Things are getting real weird down in Venezuela, guys. Basically, inflation continues to rise out of control, black markets continue to form an important part of the economy for many people, and prices on the legal market are real high. Like, a washing machine going for close to $9,000 high.
So that’s all bad. Unfortunately, President Nicolas Maduro decided the way to deal with it was to arrest the heads of the company selling those super-expensive washing machines, Daka, and send the military to occupy their chain of stores and sell their products at what they deem to be a fairer price.
Over the weekend, the occupations expanded to include a number of other stores selling products from textiles to hardware to cars.
There has been some looting in all the confusion, and another man who purchased goods at the discounted prices referred to it as “legalized looting.”
But another Venezuelan, interviewed by Al Jazeera English, said “Inflation is killing us. I’m not sure if this is the right way, but something had to be done. I think it’s right to make people sell things at fair prices.”
So why is the Venezuelan economy struggling so much? Part of it is that the government has depended a lot on oil extraction. Venezuela’s oil, while abundant, is a heavy form of crude that requires a lot of continual investment to keep producing. As long as the global oil prices kept going up, that still worked out okay. But after prices dropped in 2009, and did not recover completely after, it became more difficult for the government to keep the economy going. Hence the dramatically increased inflation, and now the shortages of basic good as well. And thus also the flourishing black market.
So in a way, the current situation in Venezuela can be seen as an iteration of the “resource curse.”
What’s the Resource Curse?
Glad you asked! The resource curse, also sometimes known as the paradox of plenty, refers to the idea that countries with a lot of natural resources, especially non-renewable ones, actually tend to experience less economic growth, or at least less reliable growth. This can happen as a result of a couple of different factors. One is that other sectors of the economy become undeveloped. As a result, since revenues for non-renewable resources can sometimes be volatile, based on the global market, when prices go down other parts of the economy cannot help to make up the difference.
Add to that any mismanagement, whether a result of ineptness or corruption, and you can easily find yourself with an economic crisis.
Nicolas Maduro, as you may remember from some of my previous posts on Venezuela, is the successor to enormously popular and populist president Hugo Chavez. Unfortunately for Maduro, although he succeeded in winning election after Chavez’s death, he has never shared Chavez’s charisma or popularity. So with the economic situation worsening, this move is probably rooted in a certain desperation to maintain power and secure his political future. Municipal elections are taking place in Venezuela soon, and Maduro’s party is not projected to do well. Maduro may be afraid that this is the beginning of the end of his time as president of Venezuela.