Just a decade ago, much of the political left in Latin America and beyond still admired Venezuela’s ambitious socialist project. They applauded President Hugo Chávez and hailed Venezuela’s socialism as an appealing alternative to market-based approaches. Today, few dispute that it has failed. Venezuela now faces an economic and humanitarian disaster, and the situation is only getting worse.
According to the International Monetary Fund (IMF), the economy contracted ten percent last year, and it is projected to shrink at least eight percent this year. Inflation is forecast to reach 700 percent. All over the country, energy shortages leave the streets in darkness for hours every day. The capital, Caracas, has one of the highest murder rates in the world. And in a country with a barely functioning health system, an estimated 400,000 people have contracted the Zika virus, and the numbers keep rising.
All of this in the country with the highest proven oil reserves in the world. After more than 17 years of what Chavistas called “socialism of the twenty-first century,” Venezuela is even more dependent on oil than it was when Chávez assumed power in 1999. Then, oil accounted for less than 80 percent of all exports. Today, it accounts for 95 percent of exports and at least 25 percent of the country’s GDP. With the price of oil below $40 a barrel—and even lower for the heavy crude that Venezuela produces—the country is running out of hard currency. The fiscal deficit is approximately 17 percent of GDP, and President Nicolás Maduro—Chávez’s handpicked successor, who was elected for a six-year term in 2013—has slashed imports in an effort to preserve scarce foreign currency. In a country that barely produces anything but crude oil, however, the result has been chronic scarcity.
BETWEEN A ROCK AND A HARD PLACE
As the economic crisis worsens, a government default seems increasingly likely. According to Venezuela’s Central Bank, the country’s debt amounts to a staggering $138 billion—equivalent to six years