has led to Venezuela receiving
humanitarian aid to help relieve some from poverty.

Foreign involvement in the Crisis in Venezuela

The crisis in Venezuela has sparked the interest of many foreign countries.

Many organisations like the Red Cross, have provided humanitarian aid to ease hunger and illness.
Some of the aid has been received but most of it has been blocked or denied by the Venezuelan
government and their security forces.

The European Union, the Lima Group, and the United States have taken a different approach, and
have imposed economic sanctions against government officials and certain sectors in Venezuela.

Economic sanctions
The United States is the country with the most sanctions on Venezuela. The US started to impose
sanctions on Venezuela in 2009, but under the presidency of Donald Trump, the number of sanctions
imposed significantly increased.

Most of the US sanctions are on Venezuela’s gold, oil, finance, and defence and security sectors. This
has impacted Venezuela’s revenue in the gold and oil sectors.

Other countries like Colombia, Panama, Italy, Iran, Mexico, and Greece have also imposed sanctions
on Venezuela.

These sanctions on Venezuela have almost left the country isolated from the rest of the world. The
aim of these sanctions is to encourage Maduro to end his harmful policies and encourage the
Venezuelan government to put an end to the extreme conditions many Venezuelans experience.

Turkey

the Turkish economy is facing a self-inflicted economic crisis of high inflation, and a cost of living
crisis that dwarfs what we see elsewhere in Europe.
The Turkish model of economic growth collapsed in 2018, which involved high levels of investment
financed by rising foreign debt, and Turkey faced an economic crisis. Inflation reached 25 per cent in
November, and the value of the Turkish lira was significantly eroded.

In August 2018, U.S. President Donald Trump doubled the customs tariffs for Turkish steel and
aluminium imports, leading to a rapid fall in the value of the Turkish lira, which tanked by 20% a few
days after the U.S. decision. In response to the high inflation, the Central Bank of the Republic of
Turkey boosted the interest rate, which first rose from 13.5 per cent to 16.5 per cent in May and then
up to 24 per cent in September. The increase was strongly opposed by the Turkish President, whose
position was that a high interest rate hampers economic growth and causes inflation. Erdoğan
attempted to exert pressure on CBRT governor Murat Cetinkaya to reduce the interest rate. However,
Cetinkaya did not do so, and Erdoğan forced him to resign from the position of the central bank’s
governor in July 2019. Keeping the interest rate high at 24 per cent has had a positive impact on the
Turkish economy and has helped to alleviate the economic problems.

Murat Uysal became a new CBRT governor in 2019, and he served his duty for over a year. Over the
last few years, the governors of the Turkish central bank have been changed several times, which
only shows the level of the bank’s politicisation. The institution should be, however, independent
from the government.

In 2019, Turkey temporarily recovered from the recession, and its tourism revenue was $34 billion. In
turn, decreased oil prices have resulted in lower transport costs. The situation has stabilised thanks
to favourable global trends, such as the expansionary monetary policy in the USA and lower
commodity prices. The Turkish economy was also positively affected by the high CBRT interest rate,
which was increased to 24 per cent in September 2018, thus reducing inflation. In the second half of
the following year, however, the CBRT began to gradually lower the interest rate, which was below 10
per cent in the first half of 2020.
Despite the improvement in the economic situation, proper reforms have not been introduced, and
at the same time the strategy of stimulating the investments generating increasing foreign debt of
the economy was quickly revived. As of late 2019 and early 2020, Turkey’s total external debt stood
at nearly $440 billion, while the reserves amounted to around $80 billion. In the first months of
2020, the situation deteriorated again. The CBRT, on the other hand, introduced gradual interest rate
cuts to drive the economic growth rate by keeping consumption and investment high, which led to
higher inflation. The Turkish economy was also negatively affected by the COVID-19 pandemic,
although Turkey achieved the economic growth of 1.8 per cent in 2020. To avoid having to declare
insolvency, the government took many measures to protect the Turkish lira. However, these proved
ineffective, and what saved Turkey was the help of expanding foreign exchange with Qatar and China