Venezuela: why shall we care about it?

Venezuela is situated on the coastline of Latin America and has vast oil and gas reserves. Nevertheless, the current socialistic government is failing to feed its 30 mln. population (an approximate number, given the recent emigration) .

In 1999 Hugo Chavez became a president and ruled until his death in 2013. In that period the oil process went up (oil constitutes approximately 95% of the export) and his socialistic government could make a big leap forward: around 1 mln. received homes, more job opportunities were created. Mr.Chavez enjoyed the support of the majority in Venezuela. His successor – Mr.Nicolas Maduro – , who took the office in early 2013,was less successful. In February 2013 the national currency devalued and the rollercoaster ride of the economy started.

Venezuela_bloomberg picture

In 2014 the economy entered into the recession and in 2015 the inflation reached 100% rate. This situation led to a shortages of basic products, increasing inflation and higher rate of crimes and corruption. These all was accompanied by a new-born tradition: queuing. Nowadays it is a full-time job in Venezuela – to wait until your turn comes.

No democracy – more fun

The protests were not this big in the beginning, however recently the last hope of the opposition – Henrique Capriles – received a 15 year ban from the public office, which means that in 2018 he won`t be able to participate in the presidential elections. This was multiplied by the fact, that the Supreme Court of Venezuela stripped the National Assembly of its powers. Separation of powers, you say? It doesn`t exist anymore.

No wonder that a couple of weeks ago the “mother of all protests” took place in the capital – Caracas.  It is hard to say how many people exactly took streets on April 19, however there were more than a couple of million. Since the legislative ban (2013) it is illegal to hold guns, therefore the protesters were throwing Molotov cocktails against the police, which answered with bullets. Dozens were killed, but people did not stop protesting. Mr.Maduro does not backup either.

Why would the rest of the world even care?

All failed socialistic regimes (which slowly evolved into the dictatorship) had their footprints in the history of humanity. No matter where the regime failed, big masses of people were affected.

We live in a globalized world, where multinationals have their interests in several countries and troubles in one may effect another subsidiary in other countries. Destabilization of such a big country (population wise) like Venezuela has its affect on the regional economy, which in its turn might have consequences on the multinational trade.

For instance, a Russian state-owned Rosneft is about to close a deal (approximately USD 2,5 bln.) with the Venezuelan stated. These funds are crucial for Mr.Maduro, who has only USD 10 bln. to support the current regime. After this funds run out, he is in a big trouble. And if this regime fails and an expropriation takes place (and the chances are high, as the history shows) Rosneft would have trouble as well. Russians may recall the article 5 of the Bilateral Investment Treaty (BIT), however a court case under this article will take years to reach a solution. Needless to say, that taxpayers in Russia will not be amused by the fact that such big company suffered losses.  Venezuela is a WTO member, however it did not conclude many BITs (and other trade agreements) with other countries and many international investors would find themselves even in worse situation than Russian investors.

Recently the plant of General Motors was indirectly expropriated (even though it was the ruling of a long running court case, it does more look like an  indirect expropration) and 2,700 employees were fired. Fiat Chrysler and Toyota are still “surviving” the crisis, however like Coca Cola and other producers they sometimes struggle to find materials to sustain the production.

Many multinationals already left the country last year and the number is expected to grow this year.  The fail of the regime will affect not only the regional economy, but the global economy as well, since the oil prices might go up again, which will strike many importers. In a short run, failed economy also means emigration of masses in the neighboring countries and it also means that once a fast developing country will become a loser of the region.  In a long run, no neighboring country will benefit from this.

When the “Arab Spring” was in the headlines of all newspapers around the world, nobody could even predict the consequences that the world faces now, when the revolution in Ukraine was taking place, no one in Europe could expect that a new war so close to its borders will occur.

Now, it is a different continent, but who said that people in Europe or Northern America won`t feel its consequences?


Featured Image: Carlos Becerra/AFP/Getty Images (taken from:

About the Author
Gayk Ayvazyan LL.M. – is an international lawyer, a graduate of the University of Amsterdam (the Netherlands) in “Internal Trade and Investment Law”. Currently works as a corporate lawyer in Amsterdam (NL). His main fields of interests are politics, international law and international trade.

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