Venezuela was one of three countries that emerged from the collapse of Gran Colombia in 1830 (the others being Ecuador and New Granada, which became Colombia). For most of the first half of the 20th century, Venezuela was ruled by generally benevolent military strongmen who promoted the oil industry and allowed for some social reforms. Democratically elected governments have held sway since 1959. Under Hugo CHAVEZ, president from 1999 to 2013, and his hand-picked successor, President Nicolas MADURO, the executive branch has exercised increasingly authoritarian control over other branches of government. At the same time, democratic institutions have deteriorated, freedoms of expression and the press have been curtailed, and political polarization has grown. The ruling party's economic policies have expanded the state's role in the economy through expropriations of major enterprises, strict currency exchange and price controls that discourage private sector investment and production, and overdependence on the petroleum industry for revenues, among others. Current concerns include: human rights abuses, rampant violent crime, high inflation, and widespread shortages of basic consumer goods, medicine, and medical supplies.
Venezuela remains highly dependent on oil revenues, which account for almost all export earnings and nearly half of the government’s revenue. In 2016, GDP contracted 10%, inflation hit 720%, people faced widespread shortages of consumer goods, and central bank international reserves dwindled. On the other hand, Venezuela managed to pay down its external debt and narrow its current account deficit. Domestic production and industry continues to severely underperform and the Venezuelan government continues to rely on imports to meet its basic food and consumer goods needs.Falling oil prices since 2014 have aggravated Venezuela’s economic crisis. Insufficient access to dollars, price controls, and rigid labor regulations have led some US and multinational firms to reduce or shut down their Venezuelan operations. Market uncertainty and state oil company PDVSA’s poor cash flow have slowed investment in the petroleum sector, resulting in a decline in oil production.Under President Nicolas MADURO, the Venezuelan Government’s response to the economic crisis has been to increase state control over the economy and blame the private sector for the shortages. MADURO has ceded increasing authority for the production and distribution of scarce goods to the military and to local socialist party member committees. The Venezuelan Government has maintained strict currency controls since 2003. On 17 February 2016, the Venezuelan Government announced a change from three official currency exchange mechanisms to only two official rates for the sale of dollars to private-sector firms and individuals, with rates based on the government's import priorities. The official exchange rate used for food and medicine imports was devalued to 10 bolivars per dollar from 6.3 bolivars per dollar. The second rate moved to a managed float. These currency controls present significant obstacles to trade with Venezuela because importers cannot obtain sufficient dollars to purchase goods needed to maintain their operations. Meting out access to the multiple exchange rates has created opportunities for arbitrage and corruption. MADURO has used decree powers to enact legislation to deepen the state’s role as the primary buyer and distributor of imports, further tighten currency controls, cap business profits, and extend price controls.