Venezuela pay US$200 Milions, but it only lasted a

Venezuela is facing a deep crisis, particularly after
2013, which does not only concern the economical aspect, indeed it is enhanced
by a fragile and delicate political situation. Currently at the 179th
out of 180 countries in the index of
economic freedom, Venezuela has failed to provide an exhaustive report of
his economic condition to the IMF in November 2017, which gave 6 further months
to the country to fill the lack of many statistics. This fact has been
interpreted by credit-agencies as a possible sign of an upcoming default.
Indeed, the Government debt to GDP in 2016 stands at 28.2%, which might not
appear that high if we don’t consider the liquidity crunch the country is
facing and the many attempts to extend and postpone the external debt payments
of such quantities of bonds, increasing the fear of a default in the majority
of bondholders.

Also analysts have expressed their concern about
Government manipulating statistics, since they did not report adequate datas
since late-2014.  On  November 2017, Venezuela has been declared on
default by rating agencies such as Standard
& Poor’s for failing to pay US$200 Milions, but it only lasted a few
hours until those debt payments have been discussed with bondholders, without
any severe consequence. Maduro and the Government stated it was part of a plan,
organized by the United States, who are protagonist, according to his
accusation,  of an “economic war” against
Venezuela, by damaging and interfering the relashionships with such

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The economy of Venezuela
is largely based on the petroleum sector and manufacturing. Revenues from
petroleum exports accounts for more than 50% of the country’s GDP and roughly
95% of total exports. This country is the sixth largest member of OPEC (Organization of the Petroleum
Exporting Countries) by oil production as well as a founder state of it. From
the early 2000s until late-2014, Venezuela has benefited from historically high
oil prices, and its PDVSA (Petroleos de Venezuela, S.A.), the state-owned oil and
natural gas company, has prospered. Nevertheless, the collapse in international oil prices in
2014, along with inadequate macro and microeconomic policies, have
significantly affected Venezuela’s economic and social performance. Throughout
the years the mismanagement of PDVSA as well as Government interference caused
a significative drop in oil production, which in 2017 has decreased for the 30%
from 2250 BBL/D/1K in january to 1600 BBL/D/1K in December. The country’s
reliance on the hydrocarbon sector has sharply increased. Also, during the
economic boom Venezuela did not accumulate savings to mitigate a reversal in
terms of trade or to cushion the necessary macroeconomic adjustment.




In the short and medium term, Venezuela faces major
financing needs, with an external financing needs estimated at between US$25
billion and US$35 billion. Access to external financing is restricted and the
public deficit has been largely monetized. This source of financing, price
controls, limitations on access to foreign currency, and the collapse of the
private sector in the provision of basic goods, have cumulatively led to the
world’s highest inflation rate.


Venezuela is currently facing a rare phenomenon called
“Hyperinflation”, defined as when inflation rate overcomes 50% a month. Precise
data is hard to come by, but some estimates put this country inflation rate at
more than 4000 percent compared to the previous year, while an optimal
inflation rate is supposed to stand at 2%. This means the local currency is
currently worthless, and the lack of trust in the currency leads to an
increasing use of foreign ones, enhancing the inflation rate growth in a deadly
spyral. As always happens during hyperiflations, once customers realized what was
happening, they started stockpiling in order to avoid higher prices later,
causing a tremendous increase in the demand, which led to severe shortages of
goods, particularly food.

The Government announced the launch of its own
crypto-currency in December, with the purpose of advancing in issues of monetary sovereignty, of making financial
transactions without using its inflated currency and of circumventing the heavy
US-led financial sanctions



Food shortages:


Shortages are occurring in regulated products, such as milk,
meat, coffee, rice, oil, precooked flour, butter and other basic necessities
like toilet paper, personal hygiene products and medicines. As a result of the
shortages, Venezuelans must search for food, occasionally resorting to eating
wild fruit or garbage, waiting in lines for hours and sometimes settling
without having certain products.

Under the economic policy of the Nicolas Maduro government, such
shortages occurred due to the Venezuelan government’s policy of withholding
United States dollars from importers with price controls. There are many
potential causes of such shortages, Government policies since Chavez’s
administration were characterized by overspending and import reliance, as well
as currency and price controls, which led to the formation of a black market, furthermore
the price cuts that businessmen were forced to make, drove to an impossibility
of affording the production of such goods. The distribution of the few
available goods has been entirely committed to the defense minister, who
already had the military command. Investigations have reported that the
military instead of fighting the hunger, is making money from it, by increasing
prices and creating further shortages: once again, the high level of corruption
strongly damages the local population. In an interview with President Maduro by
The Guardian it was noted that around
the 40% of the
subsidized basic goods in short supply were being smuggled into Colombia and
sold for far higher prices.


Amnesty International and many NGOs have offered aid to
Venezuela, although Government has refused such assistance.




Political Situation


The current
situation in Venezuela politics is higly unstable and unclear. After the latest
regional elections, decisively won by Maduro and the ruling party, the
opposition have denounced vote rigging, Maduro reacted by threatening to repeat
the elections in the few states where the opposition won if the governors
elected continue to refuse to be sworn in by the National Assembly recently
created by Maduro himself.

After three
attempts of reconciliation between the ruling party and the opposition, the situation
dropped when in the last days of December 2017 Maduro declared the ban of all
the main opposition parties from 2018 presidential elections, announcement
which generated an increase in the turmoils that were already affecting the
whole country.