Comment: A very comprehensive overview of the Venezuela situation. Read it all. If medium.com gives you difficulties, you can read it here.

Venezuela used to be a dream US ally, model free-market economy, and a major oil producer. With the largest reserves of crude oil in the world, the conventional narrative is that its current implosion can only be due to colossal mismanagement of its domestic resources.

Described back in 1990 by the New York Times as “one of Latin America’s oldest and most stable democracies”, the newspaper of record predicted that, thanks to the geopolitical volatility of the Middle East, Venezuela “is poised to play a newly prominent role in the United States energy scene well into the 1990's”. At the time, Venezuelan oil production was helping to “offset the shortage caused by the embargo of oil from Iraq and Kuwait” amidst higher oil prices triggered by the simmering conflict.

But the NYT had camouflaged a deepening economic crisis. As noted by leading expert on Latin America, Javier Corrales, in ReVista: Harvard Review of Latin America, Venezuela had never recovered from currency and debt crises it had experienced in the 1980s. Economic chaos continued well into the 1990s, just as the Times had celebrated the market economy’s friendship with the US, explained Corrales: “Inflation remained indomitable and among the highest in the region, economic growth continued to be volatile and oil-dependent, growth per capita stagnated, unemployment rates surged, and public sector deficits endured despite continuous spending cutbacks.”

Prior to the ascension of Chavez, the entrenched party-political system so applauded by the US, and courted by international institutions like the IMF, was essentially crumbling. “According to a recent report by Data Information Resources to the Venezuelan-American Chamber of Commerce, in the last 25 years the share of household income spent on food has shot up to 72 percent, from 28 percent,” lamented the New York Times in 1996. “The middle class has shrunk by a third. An estimated 53 percent of jobs are now classified as ‘informal’ — in the underground economy — as compared with 33 percent in the late 1970's”.

The NYT piece cynically put all the blame for the deepening crisis on “government largesse” and interventionism in the economy. But even here, within the subtext the paper acknowledged a historical backdrop of consistent IMF-backed austerity measures. According to the NYT, even the ostensibly anti-austerity president Rafael Caldera — who had promised more “state-financed populism” as an antidote to years of IMF-wrought austerity — ended up “negotiating for a $3 billion loan from the IMF” along with “a second loan of undisclosed size to ease the social impact of any hardships imposed by an IMF agreement.”

So it is convenient that today’s loud and self-righteous moral denunciations of Maduro ignore the instrumental role played by US efforts to impose market fundamentalism in wreaking economic and social havoc across Venezuelan society. Of course, outside the fanatical echo chambers of the Trump White House and the likes of the New York Times, the devastating impact of US-backed World Bank and IMF austerity measures is well-documented among serious economists.

In a paper for the London School of Economics, development economist Professor Jonathan DiJohn of the UN Research Institute for Social Development found that US-backed economic > “liberalisation not only failed to revive private investment and economic growth, but also contributed to a worsening of the factorial distribution of income, which contributed to growing polarisation of politics.”

Neoliberal reforms further compounded already existing centralised nepotistic political structures vulnerable to corruption. Far from strengthening the state, they led to a collapse in the state’s regulative power. Analysts who hark back to a Venezuelan free market golden age ignore the fact that far from reducing corruption, “financial deregulation, large-scale privatisations, and private monopolies create[d] large rents, and thus rent-seeking/corruption opportunities.”
Instead of leading to meaningful economic reforms, neoliberalisation stymied genuine reform and entrenched elite power. And this is precisely how the West helped create the Chavez it loves to hate. In the words of Corrales in the Harvard Review:

“… economic collapse and party system collapse — are intimately related. Venezuela’s repeated failure to reform its economy made existing politicians increasingly unpopular, who in turn responded by privileging populist policies over real reforms. The result was a vicious cycle of economic and political party decay, ultimately paving the way for the rise of Chavez.”

While it is now fashionable to blame the collapse of the Venezuelan oil industry solely on Chavez’s socialism, Caldera’s privatisation of the oil sector was unable to forestall the decline in oil production, which peaked in 1997 at around 3.5 million barrels a day. By 1999, Chavez’s first actual year in office, production had already dropped dramatically by around 30 percent.

A deeper look reveals that the causes of Venezuela’s oil problems are slightly more complicated than the ‘Chávez killed it’ meme. Since peaking around 1997, Venezuelan oil production has declined over the last two decades, but in recent years has experienced a precipitous fall. There can be little doubt that serious mismanagement in the oil industry has played a role in this decline. However, there is a fundamental driver other than mismanagement which the press has consistently ignored in reporting on Venezuala’s current crisis: the increasingly fraught economics of oil.