Venezuela has more oil than Saudi Arabia and more poverty than Brazil. Its previous leader, the late Hugo Chavez, sought to use the country’s reserves to light a leftist path to prosperity for Latin America’s poor. Under his protege and successor, Nicolas Maduro, Venezuela hasn’t always been able to keep the power on, and with U.S. sanctions biting, the country has defaulted on some of its debt. Even as oil prices recover, the country, once one of Latin America’s richest, is plagued with shortages of everything from toilet paper to antibiotics and food. And that’s on top of quadruple-digit inflation, corruption allegations and widespread violent crime. 

The Situation

Maduro, seeking his own mandate, has scheduled a presidential election for May 20. Most of the opposition is boycotting it. One exception is Henri Falcon, a former state governor and ex-Chavez loyalist, who wants Venezuela to replace its currency with the U.S. dollar and is advised by a Wall Street economist. More prominent would-be contenders, barred from holding office, consider the election a farce, as do neighboring countries and the U.S. An increasingly isolated Maduro made official in late 2017 what the bond market had long anticipated: Economic mismanagement, lower oil prices and U.S. sanctions are forcing Venezuela to seek relief from creditors. More than a dozen Venezuelan bonds are in default, and the arrears keep stacking up. This includes the $3 billion in so-called hunger bonds that Goldman Sachs Group Inc. bought at a deep discount — leading to criticism it was helping finance a regime that prioritizes paying creditors over feeding hungry Venezuelans. The country continues to print money to close budget shortfalls, while confidence in the national currency, the bolivar, evaporates. The International Monetary Fund estimates that inflation exceeded 2,400 percent in 2017 and will rise to about 13,000 percent in 2018. In hopes of circumventing sanctions and raising billions, Venezuela introduced the world’s first sovereign cryptocurrency, the Petro, which officially went on sale to the public on March 20. While the economy crumbles beneath him, Maduro continues cracking down on dissent and consolidating power. Hundreds of thousands of Venezuelans have fled to nearby countries. Oil equipment is falling into disrepair as hungry workers grow too weak for heavy labor. Children are dying of malnutrition and many adults spend their days sifting garbage for table scraps instead of working.

The Background

Chavez, a former paratrooper jailed for two years after leading a failed coup in 1992, was elected president in 1998 and revolutionized Venezuelan politics with fiery anti-U.S. rhetoric. He nationalized thousands of companies or their assets, reducing the economy’s capacity to produce anything but oil. He channeled revenue to the poor and expanded Venezuela’s influence in the region by doling out cheap oil worth $8 billion a year. He used widespread electoral support to transform a pluralistic democracy into a largely authoritarian system. Maduro took office in 2013 after Chavez’s death. Well before oil prices began to fall, he faced high inflation, which has pushed 87 percent of the population into poverty, and a homicide rate second only to Honduras. After fleeing the country, the nation’s former top prosecutor alleged that Maduro and his allies had blocked corruption and fraud probes. The U.S. has designated Maduro’s vice president, Tareck El Aissami, a drug kingpin, making him one of the most senior government leaders of any country to be sanctioned this way.   

The Argument

Maduro’s critics argue he’s so thoroughly mismanaged the country that he has no political or moral right to remain in office. He struggles for popularity, yet critics say the opposition, made up of more than a dozen parties, ranging from Marxist to center-right, has yet to present a concrete plan for the country’s future. Polls show most Venezuelans favor the upcoming vote but are apathetic about the candidates. Venezuelans are also suspicious of election outcomes after polls last year predicted a landslide opposition victory in governors’ races, only to see Maduro’s allies almost sweep the vote amid low turnout and accusations of fraud. Yet by sitting out December’s municipal elections in protest, the opposition ceded more ground to the government. If Maduro wins a solid majority in May, critics say, Venezuelans will suffer even more than they already have. Maduro says the Petro, which the U.S. called a “scam” and barred Americans from purchasing, will be backed by some of the country’s massive oil reserves, yet there’s no way to exchange the digital tokens for hard assets. He hopes to negotiate a debt restructuring, but U.S. sanctions probably prevent American investors from participating. As Maduro tries to convince creditors to grant relief, human-rights activists increasingly question whether the country should service almost $90 billion in foreign debt due in the next decade, rather than use the funds for medicine and food. 

The Reference Shelf

Nathan Crooks contributed to an earlier version of this article.

First published Jan.

To contact the writer of this QuickTake: Patricia Laya in Caracas at playa2@bloomberg.net.

To contact the editor responsible for this QuickTake: Paula Dwyer at pdwyer11@bloomberg.net.

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