How Venezuela’s crisis developed and worsened

What’s at the root of Venezuela’s economic crisis?

Venezuela is rich in oil. It has the largest proven oil reserves in the world. But it is arguably precisely this wealth that is also at the root of many of its economic problems.

Venezuela’s oil revenues account for about 95% of its export earnings. This means that when oil prices were high, a lot of money was flowing into the coffers of the Venezuelan government.

When socialist President Hugo Chávez was in power, from February 1999 until his death in March 2013, he used some of that money to finance generous social programmes to reduce inequality and poverty.

Two million homes have been created through a socialist government programme called Misión Vivienda (Housing Mission), according to official figures.

But when oil prices dropped sharply in 2014, the government was suddenly faced with a gaping hole in its finances and had to cut back on some of its most popular programmes.
Is its overreliance on oil Venezuela’s only problem?

No, many of the policies introduced by Hugo Chávez also backfired. In order to make basic goods more affordable to the poor, his administration introduced price controls – capping the money people pay for such staples as flour, cooking oil and toiletries.

But this meant that many companies no longer found it profitable to produce these items, driving them out of business. This, combined with a lack of foreign currency to import the staples, led to shortages

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