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The Venezuelan economic crisis is the deterioration that began to be noticed in the main macroeconomic indicators from the year 2012, and whose consequences continue, not only economically but also politically and socially. The April 2019
International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...
(IMF) World Economic Outlook described Venezuela as being in a " wartime economy". For the fifth consecutive year,
Bloomberg Bloomberg may refer to: People * Daniel J. Bloomberg (1905–1984), audio engineer * Georgina Bloomberg (born 1983), professional equestrian * Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician a ...
rated Venezuela first on its
misery index Misery Index can refer to: Economics *Misery index (economics), adding the unemployment rate to the inflation rate Entertainment

*Misery Index (band), an American death metal band from Baltimore *Misery Index (album), ''Misery Index'' (alb ...
in 2019.


Origins

The origin of this
economic collapse Economic collapse, also called economic meltdown, is any of a broad range of poor economic conditions, ranging from a severe, prolonged depression with high bankruptcy rates and high unemployment (such as the Great Depression of the 1930s), t ...
, framed in the context of the
Great Recession The Great Recession was a period of market decline in economies around the world that occurred from late 2007 to mid-2009.
, years after the improvement of the extraction of unconventional hydrocarbons in the U.S., showed a macro-economic phenomenon of great importance for the region. China's slowdown, a steady increase in oil production, and stable demand generated a surplus of crude oil that caused a drop in prices of reference crude oil,
West Texas Intermediate West Texas Intermediate (WTI) is a grade or mix of crude oil; the term is also used to refer to the spot price, the futures price, or assessed price for that oil. In colloquial usage, WTI usually refers to the WTI Crude Oil futures contract t ...
(WTI), and
Brent Crude Brent Crude may refer to any or all of the components of the Brent Complex, a physically and financially traded oil market based around the North Sea of Northwest Europe; colloquially, Brent Crude usually refers to the price of the ICE (Intercon ...
, falling in 2014 from $100 a barrel to $50 a barrel, and causing unfavourable changes in the economy of Venezuela (see
2010s oil glut The 2010s oil glut was a significant surplus of Petroleum, crude oil that started in 2014–2015 and accelerated in 2016, with multiple causes. They include general oversupply as Unconventional (oil & gas) reservoir, unconventional US and Canadi ...
). Owing to high oil reserves, lack of policies on private property and low remittances, by 2012, 90% of Venezuela's revenues came from oil and its derivatives. With the fall in oil prices in early 2015 the country faced a drastic fall in revenues of the US currency along with commodities. In addition, the government had not made policy changes to adapt to the low petroleum price. In early 2016, ''
The Washington Post ''The Washington Post'', locally known as ''The'' ''Post'' and, informally, ''WaPo'' or ''WP'', is an American daily newspaper published in Washington, D.C., the national capital. It is the most widely circulated newspaper in the Washington m ...
'' reported the official price of state-retailed petrol was below US$.01 per gallon, and the black market valued the dollar at 150 times what the official state currency exchange rate did.


Business and industry

In 2013, Venezuela ranked as the top spot globally with the highest misery index score. A number of foreign firms have left the nation, often due to quarrels with the socialist government, including
Smurfit Kappa Smurfit Westrock plc is an Irish-American company based in Dublin, Ireland that manufactures corrugated and paper-based packaging. Its stock is listed on the New York Stock Exchange and the London Stock Exchange. History The company was establis ...
,
Clorox The Clorox Company (formerly Clorox Chemical Company) is an American multinational manufacturer and marketer of consumer and professional products. As of 2024, the Oakland, California-based company had approximately 8,000 employees worldwide. N ...
, Kimberly Clark and
General Mills General Mills, Inc. is an American multinational corporation, multinational manufacturer and marketer of branded ultra-processed consumer foods sold through retail stores. Founded on the banks of the Mississippi River at Saint Anthony Falls in ...
; the departures aggravate unemployment and shortages. Domestic airlines are having difficulties because of hyperinflation and parts shortages, and many international airlines have left the country. Airlines from many countries that have left Venezuela including AeroMexico,
Air Canada Air Canada is the flag carrier and the largest airline of Canada, by size and passengers carried. Air Canada is headquartered in the borough of Saint-Laurent in the city of Montreal. The airline, founded in 1937, provides scheduled and cha ...
,
Avianca Avianca S.A. (acronym in Spanish for ''Aerovias de Colombia S.A.'', "Airways of Colombia", and stylized as avianca since October 2023) is the largest airline in Colombia. It has been the flag carrier of Colombia since December 5, 1919, when it ...
(Colombia),
Delta Delta commonly refers to: * Delta (letter) (Δ or δ), the fourth letter of the Greek alphabet * D (NATO phonetic alphabet: "Delta"), the fourth letter in the Latin alphabet * River delta, at a river mouth * Delta Air Lines, a major US carrier ...
, and
Lufthansa Deutsche Lufthansa AG (), trading as the Lufthansa Group, is a German aviation group. Its major and founding subsidiary airline Lufthansa German Airlines, branded as Lufthansa, is the flag carrier of Germany. It ranks List of largest airlin ...
, making travel to the country difficult. According to the
International Air Transport Association The International Air Transport Association (IATA ) is an airline trade association founded in 1945. IATA has been described as a cartel since, in addition to setting technical standards for airlines, IATA also organized tariff conferences tha ...
(IATA), the Government of Venezuela has not paid US$3.8 billion to international airlines in a currency issue involving conversion of local currency to U.S. dollars. Airlines have left for other reasons, including crime against flight crews, stolen baggage, and problems with the quality of jet fuel and maintenance of runways.
American Airlines American Airlines, Inc. is a major airlines of the United States, major airline in the United States headquartered in Fort Worth, Texas, within the Dallas–Fort Worth metroplex, and is the Largest airlines in the world, largest airline in the ...
, the last U.S. airline serving Venezuela, left on 15 March 2019, after its pilots refused to fly to Venezuela, citing safety issues. Iranian
Mahan Air Mahan Airlines, operating under the name Mahan Air (), is a privately owned List of airlines of Iran, Iranian airline based in Tehran, Iran. It operates scheduled domestic services and international flights to the Far East, Middle East, Central ...
(blacklisted by the U.S. since 2011) began direct flights to Caracas in April 2019, "signifying a growing relationship between the two nations" according to FOX News.


Gross domestic product

Estimated to drop by 25% in 2019, the IMF said the contraction in Venezuela's GDP—the largest since the Libyan Civil War began in 2014—was affecting all of Latin America. In 2015 the Venezuelan economy contracted 5.7% and in 2016 it contracted 18.6% according to the Venezuelan central bank. Oil generates about 96% of Venezuela's export revenues; oil prices have fallen when the country faces runaway inflation and a severe scarcity of basic products. In reference to the anti-government protests that shook Venezuela earlier this year, smuggling and of hoarding essential products, the central bank said that those "actions against the national order prevented the full distribution of basic goods to the population, as well as the normal development of the production of goods and services. This resulted in an inflationary upturn and a fall in economic activity".


Inflation

Inflation in Venezuela remained high during Chávez's presidency. By 2010, inflation removed any advancement of wage increases. The inflation rate in 2014 reached 69% and was the highest in the world. It increased to 181% in 2015, 800% in 2016, 4,000% in 2017 and 2,295,981% in February 2019. In November 2016, Venezuela entered a period of
hyperinflation In economics, hyperinflation is a very high and typically accelerating inflation. It quickly erodes the real versus nominal value (economics), real value of the local currency, as the prices of all goods increase. This causes people to minimiz ...
. The Venezuelan government "essentially stopped" producing inflation estimates in early 2018.
*
From 2017 to 2019, some people became video game gold farmers and could be seen playing games such as ''
RuneScape ''RuneScape'' is a fantasy massively multiplayer online role-playing game (MMORPG) developed and published by Jagex, released in January 2001. ''RuneScape'' was originally a browser game built with the Java (programming language), Java progr ...
'' to sell in-game currency or characters for real currency; gamers could make more money than salaried workers by earning only a few dollars per day. In the 2017 Christmas season, some shops stopped using price tags since prices would inflate so quickly. In August 2018, Maduro announced a new currency, the sovereign bolívar, to fight hyperinflation. The new currency replaced the existing paper bolivar at a rate of 1/100,000: a 100,000 bolivar note becoming a 1 sovereign bolivar note. The new bills were introduced on 20 August 2018. At the end of 2018, inflation had reached 1.35 million percent. According to
Bloomberg Bloomberg may refer to: People * Daniel J. Bloomberg (1905–1984), audio engineer * Georgina Bloomberg (born 1983), professional equestrian * Michael Bloomberg (born 1942), American businessman and founder of Bloomberg L.P.; politician a ...
, Venezuela's inflation is expected to reach 8 million percent in 2019, making it the world's most miserable economy. The country continues to top Bloomberg's
Misery Index Misery Index can refer to: Economics *Misery index (economics), adding the unemployment rate to the inflation rate Entertainment

*Misery Index (band), an American death metal band from Baltimore *Misery Index (album), ''Misery Index'' (alb ...
for the fifth year straight.


Shortages

Shortages in Venezuela became prevalent after
price controls Price controls are restrictions set in place and enforced by governments, on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of go ...
were enacted according to the
economic policy of the Hugo Chávez government An economy is an area of the Production (economics), production, Distribution (economics), distribution and trade, as well as Consumption (economics), consumption of Goods (economics), goods and Service (economics), services. In general, it is ...
. Under the
economic policy of the Nicolás Maduro government An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with ...
, greater shortages occurred due to the Venezuelan government's policy of withholding United States dollars from importers with price controls. Shortages occur in regulated products, such as milk, meat, chicken, coffee, rice, oil, precooked flour, and butter; and also basic necessities like toilet paper, personal hygiene products and medicine. Some Venezuelans must search for food—occasionally resorting to eating wild fruit or garbage—wait in lines for hours and sometimes settle without having certain products.
*
*
*
*


Unemployment

Unemployment was forecasted to reach 44% for 2019; the IMF stated that this was the highest unemployment seen in the world since the end of the
Bosnian War The Bosnian War ( / Рат у Босни и Херцеговини) was an international armed conflict that took place in Republic of Bosnia and Herzegovina, Bosnia and Herzegovina between 1992 and 1995. Following several earlier violent incid ...
in 1995. Venezuelan's unemployment rate hit 17.4% at the end of June 2017, with the jobless total having doubled over 12 months, when two million people lost their jobs. In January 2016 the unemployment rate was 18.1 percent and the economy was the worst in the world according to the
misery index Misery Index can refer to: Economics *Misery index (economics), adding the unemployment rate to the inflation rate Entertainment

*Misery Index (band), an American death metal band from Baltimore *Misery Index (album), ''Misery Index'' (alb ...
. Venezuela has not reported official unemployment figures since April 2016, when the rate was at 7.3 percent. Due to the inflation and expropriations by the Venezuelan government to private companies, many others left the country, which in turn increased unemployment for those remaining. Likewise, the salary increase at the end of 2016 brought the dismissal of half of the employees of large companies (Corpoelec, Imaseo, etc.). After having completed substantial improvements over the second half of the 1990s and during the 2000s, which put a few regions on the brink of full employment, Venezuela suffered a severe setback in 2015, when it saw its unemployment rate surging to 1994 levels.


Venezuelan debt

In August 2017
President of the United States The president of the United States (POTUS) is the head of state and head of government of the United States. The president directs the Federal government of the United States#Executive branch, executive branch of the Federal government of t ...
Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who is the 47th president of the United States. A member of the Republican Party (United States), Republican Party, he served as the 45 ...
imposed sanctions on Venezuela which banned transactions involving Venezuela's state debt including
debt restructuring Debt restructuring is a process that allows a private or public company or a sovereign entity facing cash flow problems and financial distress to reduce and renegotiate its delinquent debts to improve or restore liquidity so that it can continu ...
. The technical default period ended 13 November 2017 and Venezuela didn't pay coupons on its dollar eurobonds, causing a cross default on other dollar bonds. A committee consisting of the fifteen largest banks admitted default on state debt obligations which in turn entailed payments on CDS on 30 November. In November 2017, ''The Economist'' estimated Venezuela's debt at US$105 billion and its reserves at US$10 billion. In 2018, Venezuela's debt grew to US$156 billion and as of March 2019, its reserves had dropped to US$8 billion. With the exception of PDVSA's 2020 bonds, as of January 2019, all of Venezuela's bonds are in default, and Venezuela's government and state-owned companies owe nearly US$8 billion in unpaid interest and principal. As of March 2019, the government and state-owned companies have US$150 billion in debt. The risk premium began to skyrocket at the end of 2014 to a record high of 3,181 basis points. The risk premium set a record in August 2017, recording 5,000 basis points exceeding eight times Greece's risk premium.


Prices

Due to the lack of its own resources, Venezuela has traditionally exported all its oil abroad, so the energy crisis of 2014 produced a strong inflationary trend. In June 2013, accumulated inflation in the last twelve months was 56.2%. The sharp drop between 2014 and 2016 in the price of oil, sparked fears of a risk of hyperinflation. In 2015, Venezuela reached the highest inflation rate in the last 35 years, and in March 2016 there was hyperinflation for the first time in recorded history. In October 2016, the economy continued to contract while inflation increased again. Between 2017 and 2018, prices rose 2616% - this increase combined with austerity measures and high unemployment negatively impacted the living standards of Venezuelans. At the same time the average wages decreased (real) and the purchasing power was significantly reduced.


Ratings

In the beginning of the crisis, Venezuela's credit ratings were downgraded to "junk territory" or below
investment grade In investment, the bond credit rating represents the credit worthiness of corporate or government bonds. The ratings are published by credit rating agencies and used by investment professionals to assess the likelihood the debt will be repaid. C ...
with negative outlooks according to most rating agencies. In a little more than one year,
Standard and Poor's S&P Global Ratings (previously Standard & Poor's and informally known as S&P) is an American credit rating agency (CRA) and a division of S&P Global that publishes financial research and analysis on stocks, bonds, and commodities. S&P is cons ...
downgraded Venezuela's credit rating three times; from B+ to B in June 2013, B to B− in December 2013 and from B− to CCC+ in September 2014.
Fitch Ratings Fitch Ratings Inc. is an American credit rating agency. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission and is considered as being one of the " Bi ...
also lowered each of Venezuela's credit ratings in March 2014 from B+ to B and even lower from B to CCC in December 2014. In December 2013,
Moody's Investors Service Moody's Ratings, previously and still legally known as Moody's Investors Service and often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its histo ...
also downgraded both Venezuela's local (B1) and foreign currency (B2) ratings to Caa1. The noted reasons of credit rating changes were the greatly increased likelihood of economic and financial collapse due to the Venezuelan government's policies and an "out of control" inflation rate. In July 2017, Standard & Poor's lowered both the domestic and foreign credit ratings of Venezuela to CCC− due to the increasing risk of default. Fitch Ratings followed suit in August 2017, lowering local and foreign credit ratings to CC. In November 2017 Standard & Poor's rated Venezuela in technical default and Fitch ratings rated Venezuela's oil company PDVSA in restrictive default - one rank above full default.


See also

*
Crisis in Venezuela An ongoing socioeconomic and political crisis began in Venezuela during the presidency of Hugo Chávez and has worsened during the presidency of successor Nicolás Maduro. It has been marked by hyperinflation, escalating starvation, disease, c ...
*
Economy of Venezuela The economy of Venezuela is based primarily on petroleum, as the country holds the largest crude oil supply in the world. Venezuela was historically among the wealthiest economies in South America, particularly from the 1950s to 1980s. During ...
* 2014 Venezuelan protests


Notes


References

{{DEFAULTSORT:2013-present economic crisis in Venezuela Crisis in Venezuela 2010s in economic history 2010s in Venezuela Economic collapses Economic history of Venezuela