Venezuela has been a country in crisis, both economically and as far as its identity is concerned, for several years now. President Nicolas Maduro is determined to follow the socialist pathway laid out by his predecessor, Hugo Chavez, in spite of the soaring inflation, maxi-devaluations, and food and basic goods shortages that the country has been dealing with since he took office two years ago. While many of these problems may be ongoing, it’s falling oil prices that may finally convince Maduro that change is not only good, but necessary.
Despite problems in the Middle East — which typically causes the price of petroleum to rise elsewhere — the price of Venezuela’s oil has dropped 10% since the end of July. For every $1 that is lost in per-barrel price, Venezuela loses about $1 billion in revenue for the government. Revenue from oil currently accounts for about 50% of government revenue.
To try and raise expenditure, the government recently took on debt and sold bonds that were nearing their maturity date. Although the debt can likely be handled, the government’s response indicates the obvious vulnerability of its position. If oil prices were to continue dropping, the country would likely continue to spiral into greater debt problems.
Risa Grais-Targow, an Eurasia risk analyst in Washington, D.C., in an interview with Bloomberg Businessweek explained that Maduro has been adverse to doing anything that has an associated political cost — which is most things. However, “With Venezuela’s oil price at $90 a barrel, the situation is already uncomfortable. If it falls further, it really becomes an issue.”
To deal with existing foreign debt, the government has cut back on imports. These cutbacks, though, have led to many of the shortages of basic products, which have prompted international outcry toward a government-mandated situation where the majority of the country has difficulty accessing everything from toilet paper to milk. While debt settlement, which can reduce payments by up to 50%, is a handy option for individuals, there is no clear lifeline for the government here. The government is now proposing future rationing of staple items.
“We’ve never had rationing before. Why don’t they just realize that what we have isn’t working?” Wonders Alivia Torres, a 53-year-old housewife who voted for Maduro — a decision she now questions.