What are the root causes of this extraordinary economic downturn and democratic decay in Venezuela?

First, Venezuela has fallen into the trap of the resource curse, and the country's abundant mineral resources have weakened constructive economic and social development rather than promoting development. Although the democracy of the Fourth Republic of Venezuela (1958 - 1998) was enduring, its quality was not high: the party system was represented, many sectors of society were not included, and ultimately led to a crisis of legitimacy.

Dissatisfaction with the economic situation and distrust of the regime at the time, voters voted for populist Hugo Chávez in 1998.

Chávez revolutionized the country's politics and economy without solving any fundamental political or economic problems. Moreover, his lavish spending and ambivalent attitude towards liberal democracy, as well as his mismanagement of the economy with the weak Maduro, have led the country into the current crisis.

Oil dependence and the resource curse

Venezuelan diplomat Juan Pablo Pérez Alfonso, who is also a founding member of the Organization of the Petroleum Exporting Countries (OPEC).

Pablo Pé

ez Alfo

ZO predicts that Venezuela's dependence on oil will impoverish it. During the oil boom of the 70s of the 20th century, he predicted, "Ten years, twenty years from now, you will see; Oil will bring us destruction...... This is demonic excrement. ”

His words were fulfilled.

Some of Venezuela's neighbors have long relied on single-commodity exports but have since diversified their exports, while Venezuela is a rentier country that is entirely dependent on the extraction and export of oil and its derivatives. Oil is the country's largest source of foreign exchange, the largest contributor to the financial sector and the country's most important economic activity. In 2016, oil export revenue accounted for more than 50% of the country's GDP and nearly 96% of total exports.

Venezuelan oil as a percentage of total export revenues, 1998-2013 (author's data based on data from the Central Bank of Venezuela).

This high level of dependence has led to the "abundance paradox" or "resource curse", which means that a country with abundant natural resources is unlikely to thrive. At the same time, it also leads to corruption because there are only a limited number of people who generate wealth, and the government plays a central role in distributing it. Where representative institutions are weak, an oil boom – creating the illusion of prosperity and development – can destabilize regimes and thus weaken state capacity while increasing oil-related revenues.

All of this is already happening in Venezuela, and oil dependence has caused at least three recurring problems. First, it is difficult for oil-dependent countries to use oil rents for the development of a strong domestic production sector.

Abundant revenues from the extraction of natural resources discourage long-term investment in infrastructure, which contributes to the diversification of the economy. Venezuela's forefathers have long recognized this challenge. In a well-known newspaper column from 1936, the writer and scholar Arturo Uslar Petri (A

tu

o Usla

Piet

i) called on his compatriots to "grow oil", to increase the country's productivity, modernization and education by using oil rents.

Venezuelan intellectual Arturo Uslar Petri called on his compatriots to use oil profits to develop the country and its people (left). Graphs (right) of Venezuela's gross oil production (gray), gross consumption (black line) and total exports (green) from 1965 to 2015.

The leaders failed to heed him. Conversely, the slight rise in oil prices has been reversing the growth of Venezuela's non-oil sector, which grew at an average rate of 3.3 percent before the oil boom and -2.8 percent after the oil boom.

This has led to continued dependence on oil revenues at the expense of other sectors and the concentration of risk on a vulnerable commodity. As shown in the chart above, oil dependence has increased since 1998, with oil accounting for more than 95% of exports from 70% in 2012 and 96% reported in 2016.

Second, during the oil boom, oil rents can also lead to increased dependence on foreign imports at the expense of domestic industry.

This is because the rapid rise in the price of newly discovered oil fields or oil has led to a large inflow of foreign exchange. The increase in foreign exchange reserves leads to currency appreciation, which undermines the competitiveness of other products in export markets and increases dependence on relatively cheap foreign imports. When oil revenues skyrocketed, imports increased.

However, when the price of crude oil fell and the petrodollar fell, as now, it became more difficult for the government to import goods, resulting in a shortage of goods in the 80s of the 20th century and since 2012. Under the existing conditions, the Venezuelan government decided to prioritize the payment of its sovereign debt over importing more goods.

Petroleos de Venezuela, 2008, slogan "Fatherland, Socialism, or Death" in the Petronas building.

The third consequence of the resource curse is endemic corruption. Countries that rely heavily on external rents, such as the export of natural resources, are able to undertake large-scale public spending programs without having to create fiscal systems to collect taxes. As a result, citizens are less aware of holding the government accountable.

In addition, the incentive for corruption increases when the agents of citizens have monopoly power and discretionary distribution of valuable rights. This has been the case in Venezuela for a long time, with corruption in the public sector dating back at least to the democratization of 1958. At the end of the first decade of the twenty-first century, oil prices skyrocketed, horizontal checks and balances on executive power, and regulation of the state-owned oil company, Petroleos de Venezuela (PDVSA), decreased. Today, corruption has reached unprecedented levels.

Corruption is reflected in Transparency International's changes in Venezuela's Corruption Perception Index. Since the first survey in 1995, the country has been in the top 10% of the most corrupt countries in the world. Since 2005, the index has continued to fall, reflecting declining confidence in the integrity of Chávez and Maduro's governments.

Military, democratization and "party rule"

Political factors such as the tradition of the junta, the late start of democratization, and the weak representation of democracy have also contributed to the current crisis.

Simón Bolívar, who became famous as a liberator

Bolíva

) was a military and political figure who played a leading role in bringing Venezuela, Bolivia, Colombia, Ecuador, Peru, and Panama to independence from Spain (left). A military parade in 2014 in memory of President Hugo Chávez, right, who died in 2013

Simón Bolívar, the hero of independence, said: "Ecuador is a monastery, Colombia is a university and Venezuela is a military camp." "In fact, the Venezuelan armed forces have been key players in Venezuelan politics and nation-building. By 1858 Julián Castro

Cast

o) military dictatorship, and all the leaders after independence were old military officers representing both liberals and conservatives.

The alternation of power between active and retired military officers ceased to occur with the Recontinuate Revolution of 1899, after which until 1945 the country was ruled by the dictatorship of military officers: Cipriano Castro (1899-1908); Juan Vicente Gómez (1908-1935); Eleaza López Contreras (1935-1941); and Isaias Medina Angarita (1941-1945).

President Cipriano Castro ruled Venezuela from 1899 to 1908 after seizing power through private armies (first from left).

President Juan Vicente Gómez seized power from his predecessor and ruled from 1908 until his death in 1935.

President Eleaza López Contreras was his predecessor Minister of War and he was in power from 1935 to 1941.

President Isaias Medina Angarita also served as his predecessor Minister of War and ruled Venezuela from 1941 until 1945.

Venezuela attempted democratic elections during the three-year (1945-1948) rule of the Democratic Action Party-ADECO, but was soon followed by the dictatorship of Marcos Pérez Jiménez. After the end of the civil war, the military saw itself as a key institution that drove the country's development and modernization.

The intervention of the military means that democracy will be late. In fact, there was no stable democracy until 1958, when representatives of the three main political parties in Venezuela (AD), the Social Christian Party (COPEI) and the Democratic Republican Alliance (URD)) signed a formal agreement known as the "Cape Fiho Agreement".

The Pact aims to maintain democracy through elections, power-sharing between the cabinet and bureaucracy, and a preliminarily planned government. The agreement allowed Venezuelan democracy to survive the raucous '60s, the threat of left-wing guerrillas, and the unstable attempts of right-wing dictator Rafael Leonidas Trujillo in the Dominican Republic. However, after the fall of the Democratic Republican Alliance in the sixties of the twentieth century, the pact led to an exclusive two-party competition between Venezuela's political system, with the Social Democratic Action Party and the Social Christian Party vying for power.

This two-party control of government is what Michael Copper calls "party rule": government by the people, by the party, and by the party. Among them, the Social Democratic Action Party and the Social Christian Party exercised an "almost pathological political control" over the political, economic and social life of the country, thereby guaranteeing stability at the expense of representation.

Bipartisan rule relies on a system of coordination in which they seek consensus on major policies by coordinating between the two sides or with interest groups such as the business community and the military. They work with civil society organizations and other limited channels of representation, such as interest groups, the media, and the courts, through patronage methods.

These restrictions undermined the system, and popular support for the democratic institutions of the two parties and the Fourth Republic waned in the eighties of the twentieth century, when the fall in oil prices led to the exhaustion of resources for patronage tactics.

Venezuela's achievements in the '60s and '70s look less remarkable when one considers oil dependence and the rigidity of democracy. Venezuela's GDP per capita, social consumption, and quality of life rose at the time, and the democratic collapse experienced by Chile, Uruguay, Argentina, and other countries was averted, but these gains were ultimately unsustainable.

These fundamental weaknesses in the political and economic situation also set the stage for the crises of the 80s and 90s of the 20th century, paving the way for the country's slide into populism and military intervention in the early 21st century.

The economic crisis and the collapse of party rule

With the collapse of oil prices in the early 80s of the last century, the economic situation was the first to fall. High public debt, the depletion of international loans, and an overvalued currency led to massive capital flight in 1982 and early 1983.

On February 18, 1983, or Black Friday as it is known in Venezuela, the government had imposed currency controls (and Chávez did the same 20 years later) to stop inflation. Overnight, purchasing power fell by almost 75%. Between 1970 and 2015, the global price of a barrel of crude oil fluctuated dramatically, and political party rule began to collapse. Hit by low oil prices and rising interest rates on international debt, the Venezuelan government has struggled to raise funds. President Carlos Andrés Pérez tried to solve the problem by adopting a series of neoliberal economic reforms in February 1989, but these measures only further worsened the economic situation of the working class, leading to protests, riots and looting on February 27, which killed hundreds of civilians.

In February and early March 1989, police patrolled after the riot, which became known as Ca

acazo。

Subsequently, the radical left-wing group Revolutionary Bolivarian 200 Movement (MBR-200), formed by Colonel Chavez, a lieutenant in the army, accelerated its coup planning. The coup attempt in February 1992 was not successful, (nor was the second coup attempt by the Air Force in November of the same year) but it marked the beginning of a post-Pontofijo democratic period.

The nineties of the twentieth century were marked by a deep institutional crisis, with the impeachment of Peres in 1993 and a major financial and economic crisis during the administration of Rafael Caldera (1994-1999), accompanied by the political layman's ripeness for the emergence of the lowest international crude oil prices in decades. The flamboyant and charismatic Chávez, who took advantage of voters' dissatisfaction with the political and economic status quo, became nationally famous after a failed coup d'état in 1992. Chávez campaigned on a platform for "Bolivarianism," whose radical vision of the state included economic and political sovereignty, self-sufficiency, democratic socialism, and participatory democracy, and he pledged to end Venezuela's unjust political and economic system. In addition to this, he promised to establish a constituent assembly to amend Venezuela's constitution and enshrine Bolivarianism in law.