What will happen after Venezuela Crisis?

How's the crisis?

The crisis in Venezuela has worsened to this day. Venezuela's currency continued to decline until last Friday (28/7) $ 1 equal to 10,389 Bolivar. Even private banks can only allow the public to withdraw a maximum of 30,000 bolivars or $ 2.88 from an ATM machine, while for a government-run Bank a maximum of 10,000 bolivars or 96 cents. This led to a spike in the prices of foodstuffs and some other items so that the Venezuelan people found it difficult to get staple goods such as food and medicine. Meanwhile, Nicolas Maduro plans to hold a special election agency amendment to the Constitution 1999 on 30 July. The opposition Nicolas Maduro (Venezuelan President) is currently worried it could extend the period of Maduro's power, so they attempt to hold a referendum against Maduro and save Venezuela from the crisis.

What's the causes?

Venezuela relies heavily on oil exports where oil accounts for 95% of Venezuela's export earnings. The problem stems from the era of the previous President of Chaves. Chaves is the inspiration as well as the Maduro mecca. He is a socialist who aspires to use Venezuela's oil wealth to reduce poverty and prosper the people of Venezuela. So during his tenure, Chaves took over millions of acres of land and nationalized hundreds of private businesses and foreign-owned assets. As a result, Venezuela's poverty rate fell from about 50 percent in 1998, the year before it was elected, to 30 percent in 2012, the year before his death. However, Chaves spent Venezuela's oil revenues at the time for massive nationalization, foreign currency control, and oil and import subsidies. So when the world oil price drops from $ 111 per barrel in 2014 to a low of $ 27 per barrel by 2016 the almost empty income reserves, what happens to Venezuela is:

Added with state-owned oil company Petroleos de Venezuela, S.A. (PDVSA) that regulates all oil production activities have poor management systems such as corruption, lack of investment in infrastructure development, and lack of budgetary oversight. This inhibits the effectiveness of Venezuela's oil production. Meanwhile, political tension between Maduro supporters and the opposition has further aggravated the crisis. As we know that Nicolas Maduro plans to hold a special election of the 1999 constitution amendment body on July 30 to replace the current National Assembly. This was done to extend the President term. It triggered massive protests from opposition and Venezuelan society.

What will happens then?

In a crisis, the effect is a thoroughly domino effect, there is a lot of social, political and economic tension in the same time. Political tensions between government factions are the largest contributor to the crisis. If political tensions continue, solutions to economic policy that must be implemented to overcome crisis and mismanagement of Venezuela's economy will take a long time. Moreover, this tension is not solved or overcome through institutionalized institutions, but through the direct interaction of conflicting factions. Meanwhile, social and economic tensions in society due to soaring market prices and an even less valuable currency make public moods so chaotic that this could trigger social unrest and escalation of conflicts. This is again used in political tensions, where government opposition uses social and economic tensions to overthrow the Maduro government. If these tensions continue, then what happens is that the government will fail to encourage adequate economic policy, Venezuela's economy falls and social unrest continues unceasingly. The community will always oppose the government as long as the government does not meet the needs and welfare of the community. Then most likely the democratic opposition fails to dialogue with the Government to restore public order. Then it will trigger a major clash between the people and the opposition to the Maduro government which means the country is entering a state of higher anarchy. So Venezuela can have the potential to create a civil war.

What to conclude?

The Venezuelan crisis came on account of some of the causes of economic mismanagement during the Chaves administration, declining world oil prices, domestic political instability, the failure of PDVSA, to declining Venezuelan currency. It creates an economic and social crisis in the community. If this continues without a policy solution it can potentially lead to social unrest and even civil war in Venezuela.

What to do?

In the political context, the role of regional and sub-regional organizations in Latin America - especially OAS and UNASUR is crucial to creating a safe space for conflict mediation between government factions. The United States in this case should utilize the Defense Department's connections to emphasize to the Venezuelan security forces in their obligations to uphold the constitution, uphold democracy, and respect human rights. During the political process, humanitarian assistance is expected to continue. Then in the economy, there needs to be non-government professionals in PDVSA management and working with foreign oil companies to help the company's restructuring so that oil production can continue and turn the wheels of the country's economy. Then for the future, Venezuela needs to diversify its economy and stop its excessive dependence on oil wealth. In addition, there is an effective use of state revenues and the importance of state revenues.

References:

Gillespie, P., 2017, ‘Venezuela’s Hyper Inflation is Jaw Dropping. See for Yourself’, CNN, viewed 29

July 2017 from  http://money.cnn.com/2017/07/28/news/economy/venezuela-cash-crisis/index.html

Aquadini, Sita P., 2017, ‘Oposisi Venezuela Gelar Referendum Tandingan Lawan Maduro’, Tempo, viewed 29 July 2017 from https://m.tempo.co/read/news/2017/07/17/116891965/oposisi-venezuela-gelar-referendum-tandingan-untuk-lawan-maduro

Renwick, D., 2017, ‘Venezuela in Crisis’, Council on Foreign Relation, viewed 29 July 2017 from https://www.cfr.org/backgrounder/venezuela-crisis

Mises, 2017, ‘Are Oil Prices to Blame for The Venezuelan Crisis?’, in Value Walk, viewed 29 July 2017 from http://www.valuewalk.com/2017/04/oil-prices-blame-venezuelan-crisis/

Hanke, S., 2017, ‘Venezuela’s PDVSA: The World Worst Oil Company’, Forbes, viewed 29 July 2017 from https://www.forbes.com/sites/stevehanke/2017/03/06/venezuelas-pdvsa-the-worlds-worst-oil-company/#2a4aa5bc4105

Charner, F., 2017, ‘Venezuela’s Political Crisis Explained’, CNN, viewed 29 July 2017 from http://edition.cnn.com/2017/07/26/americas/venezuela-politics-explained/index.html