Page 49 - ES MAG 2018 dig

VENEZUELA

Hugo Chavez was elected in 1998 after
campaigning on ghting social disparity,
but today – 20 years later – 90% of the
population lives in poverty.

The situation is so severe that a survey shows that ¾ of the
population have lost an average 9kg due to malnutrition. Much
of this unexpected turn of events can be attributed to the fact
that, to materialise his visions, Chavez took advantage of the nation’s
rich oil resources to fund generous social welfare, education and
healthcare programmes. But that was only possible in the beautiful
days – the 2000s, when oil prices were high. In the early 2010s, when
oil prices fell because of increased supply coinciding with lower
demand, the policies proved unsustainable. By 2014, Venezuela had
entered a recessionand by 2017, the country had an ination rate
of 4000%. The fact that Chavez had imposed tight maximum prices
to make certain goods aordable for Venezuelans only served to
minimise prot margins for businesses and hence reduced producers’
incentives so much that they exited the market, leaving a country
with medicine and food shortages to this day.
Venezuelans suered the consequences of an undiversied economy
dependent on oil and, even though Chavez’s aims might have
been sincere, 60% of Venezuelans blame his policies for the current
crisis. It is perhaps the fear of that same dependency that urged
Saudi Arabia and the UAE to introduce a value-added tax for the
rst time at the start of this year. It might turn out that depending
on a commodity whose prices collapsed in 2014 (and have not
recovered since) may not be a wise idea.

U.K.

After the election of a Conservative
government in 2010, austerity measures
were introduced with the aim of bringing
economic recovery, but two years later
the UK entered another recession.

Austerity measures represented a clear shift from the work of the
previous government, which responded to the crisis of 2008
through expansionary monetary and scal policy (i.e. lowering
interest rates and increasing government spending). On the contrary,
the Conservative government decided to indeed lower government
spending through austerity measures, with the aim of reducing the
government’s budget decit and in that way induce condence
in investors and consumers. Yet in 2012 the economy was even
smaller than it was at the start of the downturn and that may be
proof that cutting government spending during a recession can
be a dangerous policy. Meanwhile, on the other side of the
Atlantic, Obama’s expansionary scal policy was quickly getting
the USA economy back on track. It seems that policy makers are
still very divided on how to react to a crisis, even though modern-day
crises have been providing a precedent to economists since 1929.