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Apr 13, 2015 | 16:42 GMT

Low Oil Prices Are Crashing Venezuela's Economy

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Low Oil Prices Are Crashing Venezuela's Economy

Venezuela is feeling the economic effects of sustained low oil prices during the first quarter of 2015. The country relies on the import of basic goods to meet its needs, but those imports have been declining for the past two years. In January, the country imported an estimated $1.5 billion in food and other items, down from around $2.8 billion a year before. For a country that imports many of its basic food items, the drop portends significant consequences for the government. The administration is facing the prospect of massive protests around high food costs and scarcity. Anecdotal evidence indicates that lines at food stores have become more frequent and have become longer since December, causing popular discontent. Around 50 calls are made daily to emergency services in Lara state to report injuries in lines or fights between shoppers.

In addition, the long-running economic crisis could soon become an existential crisis for the ruling United Socialist Party of Venezuela. The rapid economic decline since last year's drop in oil prices has clearly affected the government's public approval. According to some polls, the upcoming legislative elections will be an unofficial referendum on President Nicolas Maduro's rule. One poll by polling firm Datincorp concluded that nearly 50 percent of Venezuelans would vote for an opposition candidate at the time of the poll, compared with only around 30 percent for a United Socialist Party of Venezuela candidate. Polling in Venezuela tends to be polarized toward one political extreme or the other, but the trend in recent months shows a clear deterioration of political support for the government.

As it is, there is just not enough petroleum income to sustain the central government. As a result, Caracas has kept printing bolivars to fund domestic spending obligations. This has only made inflation worse. China has also stepped in to provide around $5 billion in funding this year to state-owned energy firm Petroleos de Venezuela. Another $5 billion in Chinese money will go toward social projects. The Chinese loans will fund existing initiatives and may allow the government over the long term to free up some cash to increase imports or to strengthen off-budget spending to secure more votes. But Maduro remains in an unsustainable position for now. With the options for overcoming the crisis narrowing, Maduro has no choice but to wait out his problems despite the risk of an electoral loss later this year.

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