Venezuela resulted in inefficiency in running their economy,

Venezuela under the rule of Hugo Chavez was the wealthiest
country in South America at one point. Crude oil was trading for over $100 a
barrel and Venezuela had the most oil reserves in the world. Venezuela at the
time was the third wealthiest country per capita GDP in the world. This changed
when in 2014 an economic recession struck when the price of oil dropped 50%
falling below $50 a barrel, and corruption-plaguing Venezuela under Nicolas
Maduro’s socialist rule started the collapse of their economy.

Venezuela’s economy is built on their exportation of crude oil,
making up 50% of their GDP, and although it has most oil reserves in the world
it, it does not produce the most oil in the world. Since 2013 Venezuela’s GDP
has fallen by 35%, and 40% lower in per capita GDP. To give an idea of how
severe this is the United States’ GDP dropped by around 28% in the Great
Depression. Based off the Figure 1 below provided by the IMF (International
Monetary Fund), Venezuela’s GDP has been consistently declining,

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contracting 12% in 2017 and IMF expects another 6% in 2018.

Venezuela’s socialist corrupt government under Nicolas Maduro has resulted in
inefficiency in running their economy, they have discouraged foreign investors
from wanting to invest money in their economy and because of that oil
production has fallen by 25% since 1999, majority of the crude oil stays in
Venezuela where it is sold for roughly $1.50 per gallon. Venezuela relies
heavily on their exports of crude oil, crude oil making up 95% of

exports, the other 5% relying on Gems and precious metals,
organic chemicals, ore, slag, ash, iron and steel, fertilizers and fish.

The reason Venezuela is so heavily reliant on crude oil due to
policy changes under the rule of Hugo Chavez. Before the economic recession
Hugo Chavez expropriated private companies (two U.S. oil companies) and
restricted the amount of dollars and fixed the rate because the cost of key
items were affordable but were below the cost of production. This resulted in
Venezuelan companies becoming unprofitable and having to import goods. Due to
the corruption in Venezuela there are three levels of

exchange rates, with political figures able to get dollars for
almost ten times cheaper than normal Venezuelan citizens. On top of this
Venezuela controls the pricing of the goods sold, so after importing and being
charged the higher non-official exchange rate, they have to sell their products
cheaper than the market price. At this point it is cheaper for subsidized and
unsubsidized business owners to not stock their shelves at all, but more
profitable for them to save their dollars and sell them

on the black market for a greater profit. Venezuela has had a
growing unemployment rate, so much so that they stopped giving official
unemployment rates in June 2016 when it was at 7.3%. Based of they
have given estimates of Venezuela’s unemployment at the rate of around 25% and
could grow to 30% by 2018, and predict by 2022 the unemployment could reach
almost 40%. Comparing this to America’s Great Depression that was 25%
unemployment, Venezuela will almost double this if they keep

at this pace economically. This is the reason Venezuela is
experiencing hyperinflation. Venezuela has always had a high inflation rates
because of their government structure. In Figure 2 below provided by the IMF,
it shows the increase in inflation over the years and change in government
officials. Inflation has been slowly increasing and declined in 2007 with Hugo
Chavez came into power. This was due to the fact he was able to increase the
price of oil resulting in a lower inflation rate of

23%. To understand how high Venezuela’s inflation rate is, in
2007 the average inflation rate based on was 2.85% compared to
Venezuela’s 23%. Under Nicolas Maduro’s leadership inflation rates continue to
skyrocket to 240% as shown in figure 2. The IMF predicts that if they continue
at this rate the inflation rate can jump to 2,300% in 2018, the highest
estimate the IMF has ever estimated for a country. Venezuela has come into more
trouble on November 14, 2017, by defaulting on their

debt payments. If enough bond holders want to be repaid this
could be very bad for Venezuela because assets will be seized, and their only
assets at this time are their barrels of oil and state owned oil company PDVSA
that funds the very little food and medicine they do have. Venezuela currently
owes more than $196 Billion in debt based off Harvard’s Law roundtable. Venezuela’s
banks currently are running out of cash only having $9.6 Billion in reserves
compared to the United States that has roughly

$405 billion in reserves. President trump has enforced sanctions
against Venezuela. This sanction prohibits U.S. citizens and banks from buying
new bonds issued by the government, and their state owned oil company PDVSA,
along with some pre existing bonds they issued. Citgo, a U.S. subsidiary in
Venezuela, is the only one exempt from these sanctions. The U.S. treasury has frozen
all U.S. assets, and has sanctioned Venezuelan officials including Maduro.

After these Sanctions, Venezuelan bonds dropped to 28.63 on the U.S. dollar.

Below in Figure 3 provided by Bloomberg it shows this decline after the
sanctions on Venezuelan bonds was enforced. Because of Venezuela’s inability to
import goods and having no private companies in their economy to produce goods,
and defaulting on debt payments, Venezuela is now experiencing very severe food
shortages, medicine shortages, and electrical shortages. Venezuelans cannot
live off a minimum wage and even if they did have the money to buy food, the
food is not

in supply. Any food left on shelves is usually sold out because
of the long lines that last hours to just get into the store, military
enforcements have had to come in to prevent any looting of the few goods they
still do have. This same issue is also occurring with medicine. They cannot
afford to import medicine, and the people of Venezuela are dying from curable
and manageable illnesses. There currently is 85% shortage of medicine, and a
90% deficit of other medical supplies reported by the Pharmaceutical

Federation of Venezuela. Not only is there a shortage of medical
supplies but also a shortage of doctors as 20% of medical personnel have left
Venezuela in order to find better opportunities. According to the Ministry of
Health, in 2016 there were 240,613 confirmed cases of malaria, a 76% increase
from 2015. On the following page, Figure 4 shows the increase in malaria
growing around the time of the recession began in 2014. Another contributing
factor to Venezuela’s food shortages and malnourishment

is the drought occurring that has led to electrical shortages
along with water shortages for crops. Two thirds of all of Venezuela’s electrical
power comes from the Guri Dam, a hydro turbine dam that converts water into
energy. Venezuela has been experiencing a drought for 3 years and because of
this President Nicolas Maduro has issued blackouts where the power is shut down
for 4 hours a day for a span of 40 + days. Maduro’s other solution was to
eliminate Friday workdays, and push Venezuela’s

time zone forward 30 minutes to create more daylight to work
Monday through Thursday. These solutions are not permanent solutions, Venezuela
must diversify their energy sources in order to compensate when there is a lack
of water energy for them to use. Establishing energy sources such as solar
energy or wind energy in order to compensate when droughts occur would
eliminate the power shortages occurring. In Figure 5 it shows how dependent
Venezuela is on hydroelectricity and fossil fuels, this

also shows their lack of diversification in energy methods. Due
to the instability in Venezuela economically, politically, and environmentally
crime has increased substantially. The United States Department of State Bureau
of Diplomatic Security (OSAC) issued a crime and safety report for 2017. In
this report it stated, “The U.S. Department of State has assessed Caracas
(Venezuela’s Capital) as being a critical-threat location for crime directed at
or affecting the official U.S. interests” (OSAC,

2/17/17) It goes on to say how the Venezuelan NGO Observatory of
Violence listed Caracas as the most violent city in the world, and Venezuela as
a whole, the second most murderous nation. The OVV has said in reports that
over 28,479 homicides occurred in 2016, a rate of 91.8 homicides per 100,00

This is an increase in homicides since 2015 especially in
Caracas where its 140 homicides per 100,000 inhabitants. Kidnapping in Caracas
is a very dangerous issue they currently are experiencing. Criminal gangs
target wealthy Caracas neighborhoods where they will kidnap persons at any time
of day and hold them for ransom. It has gotten so bad that people often ignore
stoplights in fear that they will be car jacked or kidnapped when stopped.

Criminal gangs have become very prominent due to the economical

and political position Venezuela is currently in.

Civilians partake in these criminal activities in order to
survive, since a majority of these criminals are from very poor areas in
Venezuela to begin with even before the economic recession occurred in 2014.

Information provided by Citizens’ Council for Public Security and Criminal
Justice, shows in 2015 the 50 most violent cities. Caracas is around 4,000
homicides and has grown with the worsening of the recession in 2017.

Venezuelan civilians are not the only one committing crimes of
violence. Nicolas Maduro was accused by the United Nations of crimes against
humanity when opposed by protesters casual violence in the streets has ensued
between protesters and the government when riots protesting Maduro’s presidency
occur, or if anyone speaks bad about Maduro. Behind the scenes Maduro has been
accused of using torture, murder, and sexual violence in order to prevent
protesters from opposing him or to get information.

This has had a great effect on the Mayoral election on
12/10/2017, with very few citizens coming out to vote, abstaining from voting
because of the political corruption and the lack of impact of their vote due to
fraud. The fraud is inevitable in Venezuelan citizen’s eyes due to the control
Maduro’s socialist party has over the electoral landscape, having the
presidency, the constituent assembly, the lawmaking body, National assembly,
and governorships, leaving for the socialist party to consume

the mayor positions as well, with only a few unknown candidates
with no backing to oppose Maduro’s party.

Venezuela must make changes in its political structure in order
to have economic growth. The corruption in Venezuela has been a chain reaction
leading to the collapse of their economy and their lack of investment in
Venezuela’s infrastructure. We have come up with basic possible solutions that
can help remedy Venezuela’s economic recession that we believe can have a great
effect on the future of Venezuela.