Naked Opinion

U.S. Intervention in Venezuela Crisis: Proceed With Caution

World powers should be wary of a coalition led by the United States to aid Venezuela in its current political and economic crisis.

I could exchange $100 for 1000 Venezuelan Bolívar. Or, I could exchange $100 for 100,000 Venezuelan Bolívar. Actually, I could exchange $100 for at least three wildly different amounts of Bolívar since the government sets two different exchange rates in addition to that of the black market.

This is the crux of Venezuela’s current crisis and has left their currency defunct, their citizens without food or basic healthcare, and their government floundering. Many suggest that international intervention is required to resolve this issue, but world leaders should use caution in deciding who will lead the coalition and how, especially in regards to the United States’ potential involvement.

The Beginnings of a Crisis

In 2003, the Venezuelan government under Hugo Chávez started implementing currency controls in hopes of making certain imported goods more affordable. Several different exchange rates were established but, as of March 2016, the government has set two.

The first official rate, which is called the Dipro, is used only for food, medicine, and other major imports and is fixed at 10 Bolívar/USD. Most other goods are traded using an exchange rate called the Dicom, which nears 700 Bolívar/USD. In addition to the Dipro and Dicom, the black market has its own exchange rate, which has long been over 1000 Bolívar/USD and shows no signs of slowing.

Venezuela’s Current Situation

As a result of the Dipro’s low exchange rate, few countries want to export food and medicine to Venezuela, leaving these items scarce instead of more affordable. This, combined with the high exchange rates of the Dicom and the black market, has led to too much money chasing too few goods– inflation.

However, Venezuela’s situation is so severe it has escalated to hyperinflation; the International Monetary Fund expects inflation to increase by almost 500% in 2016 and more than 1600% in 2017. This can be seen in the sale of even the most basic necessities, whose scarcity and high demand require literal bucket-loads of cash to purchase.

Intervention and Its Potential

This inflation, along with deteriorating humanitarian conditions, has led economists and world leaders to call for international intervention. But, let’s not forget previous U.S. interventions in Venezuela; the United States allegedly supported a coup d’état against Chavez, imposed sanctions on Venezuela, and was accused of promoting violence in the country through three diplomats who were later forced to return to the U.S.

Naturally, the Venezuelan government has an uneasy relationship with the United States, and President Maduro has blamed his country’s current economic crisis on foreign aggressions. Therefore, U.S. intervention is likely to deepen Venezuelan distrust.

An Alternative Solution

Unifying the exchange rate, though, would address the current disaster and wouldn’t require international aid. If the Venezuelan government were to set a single exchange rate closer to that of the black market, their currency would depreciate; the Bolívar would be worth fewer dollars compared to the current Dipro and Dicom exchange rates.

With the depreciation of the Bolívar, Venezuela would experience an increase in net exports, and eventually in GDP. Foreign traders would be more apt to import Venezuelan goods, most likely oil, since the Bolívar’s depreciation means more buying power in Venezuela per unit of their own currency.

The Reality of the Situation

The unification of the Bolívar and the eventual growth of the Venezuelan economy would bring increased access to essentials currently unavailable in the country. However, it’s unlikely President Maduro will devalue his country’s currency on his own for fear of redacting previous policies and going against his government’s practice of Chavism.

As such, international intervention will likely be necessary, but the U.S. should tread lightly if it tries to aid Venezuela. Any attempts to overhaul the country’s economy, political system, or social programs will be met with further frustration from the Maduro administration, worsening the already poor conditions.

 


Library

Subscribe to the Newsletter