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Know How Venezuela Can Restore Back Its Economy

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

A man holds a sign that reads in Spanish "They attack for oil" during a march of in support of the state-run oil company PDVSA, in Caracas, Venezuela, Jan. 31, 2019. VOA

Oil-rich Venezuela’s near economic collapse may make it easier for U.S.-backed opposition leaders to reverse socialist policies instituted by late President Hugo Chavez, if they are able to oust his successor, Nicolas Maduro, according to analysts.

“I do think at the very beginning, because the Venezuelan people have suffered so much there, they’re going to be willing to give a lot of political capital to the new leadership to do all of these changes,” said Dany Bahar, an Israeli and Venezuelan economist with the Brookings Institution in Washington.

People line up to receive bags with food subsidized by the Nicolas Maduro's government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019.
People line up to receive bags with food subsidized by the Nicolas Maduro’s government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019. VOA

Economic collapse

In the last five years, Venezuela’s economy has shrunk by nearly half. Nationalization of much of the private sector, including the oil industry, has driven away foreign investment. Hyperinflation, aggravated by the increasing fiscal deficit, is now close to 180 percent, with prices of goods tripling every month. More than 3 million people have fled the country to escape increasing poverty.

The government-subsidized assistance programs for the poor have been plagued by chronic food and medicine shortages, due in part to corruption and declining oil revenues that account for more than 95 percent of Venezuela’s export earnings.

Maduro has claimed the humanitarian crisis in his country is a “fabrication,” and blamed U.S. sanctions and capitalist sabotage for the economic shortfall.

The United States, as well as most of Latin America and Europe, has recognized Juan Guaido, president of Venezuela’s National Assembly, as the country’s interim leader, and support opposition claims that Maduro’s reelection last year was illegitimate after he banned most opposition parties from running.

FILE - Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019.
Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019. VOA

Market reforms

With the “Chavista” socialist model discredited, new Venezuelan leadership aligned with the United States would be expected to embrace strong market reforms that would entail an infusion of international aid and credit, privatizing state-controlled industries and cutting government subsidies.

“Market mechanisms have been completely destroyed. The government centralizes everything, decides who gets what, rations all sorts of goods, food, medication, everything. So, you have to get rid of that and just allow the market to reappear, which doesn’t really take very long if the situation on the ground is stable,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington.

Fighting inflation will likely be the top priority for any new government. Recommended fiscal controls would include introducing a new currency tied to international exchange rates, as was done by Brazil and Argentina in the past. Venezuela’s bolivar has lost most of its value, as the Maduro government reacted to inflation by printing more money while its oil revenues plummeted and its deficit grew.

“The moment you move from very high inflation to low inflation, the first thing that you see is a dramatic reduction in poverty rates. This is what happened in Argentina. This is what happened in Brazil, you know, at the time when they were fighting their own inflationary problems,” said de Bolle.

Privatizing oil industry

The International Monetary Fund would likely require Venezuela to lift price controls and privatize state-owned companies, including the oil and gas company Petróleos de Venezuela, S.A. (PDVSA), in exchange for billions of dollars in aid and loans. The reforms and influx of capital would help ease food and medicine shortages.

Venezuela has the world’s largest oil reserves, but production has fallen from three 3 million barrels per day (bpd) in 1997 to just over 1 million bpd in 2019. Maduro contributed to the decline by putting generals in charge of the company rather than industry professionals, and replacing qualified staff with thousands of political supporters.

“If we’re generous with the interpretation, they have also been doing social programs and things like that. If we’re not generous, it has become a vehicle of corruption for the regime. So, there’s going to need to be a deep restructuring of the oil company,” said Bahar.

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

Also Read: Drugs Taken To Neutralize Stomach Acids Can Lead To Kidney Diseases

Ending Venezuela’s free oil shipments of an estimated 50,000 barrels per day to Cuba, another key Maduro ally, could redirect billions of dollars to support limited social programs at home.

If Maduro is removed from office, Washington is expected to ease oil sanctions imposed this year that are estimated to cut Venezuela’s oil exports by two-thirds. Oil sales to the U.S. had provided nearly 90 percent of Venezuela’s hard currency before the sanctions were enacted. (VOA)

Next Story

Here’s how Climate Change has Affected the Economy

Climate vs. Economy: Four Lessons From a Year of Reporting

Climate economy
People attend a climate change protest in Brussels, Belgium. VOA

Does fighting climate change mean wrecking the economy?

That’s the question my editor posed to me about a year ago. It has been the focus of my reporting ever since.

The rhetoric from climate change skeptics suggests it would. President Donald Trump has made canceling Obama-era greenhouse gas regulations a central part of his tenure. Economic rationales are always front and center.

Meanwhile, Democratic presidential candidates say they will create millions of jobs by transforming the energy system to carbon-free sources.

Climate economy
A graph depicting how the economy is growing in Massachusetts despite the climate change. VOA

Job killer or job creator? Leaving aside for the moment the fact that climate change is already imposing enormous costs that are only becoming worse, I went looking for answers in Massachusetts, Wyoming and Colorado.

Here’s some of what I learned. It’s not simple. And much remains to be seen.

1. Where steps have been taken, the economy has kept growing. 

Take Massachusetts, for example. The Bay State passed the Global Warming Solutions Act in 2008, calling for an 80% reduction in greenhouse gases from 1990 levels by 2050. Massachusetts requires power plants to pay for their carbon dioxide emissions. The state was among the first to require power companies to generate a certain portion of their electricity from renewable sources. The government offers rebates and incentives for renewable energy, energy efficiency, electric vehicles and more.

Greenhouse gas emissions have come down by 17% from 2008 to 2017 in the state.

Meanwhile, Massachusetts’ economy has continued to grow. The state’s total output went up by 19% in that period, outperforming U.S. economic expansion as a whole by 3% in that time frame.

Employment went up in Massachusetts by 9%. The state has invested in growing a clean-energy economy. Jobs in renewable energy, energy efficiency and related areas have grown by 86% since 2010 and now make up more than 3% of the state’s workforce.

It’s hard to know, though, to what extent the state’s climate policies were responsible for either the greenhouse gas reductions or economic growth. From 2008 to 2017, carbon emissions went down in every state but six: Idaho, Nebraska, North Dakota, Mississippi, Texas and Washington. GDP shrank in just four states: Connecticut, Louisiana, Nevada and Wyoming.

That’s largely because cutting carbon has become much easier to do with the rise of natural gas and renewable power.

2. Some of the most significant greenhouse gas reductions have happened not because of state policies but because of dramatic shifts in energy markets.

Climate economy
Wind turbines produce green energy in Nauen near Berlin, Germany. Stephan Kohler, who heads the government-affiliated agency overseeing Germany’s electricity grid. VOA

The biggest factor lowering carbon dioxide emissions nationwide is that natural gas has replaced coal as the main fuel for electric power plants.

Burning natural gas generates the same amount of energy with half the carbon dioxide emissions as coal. The price of natural gas has plunged as drilling technology has made the United States the world’s leading producer. That has helped drive a wave of fuel-switching at power plants across the United States. Coal generation fell 40% from 2008 to 2017, while natural gas climbed 47%.

Renewable energy is growing quickly, but it still makes up a small portion of the power supply. Wind generated just 6.5% of the nation’s electricity last year. Solar produced 2.2%.

Wind and solar are starting to give fossil fuels serious competition, though. After dramatic cost declines over the last decade, these sources are now significantly cheaper than coal and often cheaper than natural gas, even without subsidies.

They need to replace fossil fuel generation much faster, however, in order to take a serious bite out of emissions.

3. Some good jobs are going away. Dealing with the changes is not easy.

Powering the nation is not the job it used to be. Coal once generated more than half the nation’s electricity. Coal mines and power plants are mostly unionized. The jobs pay well and provide good benefits for workers without a higher education.

Coal mining, however, employs 42% fewer workers than in 2011. More than 300 coal-burning power plants have closed or are slated to be shuttered.

There are growing opportunities in renewable energy and energy efficiency. The solar industry employed 242,000 people in 2018, for example, about 45,000 more than the coal industry.

The jobs are not equivalent. Many solar installation jobs are not unionized, don’t pay as well and have fewer benefits than those for people working at coal plants. And a solar farm doesn’t need many workers once it’s built, while a coal plant can steadily employ hundreds.

Workers hurt by the energy transition are a small part of the overall economy. But coal mines and power plants tend to be in rural areas without much else in the way of industry. When these jobs go away, the pain is localized but intense.

Some policymakers are trying to blunt the impacts. Last year, Colorado was one of several states that passed laws aimed at cutting greenhouse gas emissions and included provisions for a “just transition” — job retraining, economic development aid and other measures to help workers and communities find a life after fossil fuels.

Climate economy
Members of the European Parliament vote in favor of the Paris U.N. COP 21 Climate Change agreement during a voting session at the European Parliament. VOA

4.  No one is doing enough. 

The plunge in coal-fired power helped the United States cut its emissions by an estimated 2.1% in 2018. Since 2005, emissions are down 12.3%.

But the United States pledged to cut greenhouse gases at least 26% by 2025 under the U.N. Paris climate agreement. Emissions must go down by 2.8% per year on average to hit that target. It’s not impossible, experts say, but it’s a stretch.

The Trump administration is moving policy in the opposite direction, aiming to weaken fuel economy standards for vehicles, approving construction of a new oil pipeline from Canada and vowing to shore up America’s coal industry.

Meeting the Paris pledge is not enough, however. Scientists say the world needs to get to zero carbon emissions by 2050 to stave off a climate disaster. Almost no one is on track to do so.

Unless cost-effective carbon capture technology appears soon, natural gas will have to go. Transportation, the largest source of U.S. greenhouse gases, will have to go electric (or hydrogen or biofuel) much, much faster than it is. And someone will have to figure out what to do about emissions from energy-intensive industries like glass, steel, aluminum and concrete.

Also Read- People with Inadequate Food Access Likely to Die Prematurely: Study

Does fighting climate change mean wrecking the economy? Not necessarily. But the steps taken so far will not stop the climate impacts we’re already seeing from becoming much worse.

Can we stop climate change before it’s too late? No one has all the answers yet.

But something must be done. Each new climate-related disaster shows the cost of inaction is mounting.  (VOA)