Fallout of a mismanaged economy

Venezuelans must choose between standing in long queues in scorching heat to buy basic supplies and approaching black market traders who sell basic products at an exorbitant price. And still, there’s never enough for everyone. Such is the plight of more than 30 million people in a country that has proven oil reserves of 297 billion barrels.

This food crisis has already triggered sporadic violence across the country. There are stories doing rounds about a woman selling diapers at 11 times their value and rice at almost three times its value. Venezuelans are tired of waiting on the streets overnight to purchase goods, every single day. Country’s illegal traders have proliferated as grocery stores are fast becoming empty.

Looting has been reported across the country. In the first four months of 2016, 107 episodes of loot or attempted loot were recorded. On May 23, some starved residents looted a truck full of powdered milk in central Carabobo. In fact, over the last two weeks, Venezuela witnessed over 50 food riots, protests, and mass looting.

In a desperate attempt to secure some supplies for their families, several hundred people recently looted a truck carrying kitchen rolls and shampoo after it crashed in western Venezuela. “People are assaulting you over a bag of flour, punching each other in the queues and supermarkets, wreaking havoc,” said one of the residents of Venezuela in an interview with a news daily.

Over 400 people were arrested during food riots in Venezuela. Security has been stepped up on the streets of Venezuela after at least 20 businesses in the capital city of Caracas were violently looted on June 14.

The crisis resulted from a lethal mix of a mismanaged economy and lower oil prices. 

Like several other nations, Venezuela has to either produce what it consumes or must import it. It has relied on oil dollars to pay for imports. But the country is also known for growing corn, sorghum and rice. Moreover, it had cattle, poultry, and fishing industries.

 It is convenient for the government to put the blame only on lower oil revenues so that its own policies that have damaged domestic production don’t find a mention in public discourse.

 A whopping 87 percent of Venezuelans say they don't have money to buy enough food.

* According to Central Bank data, Venezuela's gross domestic product contracted by 5.7 percent in 2015.

* International Monetary Fund figures forecast that GDP will shrink by 8 percent in 2016.

* Inflation is expected to touch 720 percent in 2016, according to an estimate from the IMF.

During the 14-year-long presidency of Hugo Chávez, the government confiscated country’s most productive farms and handed them over to Chavistas (supporters of Chavez) who don’t know how to farm. Even after confiscating more than 6 million acres of farms and ranches, it couldn’t convince the people that government can feed them better than the private sector. Food production suffered and cattle ranches were decimated.

What also expedited this descent into a failed state is the deliberate attempt to diminish planting on those farms that were not seized. Importing of seeds also played a role in this. Most seeds used in Venezuela are imported and farmers were reluctant to use those seeds because of high costs.

 They didn’t have any incentive to go out of their way and buy imported seeds because their harvests are price-controlled. Tightening price controls meant a collapse in profit margins. Hence, food production continued to plummet.

Back in 2003, the Venezuelan government set price controls on around 400 basic food items to "counter inflation and protect the poor". In March 2009, minimum production quotas were set for 12 basic food items that were subject to price controls. These food items include white rice, cooking oil, coffee, cheese, sugar, powdered milk, and tomato sauce. However, strict price controls on food led to higher inflation rates and more shortages as hoarders started pushing foods across the border to sell for higher prices.

Rampant corruption in infrastructure and power projects also crippled Venezuela’s productive capacity. Power outages are a routine. The dairy farms are also less productive as daily power outages shut down electricity-powered milking machines. Furthermore, Venezuela continued squeezing imports due to falling prices of oil. It was a double whammy for the Venezuelans: production at home is diminished and the chances of importing also reduced.

Venezuela is perhaps one of the few countries that funded social programs on borrowed money. The Chávez government clearly overspent on social programs and left the coffers dry. It had also turned to China to fund its social initiatives.

 Chavez continued to be on spending spree in 2012, almost 10 years after the warning of fiscal deficit was sounded. Hence, the government couldn’t save enough money for any future economic difficulties. It is said that during his Presidency, Venezuela’s deficit tripled and purchasing power for those with minimum wage jobs decreased dramatically.

People are now hungry for food and they want someone good in power because 85 percent of them don’t trust the government to reverse this crisis.

(Views expressed are strictly those of Down to Earth.)