World Politics

How Venezuela went from the richest economy in South America to the brink of financial ruin

Venezuela, by the numbers, resembles a country hit by civil war. Its economy, once Latin America’s richest, is estimated to have shrunk by 10 percent last year – worse even than Syria’s. GDP shrank by 19 percent. The South American country also has the world’s worst inflation at more than 700 percent (nearly double that of second-ranked South Sudan), rendering its currency almost worthless. In a country with the world’s largest proven oil reserves, food has grown so scarce that three in four citizens report involuntary weight loss, averaging 19 pounds in a year.

City streets are marked by black markets and violence. The last reported murder rate, in 2014, was equivalent to the civilian casualty rate in 2004 Iraq.

It’s democracy, long a point of pride, became the oldest to collapse into authoritarianism since the Second World War. Power grabs, most recently to replace the constitution, have led to protests and crackdowns that have killed dozens just this month.

Brothers in arms: Hugo Chavez and Fidel Castro meet in Havana in 1994 (Getty)

Established democracies are not supposed to implode like this. Steven Levitsky, a Harvard University political scientist, says Venezuela is one of only “four or five, ever”. Among those, none was as wealthy or fell so far. “In most cases,” he says, “the regime quits before it gets this bad.”

Venezuela’s crisis came through a series of steps whose progression is clear in retrospect, and some of which initially proved popular.

A two-party establishment, ready to break

At democracy’s founding, in 1958, the country’s three leading parties, later narrowed to two, agreed to share power among themselves and oil revenue among their constituents. Their pact, meant to preserve democracy, came to dominate it. Party elites picked candidates and blocked outsiders, making politics less responsive. The agreement to share wealth fostered corruption.pala

Hugo Chavez greeted by supporters upon his return to the presidential palace after the failed putsch against him in 2002 (Getty)

Economic shocks in the 1980s led many Venezuelans to conclude the system was rigged against them. In 1992, leftist military officers, led by Lt Col Hugo Chavez, attempted a coup. They failed and were imprisoned, but their anti-establishment message resonated, catapulting Chavez to stardom.

The government instituted a series of reforms that were intended to save the two-party system, but that may have doomed it. A loosening of election rules allowed outside parties to break in.

The President freed Chavez, hoping to demonstrate tolerance. But the economy worsened. Chávez ran for president in 1998. His populist message of returning power to the people won him victory.

Populism’s unwinnable war with the state

Despite Chavez’s victory, the two parties still dominated government institutions, which he saw as antagonists or even potential threats.He passed a new constitution and purged government jobs. Some moves were broadly popular, like judicial reforms that reduced corruption. Others, like abolishing the legislature’s upper house, seemed to have a broader aim.

“He was reducing potential checks on his authority,” says John Carey, a Dartmouth College political scientist. Beneath the revolutionary language was “pretty savvy institutional engineering”.

Distrust of institutions often leads populists, who see themselves as the people’s true champion, to consolidate power. But institutions sometimes resist, leading to tit-for-tat conflicts that can weaken both sides.

“Even before the economic crisis, you have two things that political scientists all agree are the least sustainable bases for power, personalism, and petroleum,” Levitsky says, referring to the style of government that consolidates power under a single leader.

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