ANALYSIS OF THE ECONOMIC CRISIS IN VENEZUELA

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Abstract
The paper, entitled Analysis of the economic crisis in Venezuela, was
written by Tasya Shafira Musthofa (NIM: 170602019), and Munadia
Saffanah (NIM : 1702007). with a supervisor namely Mr. Talbani
Farlian, SE., M.A. Populist economic policies that do not consider good
State management have led Venezuela under Hugo Chavez to fail to
bring oil-rich Venezuela towards welfare equality. Their dependence on
oil exports, foreign debt and imported commodities has exacerbated the
condition of the domestic economy. The fall in oil prices and the Bolivars
exchange rate and rising inflation in extreme or high ways make the
national economy of Venezuela really collapse. This national crisis and
massive migration have caused international implications that have no
small consequences and are not easily overcome. In this study the author
uses the type of research that I use is descriptive qualitative research.
This study was conducted secondary. The data source I use is secondary
data sources. Data obtained indirectly from the informant. Data
collected through library studies, namely documents that are related to
and related to the problems examined in this writing in the form of books,
magazines, journals, newspapers. The unit of analysis used in this study
is the Venezuelan country.

PRELIMINARY

1.1 Background
Venezuela is a country in the northern tip of South America. Venezuela is divided into 23
states (estados) with the capital (distrito) in Caracas. The discovery of crude oil in 1913 made
Venezuela an oil-producing country with a large share of foreign exchange reserves from oil. In
1920 oil production was mostly carried out by foreign companies. As time went on in the early
1970s and more precisely in 1976 the oil nationalization program was inaugurated. The increase
and greater volatility of oil prices in 1974 caused unexpected income from the Venezuelan
country. Oil exports dominate 90 percent of total exports and contribute 60 percent of
government revenues.
Broadly speaking, the Venezuelan State continued to experience an increase in economic
growth until 1970. However, all of that changed dramatically in the following year. Caused by
interference with the Venezuelan economy. An important element of relatively low growth is the
process of nationalizing the oil industry. The instability of the Venezuelan economy is also
exacerbated by the upheaval of the political crisis under the authoritarian rule of President
Nicholas Maduro. The economic downturn in Venezuela signifies a crisis in Vennezuela which
is marked by inflation instability, lack of consumer goods, sovereign debt, and improving the
living conditions. For decades Venezuela was the most prosperous country in South America,
but now Venezuela is lagging behind in the South American region.
Venezuela under the government of President Hugo Chavez has made a big mistake, by
hanging 95% of his national income on petroleum exports. this country, experienced a drastic
economic downturn after the fall of oil prices in 2014 which touched up to 25 US dollars per
barrel. The shortage of foreign exchange financing and national income was exacerbated by
socialist government policies that set prices for basic necessities from flour, cooking oil to
bathing needs to alleviate the poor population. This populist policy became a boomerang,
because it caused the bankruptcy of many companies and companies.
The practice of wrong socialism in Venezuela has drained the country's foreign exchange,
because it ignores healthy economic management and by issuing new currencies and printing
them continuously accompanied by denominations of national currencies by cutting 5 numbers
behind 0. The number of commodities is not produced domestically, so not comparable to the
availability of goods, has triggered large inflation. Meanwhile, large spending on infrastructure
projects has increased the current account deficit. This event lasted until Chaves came down
from his position and was replaced by Nicolas Maduro through controversial elections, in order
to maintain socialist policies.
According to the UN report, of the 32.4 million Venezuelans, more than 2.3 million (7%)
have been displaced by the economic and political crisis in Venezuela. Because of the criticality
of Venezuelans, the United Nations High Commissioner For Refuges has warned that there will
be a case of the Mediterranean in Venezuela. This country faces massive population migration.
In recent years, hundreds of thousands of Venezuelans have fled to various countries, crossed
borders and sought refuge in tents in Colombia, Mexico, Ecuador, Peru, Brazil and Argentina.

1.2 Formulation Of The Problem (Rumusan Masalah)

a. what is the cause of the economic crisis in Venezuela?

b. how the government's efforts to overcome the problem of the economic crisis in
Venezuela.
1.3 Purpose (Tujuan)
a. to find out what causes the economic crisis in Venezuela
b. to find out what efforts the government has made in overcoming the problem of
economic crisisa. apa penyebab terjadinya krisis ekonomi yang terjadi di Venezuela?
 BAB II
LITERATURE REVIEW

A. Global Economic Crisis

The global economic crisis is an event in which all sectors of the world market economy
experience a collapse (serious condition) and affect other sectors throughout the world. As a
result of the economic crisis that occurred in several developed countries such as the United
States, it has had a major impact on developing Asian countries, one of which is the currency
crisis in Venezuela.According to economists, the definition of an economic crisis is simply a
situation where a country whose government is no longer trusted by its people, especially
financial problems. The people no longer want to save money in existing banks, so banks
experience cash difficulties. If that happens, the central bank will withdraw its assets to bail out
all the banks. After that, prices rise along with the amount of cash in the community due to the
bank's excess cash.
If this happens, the country enters a period of crisis. The state is unable to pay its debt so
that its debt is far above its GDP. That is, when Venezuela has debts to other countries and
interest from these debts is increasing every year, but Venezuela's income has not increased due
to the currency crisis in their country, making Venezuela have difficulty paying its debts. The
crisis as stated by Fink (Khasali 2005: 225-230) consists of four levels of development, namely
the pre-crisis period (predromal crisis stage), acute crisis period (acute crisis stage), chronic
crisis period (chronic crisis stage), crisis resolution period (crisis resolution stage).

1. Pre crisis period (predromal crisis stage)

A major crisis is usually preceded by a sign that a crisis will occur. The period of occurrence or
appearance of this sign is called the pre-crisis period. And if the company fails to interpret or
capture the sign, the crisis will shift to a more serious stage: the acute stage. That's why this stage
is called the part of the turning point. This stage usually appears in one of these three forms,
namely:
1) the initial symptoms are very clear;
2) the symptoms that appear appear vague because it is difficult to interpret and predict the
extent of an event;
3) the symptoms of the crisis can not be seen at all.

2. Acute crisis stage

In many ways, acute crises are often referred to as the point of no return. That is, if the
pre-crisis is not detected and the appropriate action is not taken, the most feared period will
occur. Damage has begun to emerge, reactions began to arrive, issues spread widely. However,
how much other losses that will arise are very dependent on the actors controlling the crisis. One
of the major difficulties in facing a crisis at the acute stage is the intensity and speed of the
attacks that come from various parties that accompany this stage. Speed is determined by the
type of crisis that befell the company, while the intensity is determined by the complexity of the
problem. This acute crisis period when compared with the chronic crisis period is much shorter.
But the acute period is the most tense and most tiring time of the team member who handles the
crisis. If it passes, it will generally enter the chronic stage soon.

3. Chronic crisis stage

Chronic period is the period of image recovery and the return of public trust in the
company. This stage is marked by the still information about the crisis in the mass media, but
with a negative peak of publicity decreasing. This time for those who fail miserably to deal with
a crisis is a period of management shock or the company's bankruptcy. For those 13 who can
handle the crisis well this is a calming period. The chronic period lasts long, depending on the
type of crisis. The communication strategy to rebuild the reputation of the organization has a role
in the management stage of this crisis. At this stage the organization must continue to pay
attention to the public, observe the intensity of the problem, inform the organization's steps to the
media, evaluate the crisis plan, and management response to the situation, combine feedback and
crisis plans, then develop long-term communication strategies to reduce losses due to the crisis

4. Crisis Resolution Stage

This period is a period of healthy companies like before. But at this time image recovery
needs to be intensified. At this time the company will increasingly realize that the crisis can
occur at any time and more prepare to deal with it. In times of crisis, the response and the way
the organization manages the crisis will reflect how the organization shows responsibility for the
actions it makes and shows obligations towards its stakeholders (Ngurah 1999: 94-95). Thus any
discussion of the crisis must also speak of management. While management practices, especially
those related to responsibility in a society, are more or less influenced by cultural factors in the
community.

B. Currency
Money is one of the important things in economic activity throughout the world. Money
is a set of assets in the economy that someone uses routinely to buy goods or services from other
people. One function of money is as a medium of exchange. Money arose in place of the barter
trading system adopted by the community before the modern era. The currency generally will be
valid as a payment instrument in a certain area. Currency exchange rates reflect the balance of
demand and supply of domestic and foreign currencies. Currency exchange rates tend to change
over time, so it must be considered in making investments. Investment is investment now, in
order to obtain benefits (remuneration or benefits) in the future. But investing is not always
profitable because there are people who invest in losses. Therefore, in our investments we must
be able to minimize the risk of loss. Risk is a possibility of unwanted results, which can cause
losses if not properly anticipated. Risks do not have to be avoided, but we must take them into
account.
In Iswardono's opinion there are several characteristics of the currency, namely:
1. Acceptability and cognizability. The main requirements of money are generally accepted and
known. Generally accepted as well as its use as a medium of exchange, hoarding wealth,
standard debt repayments develop widely, because of the usefulness or benefits of money to be
exchanged for goods and services.

2. Stability of value. The benefits of something that becomes money gives the value of money.
Therefore, it is necessary to maintain the value of money to remain stable or fluctuate but on a
small scale. Otherwise, money will not be accepted in general, because people will try to save
their wealth in the form of goods whose value is certainly stable.

3. Elasticity of supply. In principle, the amount of money in circulation must be able to meet the
economic needs of a country. The inability to provide money in relation to balancing economic
activities will result in trade experiencing obstacles or not smoothly, and ultimately can cause
exchanges to be carried out as in the economy with a barter system, where goods will be
exchanged for other goods directly by the parties to the transaction.

4. Portability. In principle, one of the criteria for money is that it must be easy to carry out for
daily affairs or activities. Even for transaction activities in a large nominal amount, it is expected
to be done with money in a small physical amount if the nominal value is large.

5. Durability. As in everyday life, money always moves from one hand to another with a
frequency of displacement that is relatively frequent. Therefore, the physical value of money
must be maintained so that it is not torn or damaged. In general, money is made from paper
material that has a fairly strong endurance.

6. Divisibility. Money is used to expedite various transactions, both in large quantities and
in small amounts, so that money from various nominal or unit values must be printed and
circulated to meet and facilitate buying and selling transactions.
 BAB III
RESEARCH METHODOLOGY
3.1 Research Approach (Pendekatan Penelitian)
Judging from the type of data the research approach used in this study is a qualitative
approach. The definition of qualitative research is research that intends to understand the
phenomenon of what is experienced by research subjects holistically, and by means of
descriptions in the form of words and languages, in a special context that is natural and by
utilizing various scientific methods (Moleong, 2007: 6). The type of approach to this research is
descriptive. The type of qualitative descriptive research used in this study is intended to obtain
information about the analysis of the currency crisis that occurred in Venezuela.

3.2 Jenis Penelitian (Based on the method)

Based on the method used, this study uses historical descriptive research. This research is
to describe in more detail about a phenomenon or phenomenon. Where according to researchers
that this research belongs to the type of research that does not use numbers or numbers to process
the data needed. Data consists of quotations of people and descriptions of circumstances, events,
interactions, and activities. By using this type of data, it allows researchers to approach and so be
able to develop information components that are analytical, conceptual and categorical from the
data itself.

3.3 Object Of Research (Objek Penelitian)

The object of research can be stated as a research social situation that wants to know what
is happening inside. In the object of this research, researchers can observe deeply the activities
(activities) of people (actors) that exist in a particular place (Sugiyono, 2007: 215).

The object examined in this study is the correlation of rising or falling oil prices to
income levels and economic growth in the Venezuelan country.

3.4 Data Collection Technique (Teknik Pengumpulan Data)

The according to Sugiyono (2012: 193) "is the most strategic step in research, because
the main purpose of this research is to obtain data. Without knowing the data collection
techniques, the research will not get data that meets the specified data standards.

In general, research using qualitative methods uses a theory to analyze a situation and
emphasizes the collection and analysis of written text. Because of the concept of the research
above, the techniques used by researchers in obtaining data and facts in an attempt to discuss the
problem in this study are using library research techniques whose sources are obtained from
related books, scientific journals, articles and also official documentation from sites accessed
from the internet.
 BAB VI
RESULTS AND DISCUSSION
For decades Venezuela was the most prosperous country in South America, but now
Venezuela is now lagging behind in the South American region (Fig. 1). The decline in price
shock in the 1980s did not become a lesson for President Hugo Chaves, so the sharp decline in
oil prices in 2014 had a significant impact on the Venezuelan economy because there was no
detention of the shock of oil prices. Economic conditions experienced rapid deterioration under
President Maduro, this condition was exacerbated because in November 2017 the government
announced that there would be a restructuring of government debt.

Figure 1. GDP per Capita of Venezuela

Source: Nelson, 2018

The inflation condition in Venezuela is also a concern which reaches an average of around
hundreds of percent (Figure 2). This condition makes Venezuelan inflation categorized as
hyperinflation. This term means an increase in consumer prices reaching 50 percent in a month.
The International Monetary Fund (IMF) projects that Venezuelan inflation reaches 13,000
percent in 2018. One of the causes of this hyperinflation is the low world oil prices, a decline in
oil production, and economic processing errors that weigh on the Venezuelan government. In
addition, the exchange rate of the boliviar currency has weakened against the US dollar since the
beginning of 2016. The policy of replacing 100 bolivar banknotes with other banknotes is not
enough because the production of goods has plummeted and the cost of imports in local
currencies has skyrocketed, so this combination makes consumers unable to keep up with price
increases.Gambar 1. GDP per Kapita Venezuela
 Figure 2. Annual Inflation Rate (%)
Source: Restuccia, 2018

BAB IV FINALE
CONCLUSION
Venezuela is a country with oil commodities which is the main main source of income in
the country. Oil controls 90 percent of total exports and 60 percent of state revenues. The high
dependence on oil makes the economy of the Venezuelan country depend on world oil prices.
When oil prices in the government boom focused more on budget deficits (additional public
debt) for social financing and tended not to use for increasing foreign exchange reserves. This is
the result of speculation from the Venezuelan government which thinks oil prices will continue
to rise, until 2014 oil prices have decreased again due to a small amount of foreign exchange
reserves that cannot cover debt payments. Where the distribution of funds is too focused on
programs that are unproductive and tend to be unsustainable.
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