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Socialism Kills: How Nearly 95 Percent of Venezuelans Ended Up in Poverty

El socialismo mata: Venezuela hoy está mucho peor con respecto a 1999

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When the socialist Hugo Chávez came to power in 1999, Venezuela was a country rich in natural resources and relatively prosperous compared to the miserable regional context, but there was also a feeling of significant economic instability. The traditional political class, namely the Acción Democrática (AD) and the Comité de Organización Política Electoral Independiente (COPEI) parties, committed many sins during the democratic era that unleashed, with good reason, a palpable discontent in civil society.

For example, although Venezuela was the fourth-largest economy in the region by the end of the 1980s, a situation that continued throughout most of the 1990s, inflation soared, reaching annual peaks between 80 and 90 percent during those years. Poverty was also high, reaching an alarming 49.4 percent in 1999.

It was a logical process of economic deceleration. After the oil boom during the “Saudi Venezuela”, a fictitious oil bonanza that started in the early ’70s and ended on “Black Friday” in 1983. Venezuela needed to move from a social welfare state to economic liberalization in order to restructure and clean up its ailing economy. The South American country basically needed to implement the restructuring that countries such as Poland or Estonia had carried out.

Former President Carlos Andres Perez tried to do so in his second presidential term, announcing a series of economic measures that included a whole package of deregulations, privatizations and also a significant reduction in public spending through austere policies and liberal measures.

However, something happened that always happens in Latin America when a president dares to announce an austere and liberal economic package: violent civil revolts.

The Chavista dictatorship announced a new monetary reconversion -removing zeros from the currency- with the intention of disguising the loss of value of the Bolivar. In Venezuela there is a de facto dollarization that has allowed, to a certain extent, to improve trade. (Image: EFE).

The “Caracazo” was the social and political reaction against the “paquetazo” of Carlos Andres Perez. The consequences for the country were devastating because not only were the necessary economic measures that Venezuela needed not applied, but also because, at the same time, the door was opened to radicalize a political model that, in the end, was not working well at all.

Hugo Chávez, the father of the crisis

After the Caracazo, the relationship between the traditional political class and society hung in the balance. A military coup leader, infiltrated by Havana, with socialist leanings, burst in as the demagogue leader who took advantage of the social discontent to end the democratic system.

Hugo Chávez, the father of the socialist revolution, came to power with a revanchist discourse of political outsider. People supported him as an alternative to traditional politics and he would pay dearly for it in the future.

As a good socialist, Chavez, instead of taking the necessary steps to restructure the economy, radicalized the Welfare State through social plans, to the point of being unsustainable for the country’s finances.

Fortune smiled on the late dictator —because Chávez took control of the entire Venezuelan state apparatus, including the electoral power and the armed forces—, for there was another oil bonanza, even bigger than in the “Saudi Venezuela” era, which allowed Chavismo not only to subsidize at obscene levels, but also to pay foreign debts to “allied countries” such as Argentina and Bolivia; inject money into all the expropriated companies that were not self-sustainable after the state took them over; steal all the money they could and give the impression of having an economic improvement by decreasing the number of poor people for a few years while the GDP increased as oil prices soared.

Venezuela, under Chavista management, was all about squandering money and going into debt. Just to put in context, “during the mandate of Rafael Caldera, who ruled Venezuela between 1993 and 1998, the country’s average income from oil exports was US$ 15,217 million per year” —according to BBC data—, during the Chávez era and the beginning of the Maduro administration, between 1999 and 2014, Venezuela received up to US$ 960,589 million for an average of US$ 56,500 million per year for 17 years. All that money went down the drain.

It was lost in inefficient social plans, in abandoned works and projects, in the pockets of politicians and in gifts for the governments of the international community that decided to support Chávez diplomatically.

Mural in Venezuela with the image of the late Hugo Chávez. (Archive)

Venezuela not only squandered the money from the oil bonanza, but also made the grave mistake of going into debt during the Chávez administration.

“Venezuela’s experience at the negotiating table may prove to be very difficult. In total, the country owes close to 65 billion in foreign currency denominated bonds, mainly in dollars, according to the research firm Capital Economics. Venezuela also owes China, Russia, oil suppliers, airlines and a host of other entities,” reads a CNN article, published in 2018.

By October 2020 some analysts suggested that Venezuelan debt hovered around US$ 136 billion which would be equivalent to 289 % of its GDP. That figure may have been reduced somewhat because, according to information from EFE, “Venezuela reduced the external public debt after selling, for US$ 88.1 million, all the shares of the Dominican Petroleum Refinery (Refidomsa) it held —49 %— to the Dominican Government.”

Chavez’s legacy: pure socialism

When Hugo Chávez came to power he made a promise: an egalitarian Venezuela. The man repeatedly said he wanted to rule until 2021, but cancer took him away many years before. Even so, his legacy lives on.

Today more than 75% of the country lives in extreme poverty and 94.5% lives in poverty, according to data published by the new Living Conditions Survey, presented last Tuesday, September 28 by the Universidad Católica Andrés Bello. It could be said that this is the only promise that the socialist tyrant kept: to make almost an entire country equally poor.

Despite the fact that the Venezuelan GDP increased rapidly during the Chávez era as a result of the oil bonanza, the mirage was gradually diluted during the Maduro administration as oil prices were falling. The Venezuelan GDP reached US$ 334,100 million in 2011, but as indicated by the International Monetary Fund, the country’s economy will drop to US$ 42,530 million in 2021 and inflation will end at 2,348 %, much worse figures with respect to the nineties when oil prices were very low.

Although a great part of this crisis must be attributed to the tyrant Nicolás Maduro, who took over the reins of the country after the death of Chávez, the situation Venezuela is living today is thanks to his predecessor and the socialist system.

Nicolás Maduro, current Chavista dictator. (Image: EFE)

For those who do not know or remember, it was Chávez who installed the longest price control system in the history of Venezuela in 2003, a measure that discouraged investment, savings, free flow of capital, generated inflation and caused exclusive dependence on oil income.

Chávez also created the National Fund for National Development (Fonden) where up to US$ 1 billion of Venezuela’s international reserves were squandered.

It was Chávez who destroyed the private sector with the wave of nationalizations and expropriations. As if this were not enough, it was Chávez who created the law of fair prices and profits which generated a “fantasy economy” where the price of products was imposed by the State and not the market. As a result, “fair prices”, cheaper than market prices, destroyed small and medium sized companies which did not have the capacity to reinvest or generate profits.

This is just the tip of the iceberg. Chavista socialism is much more than just a failed and corrupt economic model that plundered and destroyed an entire country. But these facts and bad policies serve as a reminder of one thing: socialism kills. Americans should remember this when politicians like Alexandria Ocasio-Cortez, Bernie Sanders or, why not, the current Biden-Harris administration, want to impose some policy similar to the Venezuelan one. For the time being, the United States is already suffering the consequences of inflation and public debt, so beware.

Emmanuel Alejandro Rondón is a journalist at El American specializing in the areas of American politics and media analysis // Emmanuel Alejandro Rondón es periodista de El American especializado en las áreas de política americana y análisis de medios de comunicación.

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