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Why is Venezuela Poor?

Venezuela is a country in South America with a population of over 31 million. With such a large population, it may come as a surprise that 82 percent of its citizens live in poverty. Why is Venezuela poor? There are many reasons, and following are a few of them.

  1. Economic crisis: Venezuela is in its third year of recession, which is the main answer to the question ‘why is Venezuela poor?’ Its economy is expected to contract by 10 percent this year according to the International Monetary Fund. Consequently, while the economy shrinks, the prices of goods are skyrocketing. This year, inflation is expected to rise 475 percent, and Venezuela’s currency has plummeted in value. Consider this: one dollar equaled 100 bolivars exactly two years ago. Today, one dollar is equivalent to 1,262 bolivars.
  2. Venezuela’s broken engine: Oil prices began to plunge in 2014. The oil prices contribute to Venezuela’s list of reasons for being poor. Venezuela has the world’s largest oil reserves, but the problem is that oil is the only game in town. It makes up more than 95 percent of Venezuela’s revenue from its exports. If it doesn’t sell oil, the country doesn’t have money to spend. Oil prices were over $100 per barrel in 2014. Today, they hover around $50 per barrel, after dropping as low as $26 earlier this year.
  3. Soaring food prices and broken hospitals. The food shortages became extremely severe this year, contributing to Venezuela’s poverty. Venezuelans went weeks, in some cases months, without basics like milk, eggs, flour, soap and toilet paper. Despite a crashing currency and dropping oil revenue, the government continued enforcing strict price controls on goods sold in the supermarkets. Only recently has the government stopped enforcing price controls, and food has returned to supermarket shelves. However, prices are so high that few Venezuelans can afford the food.

These points scratch the surface of the question ‘why is Venezuela poor?’ Venezuela is poor and running out of cash quickly. In the near future, it won’t have the money to pay its bills. Venezuela will owe $15 billion by the end of 2017, while the nation’s central bank only has $11.8 billion in reserves. The state-owned oil company is pumping less oil and risking default. Most of its reserves are in the form of gold. So, to make debt payments this year, Venezuela has shipped gold bars to Switzerland. China used to bail out Venezuela and loan it billions of dollars. However, even China has stopped giving its Latin American ally more cash.

Paige Wilson

Photo: Google