Venezuela's economy explained.

 Why Venezuela has the strangest economy in the world?

Venezuela is a country in South America and its capital is Caracas. It is officially known as the Bolivarian Republic of Venezuela. Venezuela is colonized by Spain in 1522. It was the first Spanish-American to declare independence from Spain in 1811.

It in the modern world it has the world's largest proven oil reserves but regardless of that it has the highest inflation in the world, struggling with shortage of food, electricity, and other essential goods. For this we need to go back on 31 July 1914 when oil was discovered in Venezuela for the first time. At that time it was ruled by Juan Vincente Gomez who ruled over from 1908 to 1935 as a dictator. In the 1920s and 1930s Venezuela begin to industrialize with the development of its oil industry becoming a major

contributor in the development. In the early 1900 the economy of Venezuela is mainly a agriculture based. Gomez allowed foreign companies to explore, drill and extract oil with no taxes and royalties. Over the next 20 years on Gomez rule Venezuela will become second largest oil producer in the world. By the 1950s Oil

 has surpassed agriculture as the primary source of revenue for the government. Oil will contribute for two-thirds of oil revenue and more 90% of its exports were oil.  After the passing of Gomez in 1935 then Lsaias Medina Angarita became the new president during World War 2, he wrote to then president of the United States to try and persuade him to help. The Bolivar became the strongest currency in 1939 and Caracas which is the capital and the largest city of Venezuela is declared as the most expensive place in the world. In 1943 the government of Venezuela passed a 50-50 law. In which the Venezuelan government would receive half of the oil profits. Following the World war 2 several things happened there was geopolitical tensions in Middle East including Egypt closing the Suez canal and Iran Nationalizing its oil industry. That decade

Venezuela received highest foreign currency inflow. One of the important factions in Venezuela is the military which became the kingmaker in the Venezuelan politics for several decades. In 1945 Medina was removed from office and the country was ruled by a military junta government. After that elections did happen they were short lived as the military removed the president from office again and another dictator was installed named Perez Jimenez who just like Gomez ruled with an iron fist. Despite all this political turmoil the country was getting richer day by day. Jimenez set up new state-owned heavy industry, he created new homes for poor, opened

schools, hospitals and build new highways. The aim was to attract the foreigners with this modern infrastructure. Eventually, the massive projects that he started were full of corruption and bribes. In January 1958, Jimenez closest military advisor told him to leave, in panic he left the country with his family to Dominican Republic with suitcases full of cash. Despite massive social spendings and financing state-owned corporations designed to provide jobs were all waste as majority of the Venezuelan's were remain jobless. In October 1973, the west started supporting Israel in the Yom Kippur war which lead to a a total embargo of oil from Arab nations. Venezuela started earning triple the amount of oil profits. There was just too much money that the officials that it could lead to inflation to uncontrollable levels so they raised all wages, dump more money into social spending and tasked the government to create more jobs. Despite all these efforts inflations started to climb rapidly to 12% a year. The government swelled to 300,000 employees and a law was passed essentially banning companies from firing workers in the wake of higher wages. The large state-owned companies that relied upon government subsidies remain profitable and small private businesses that didn't receive the funds went and soon 9% of the largest businesses were responsible for 75% of all goods produced. In the 1970s and 1980s Venezuela experienced a period of economic growth and prosperity which is known as the "Saudi Venezuela" as the oil demand was rising steadily and also the world is suffering from the Great depression, so currencies around the world are falling except the Bolivar. But from the common people to the top leaders thought happened in 1988 as oil prices dropped rapidly. From 1974 to 1979 and 1989 to 1993 Carlos Andres Perez was elected the president, in 1989 contracted 10%. During Perez campaign he promised several reforms and he did act upon it, he enacted dramatic and harsh economic policies. He stopped paying debts, abolished Recadi (a system of exchange control), lifted price controls, rose gas prices and cut social spending. Almost after the policies, the bolivar lost 50% of its value. Violent protests erupt all over the country. Later the military intervene and put the protests down. From 1981 to 1989 poverty in Venezuela increased 10 fold. Later this economic turmoil would get worse. There were several attempts of coup which would fail which were initiated by Hugo Chavez. Then in 1998, Hugo Chavez was elected the president, he was a paratropper. He was born in poverty, he wanted Venezuela to become a socialist country. He passed 49 new laws, some of them were giving the state the power to seize land and break up large agricultural plots. He also gave some independence to the state owned PDVSA so that it could work outside the political structure. This was done to attract foreign investments. He again started the all the massive social programs. He reinstituted a similar policy like Recadi- Cadivi. The excess oil revenue that came during Chavez period he invested it in it's socialist agenda. After his death in 2013, he had made Venezuela an authoritarian country. When Nicolas Maduro was elected in 2013

 inflation in Venezuela has skyrocketed. Now the situation is as bad as it could get as it is now home to economic as well as humantarian crisis including- civil unrest, hyperinflation, food shortage and lack of medical supplies. When Maduro was re-elected in 2018, but the polls were dismissed as rigged. The western countries sided with Juan Guaido, but they were at odds with Russia and China and the military remained loyal to Maduro. In 2015 Obama declared Venezuela an "unusual and extraordinary threat to the national security of the United States" allowing them to impose targeted sanctions against individual government officials. These sanctions then become a cascade of financial restrictions on the economy of Venezuela.

Conclusion  

There are several factors that contributed to this situation-:

1. Dependence on oil exports- Venezuela's economy is heavily dependence on oil exports, which makes more than 90% of its exports. Wherever the prices of oil is high the economy did well but when the prices crash everything goes bad.

2. Mismanagement of the economy- The government has implemented a number of policies that have led to hyperinflation, such as price controls, and expropriations of private businesses. Additionally, the government has accused of corruption and bribery.

3. Sanction- The US and several other countries have imposed sanctions on Venezuela, which have exacerbated the country's economy crisis. The sanctions have targeted the country's oil sector, as well as individuals and companies associated with the government. There sanctions have made it difficult for Venezuela to access international credit and to trade with other countries.

4. Political instability- The country has been in political turmoil for several years, with anti-government protests and a power struggle president Maduro and opposition leader Juan Guaido. The political instability had led to loss of confidence in the government and the economy.

The crisis has led to hyperinflation, shortages of food, things of basic needs and a collapse of the country's currency.