What Is the Real Story in Venezuela?

“Venezuela is now a world leader in the production of desperation,” says Washington Post columnist Michael Gerson in a recent article. That damning assessment followed Gerson’s first-hand witnessing of the current humanitarian crisis in the country. Venezuela’s economy has been devastated by a multi-year political crisis, leading to shortages of food, medicines, fuel, and other basic necessities. Those conditions, combined with blackouts and lack of jobs, have made life so unbearable that more than four million people have fled the country in recent years, according to estimates by UN agencies.   

Venezuela has the largest proven oil reserves in the world. It used to be the wealthiest country in South America, but as is often the case with many resource-rich countries, revenues from its oil sales were not equitably shared. Millions of average Venezuelans lived in poverty until the election of Hugo Chavez as president in 1998. He swiftly launched the “Bolivarian Revolution,” which was aimed at redressing those systemic inequities. After nationalizing large companies in the energy, telecommunications, and other key industries, Chavez introduced a variety of social programs and spent lavishly on them to bring relief to his country’s poor.

Chavez’s socialist policies and his growing influence in the region unnerved Washington. In response, since 2006, the Bush, Obama, and Trump administrations have imposed a variety of sanctions on Venezuela. The sanctions were originally targeted at specific government officials for their corrupt practices, anti-democratic actions, human rights violations, as well as failure to support antiterrorism and counternarcotic efforts. Those narrowly focused penalties largely failed to achieve their intended purposes, leading President Trump to impose a broader set of sanctions on the Venezuelan oil and gold sectors, starting in late 2018. The restriction of oil sales has deprived the government of vital revenue, and is one of the reasons for the severe shortages of basic goods in the country.

These U.S. government actions over the past decade or more have been partly responsible for the current situation in Venezuela. However, most of the economic wounds are self-inflicted. In the period between 1998 and 2008, the price of oil rose steadily from about $15 to nearly $100 per barrel. With ever-increasing oil revenues flowing into government coffers, Chavez embarked on a spending spree, heavily subsidizing prices of goods domestically. Exceedingly cheap gasoline in Venezuela spawned a thriving smuggling trade in which ordinary people buy the product and take it across the border to neighboring Colombia to sell for profit. Additionally, Venezuela has for years sold cut-price oil to Cuba and other friendly countries.

Perhaps nothing signifies Chavez’s profligacy more than his decision to provide heating oil assistance to some poor Americans. Through Venezuela’s state-owned oil company subsidiary Citgo, which produces and sells various energy products across the U.S., Chavez for years supplied free heating oil to thousands of American families in states such as New York and Massachusetts. Over 200,000 families in 23 states were each reported to have received 100 gallons of heating oil during the winter of 2007.

It is quite strange for a developing country like Venezuela to provide such help to anyone in the richest country on the planet. But that lack of justification did not deter Chavez. His was ostensibly an act of generosity, but more likely, he wanted to make “imperialist” America’s leaders look bad.     

Chavez and his successor, Nicolas Maduro, managed to sustain those high levels of domestic and external spending for years because of the oil wealth. Venezuela’s problems really began when the oil price declined steeply from about $115 per barrel in June 2014 to just under $35 per barrel in early 2016. Because the country did not save money when times were good, it has increasingly found itself unable to afford importation of basic necessities over the last couple of years.

In sharp contrast, Norway, which ranks number 21 on the list of countries with proved oil reserves, took a completely different approach. In 1990, about two decades after the country began producing oil, its parliament passed a law establishing the Government Petroleum Fund. The goal was to create an investment fund into which revenues from oil sales would be transferred. Norwegian leaders recognized the ephemeral nature of such wealth, and thus proposed to spend only the real return on invested capital, saving the bulk of the revenues for a rainy day.

The current market value of Norway’s petroleum fund is approximately 9,340 billion NOK (Norwegian Kroner), or nearly $1.1 trillion. That makes Norway one of the wealthiest countries in the world. Its citizens live in peace and prosperity, thanks to prudent management of the country’s resources by its leaders.

Norway is a generous provider of foreign aid. It consistently gives away more than 1 percent of its Gross National Income (GNI) to provide budget support to governments and funding for civil society organizations in poor countries in Africa and elsewhere. As a donor country, it is an above-average performer. The UN target is for developed countries to devote 0.7 percent of their GNI to official development assistance to poor countries. And, because of its wealth, Norway attracts refugees and economic migrants, as opposed to the potentially much wealthier Venezuela, from where people are now fleeing for their lives.

It is never easy to discern how much external influences are to blame for crises such as Venezuela’s, versus the role played by domestic factors. But, serious and objective examination of that crucial question is necessary because some important lessons need to be learned from the Venezuelan experience. Leaders like Chavez and Maduro often successfully cloud the issue by blaming their woes on foreign powers’ meddling in their internal affairs. They may have a point at times, but they must also be held accountable for their own actions.