After Maduro: can Venezuela rebuild its broken economy?

Over the weekend, US special forces carried out a daring raid on Caracas, capturing the country’s former dictator, Nicolás Maduro, and his wife, then taking them to New Yorkwhere both were indicted on multiple counts including narcoterrorism conspiracy and cocaine importation conspiracy.

And then? After Maduro’s capture, President Donald Trump said the United States would initially take over the administration of Venezuela. “We will lead the country until we can make a safe, appropriate and wise transition,” he told reporters at Mar-a-Lago in Florida. “We cannot take the risk of someone else taking control of Venezuela if they do not have the interests of Venezuelans in mind.”

But fixing Venezuela comes with major challenges, including its currency, the Venezuelan bolivar. This figure has weakened by 469% in the last 12 months alone, according to data compiled by Trading Economics.

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The country could solve this problem by using what’s called a currency board that would peg the value of the Venezuelan bolivar to the dollar, Robert Wright, a visiting professor of history at the University of Austin in Texas, told FOX Business. “The use of a currency board has been very successful in that it most often stabilizes the currency,” he said.

This stabilization, if it materializes, would probably also considerably reduce the risk of another hyperinflation. In February 2019, the inflation rate reached a record high of 344,509.50%, according to data from the Central Bank of Venezuela compiled by Trading Economics. Economists say the real rate was probably even higher.

Venezuela’s economic problems, including the current inflationary surge, go back a long way. And the events of recent decades are largely the result of bad economic policies.

The first major one occurred in 1976, when the Venezuelan government nationalized all oil and gas companies operating in the country, which were then owned and managed by the Venezuelan state-owned company, Petróleos de Venezuela (PDVSA). Nationalized companies included those previously owned by Mobil Oil, Exxon Corp. and Royal Dutch Shell, as well as many others.

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The Trump administration is not happy about this event, even though it happened a long time ago. “We built Venezuela’s oil industry with American talent, drive and skills and the socialist regime stole them from us,” Trump said at a news conference Saturday.

The current situation with PDVSA dates back to the inauguration of Venezuelan President Hugo Chavez in 1999. In 2001, he introduced a so-called “enabling law” that allowed the government to override existing contracts and intervene directly in private enterprise, Pete Earle, director of economics and economic freedom at the American Institute for Economic Research, told FOX Business. “Chavez rejected the market economy,” he said. In other words, the president fully embraced socialism.

The following year, in 2002, the situation got worse. Venezuelan workers staged a general strike to pressure the president to hold new elections. The result? The Chávez government has laid off more than 18,000 highly qualified employees, mainly working at PDVSA. “From that point on, the country stopped being industrial and became political,” says Earle.

PDVSA’s crude oil production collapsed. Production peaked at 3.5 million barrels of crude oil in December 1997 and recently fell to 1.1 million barrels. This is partly due to the appointment of political favorites within the regime rather than qualified petroleum engineers.

In recent years, the economy has blighted the lives of many Venezuelans. “15% of the total population (around 4 million people) are in urgent need food aid“, according to the United Nations World Food Program.

The lack of food dates back to 2016, when supermarket shelves were empty and zoo animals were starving. The following year, news broke that thieves had stolen animals from a zoo in order to eat them.

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Food shortages were mainly the result of bad economic policies. “It’s absolutely tragic,” Earle said. By 2018, the average Venezuelan had lost more than 20 pounds of weight, he said. Additionally, the malaria epidemic has suddenly reappeared in nine of the country’s 23 states. “The most likely outcome is to avoid chaos and ensure that food and services are added to the mix,” he said.