Venezuela's worst economic crisis:

What went wrong?

Venezuela used to be the wealthiest country in South America with more oil reserves than anywhere else in the world.Therefore, Venezuela should be drowning in riches but why Venezuela is facing the worst Economics Crisis in its history?

WHAT WENT WRONG?

It is not easy for one country, which has the most oil reserves in the world, to go bankrupt.The crisis in Venezuela is the socioeconomic and political crisis that Venezuela has undergone since the government failure and the fall of crude oil price. Maduro’s government runs a socialist policy which revenues were used to finance social programmes and food subsidies. But when the price of oil has fallen, those programmes and subsidies became unsustainable and lead to rising costs amid desperate scarcities of food and medicine, the collapse of public services and the medical system, and rampant crime.

http://www.marketoracle.co.uk/Article43144.html

FALLING OIL PRICE

Since oil prices collapsed in 2014, the debts mounted. Maduro’s leftist government has cut food and medicine imports by more than 70 per cent since 2013 to preserve limited resources for debt payments.But it’s not meeting them either. In November it defaulted on its sovereign bonds, failing to pay interest on two US dollar-denominated bonds by the end of a grace period on November 13.

GOVERNMENT POLICY

The policies contributing to the country’s economic problems are currency controls, first introduced by Chavez in 2003 to curb capital flight. By selling U.S. dollars at different rates, the government effectively created a black market and increased opportunities for corruption. A business that is authorized to buy dollars at preferential rates to purchase priority goods like food or medicine could instead sell those dollars for a significant profit to third parties. In December 2017, the official exchange rate was ten bolivars to the dollar while the black market rate was more than nine thousand bolivars to the dollar.

Another policy is that government try to control price of goods. Currency in black market was created since Venezuelan merchants relied on the import of goods that require payments with reliable foreign currencies. As Venezuela printed more money for their social programs, the bolívar continued to devalue for Venezuelan citizens and merchants since the government held the majority of the more reliable currencies. Since merchants could only receive so much necessary foreign currency from the Venezuelan government, they had to resort to the black market, which in turn raises the merchant's prices on consumers. The high rates in the black market make it difficult for businesses to purchase necessary goods or earn profits since the government often forces these businesses to make price cuts.

A couple looking at the newly increased prices for food in a store’s window display in Caracas. Venezuelans of all economic classes have been buffeted by sharply rising costs.

ECONOMICS CRISIS IN VENEZUELA

          At the present, Venezuela faces an inflation rate over 400 percent and a volatile exchange rate. Heavily in debt and with inflation soaring, its people continue to take to the streets in protest. The country sits on the world's largest oil reserves, but, over the past decade, it has been the region's poorest performer in terms of growth of GDP per capital.
           Economic problem in Venezuela is still in crisis in that it increases around 15% every month and there is a tendency to be hyperinflation.

          Valuable lessons from Venezuela is that it does not mean that socialist policies are the cause of economic ruin. But the government is inefficient in managing the country, manages the money, and uses socialist policies just to get votes from the people. It is a disaster of the nation.

CREDITS :
https://www.bloomberg.com/news/articles/2018-01-25/imf-sees-venezuela-inflation-soaring-to-13-000-percent-in-2018
https://www.nytimes.com/2017/12/02/world/americas/venezuela-nicholas-maduro-inflation-hyperinflation.html
https://www.reuters.com/article/us-venezuela-economy/venezuela-annual-inflation-at-more-than-4000-percent-national-assembly-idUSKBN1FR2FH
http://www.news.com.au/finance/economy/world-economy/every-time-you-buy-less-venezuela-teeters-on-the-brink/news-story/7b651bdb5481d0450786e443d789336f