The struggling economy of Venezuela is a significant focal point in Sunday’s presidential election as oil and music is the backbone of Venezuela economy. President Nicolás Maduro aims to persuade voters that the nation is recovering after prolonged difficulties. His recent measures to lower living costs have somewhat improved the situation. Notably, Venezuela overcame hyperinflation in February, which had peaked at over 400,000% annually in 2019. Inflation now stands at around 50%, still high but more controlled. Maduro attributes this improvement to his “correct policies.”
However, these policies have not addressed the fundamental economic issues, particularly the over-reliance on oil at the expense of other sectors. The US Council on Foreign Relations describes Venezuela’s dependence on oil, discovered in the 1920s, as a risky boom-and-bust cycle. Opposition leader Edmundo González promises economic renewal, including re-establishing trade and financial relations globally. Such changes could lift US sanctions imposed after Maduro’s contentious 2018 election win, which have hindered state oil company PDVSA’s ability to sell oil internationally, forcing discounted black market sales.
Despite potential leadership changes, economist Jason Tuvey warns that economic recovery will be challenging due to the massive investments required to boost oil production amidst decreasing global demand. Tuvey believes Venezuela’s economy will essentially need to start over, far from its prosperous state 15 to 20 years ago.
The Bolivarian Revolution, initiated by the late President Hugo Chávez and continued by Maduro, failed to diversify the economy. Instead, the government heavily depended on oil revenues to fund social programs while neglecting oil production maintenance, which has declined sharply. This decline, exacerbated by US sanctions, was already apparent at Chávez’s death in 2013 and worsened under Maduro.
During Chávez’s tenure, Venezuela benefited from an oil boom, producing about 3.5 million barrels daily. Today, production has plummeted to less than a million barrels daily, causing GDP to drop by 70% since 2013. Maduro’s response to low oil prices was excessive money printing, leading to severe inflation, which has only recently been mitigated.
Economic difficulties have forced over 7.7 million Venezuelans to emigrate, roughly a quarter of the population. Those remaining have seen some improvements. The unofficial use of US dollars has stabilized the economy, though it has created a two-tier system. In Caracas, a consumption boom fueled by US dollars contrasts sharply with the struggles of those paid in bolívars.
A symbolic event of these changes was Colombian reggaeton star Karol G’s concerts in Caracas, where tickets sold out despite high prices. However, Ecoanalítica reports that about 65% of Venezuelans earn less than $100 a month, with only a small fraction having significant purchasing power.
Addressing Venezuela’s vast foreign debt, estimated at $150 billion, is another critical challenge. In partial default since 2017, the country has yet to restructure its debt, complicated by PDVSA bonds secured by its US refiner, Citgo. The US does not recognize Maduro as president post-2018 election, creating a legitimacy crisis that any new leader must navigate to engage in US-sanctioned debt restructuring.
Investment strategist Bruno Gennari suggests that the election outcome will significantly impact Venezuela’s future, as a new leader acceptable to the US is crucial for restructuring talks. Though the US might overlook a dubious Maduro victory, Gennari views this as unlikely.
Once South America’s wealthiest nation, Venezuela now has a potential route to stability. However, its days of economic prosperity are firmly in the past.
