Before the end of the decade in the 1980s, Venezuela was a miracle. It had a stable democracy where power changed peacefully every five years. It had a growing middle class that owned cars and houses. And above all, it had oceans of oil.
Venezuelans began to spend astronomical amounts on luxury goods, real estate, travel, and entertainment. This image, beyond the myth of consumerism, hid a story of changing the productive incentives of society, economic decisions, and international upheavals that transformed Venezuela. They could not understand that oil brings problems. It brings waste and state corruption.
The arrival of petro-wealth was sudden and explosive. After the 1973 oil crisis, the price of oil quadrupled, public revenues shot up from $3 to $12, foreign exchange reserves filled up, and bags of dollars began to pile up in the Venezuelan Ministry of Finance. The then president, Carlos Andrés Pérez, attempted to create a “Greater Venezuela.” His plan was bold. He nationalized the oil sector, which was still operated by American companies like Exxon and Shell, built major infrastructure projects (the Guri dam, the Caracas metro), provided scholarships for studying abroad, and massively imported consumer goods. For a while, the project seemed to be succeeding: skyscrapers, expensive imports, and a middle class that traveled and spent freely.
But the foundations of the miracle were weak. Political spending and subsidies grew rapidly, while the production of goods and agricultural activity shrank due to the “Dutch disease”: the river of petrodollars strengthened the country’s currency, the Bolivar, making imports cheap and domestic exports expensive. Thus, the Venezuelan farmer had no incentive to grow, for example, corn when he could import corn at half the cost. Nor did manufacturing build factories, for example, for clothes when they could import them for crumbs. The country’s productive fabric began to wither away with agriculture collapsing as fields were abandoned and farmers moved to the cities to live and survive on state oil subsidies. He started importing everything and became addicted to imports.
Moreover, the state became the main employer; the bureaucracy swelled and public works often became the prey of corruption networks. The culture of hard work and thrift that characterized the older generation was replaced by the culture of easy money. If you needed a job, you found it in the public sector and mainly in the nationalized oil companies after 1976. The state became the father, mother and employer of the nation.
Oil resources were not enough to cover the huge public expenditures and promoted borrowing from abroad on terms that seemed profitable, but there were hidden risks from fluctuating interest rates.
They began to borrow furiously: to finance huge infrastructure projects, to subsidize imports so people could keep buying cheap whiskey and televisions, to cover up the corruption that was draining public coffers. The corruption was colossal. When so much money flows into a system without adequate institutional controls, it provokes people's hands. Government contracts were given to friends of the party. Elementary companies were set up to take loans that were never repaid, etc.
Governments calculated that if they borrowed, inflation and rising oil prices would make the debt disappear, and they thought that money was free, that it was leverage.
The terms of the loans were critical: large sums were granted at floating interest rates linked to international interest rates. By the end of the 80s, Venezuela had the highest public debt per capita in the world.
In 1979, a new president, Luis Herrera Campes, took office, saying: "I inherit a mortgaged country." State expenses were almost double the income. The momentum of public spending was enormous. He could not reduce public spending by imposing austerity. So he continued to borrow at ever higher interest rates as lenders saw the impending inability to pay as he borrowed to pay the interest. The state spent as if there was no tomorrow.
At first, with money cheap, the leverage seemed negligible; however, when the US Fed under Volcker in 1981 raised interest rates to a record 20% to eliminate domestic inflation, the bill suddenly became heavy. The interest payments that Venezuela had to pay multiplied due to the rise in interest rates (from 5% to 20%), while at the same time prices on the world oil market began to fall due to new sources that increased supply and reduced demand. The end came with the crisis in foreign exchange reserves, when they were evaporated by payments for imported goods and loans. The loans became unsustainable.
The negative shock culminated on "Black Friday" on February 18, 1983, when the government announced that it could no longer defend the exchange rate of the bolivar. The currency was devalued, losing half its value overnight, and citizens and businesses suddenly found themselves faced with surprises and debts that multiplied.
In 1989, Venezuela's hero of 1974-79, Carlos Andrés Pérez, took power with completely empty public coffers.
The state now turned to the International Monetary Fund, the $4,5 billion aid came with harsh conditions: cuts in public spending, the removal of subsidies and privatizations. This choice triggered social explosions and destabilization. It was the anger of a people who had been promised paradise without producing, living off oil subsidies, but in the end they had been given austerity. Wealth had become a trap, Venezuela borrowed from the future of future generations, having mortgaged its stability.
The path to the political radicalism that would later manifest itself in the rise of Hugo Chavez had been opened. Captain Chavez, in 1992, staged a coup, and although the coup failed and he was imprisoned, he gained widespread support. Released two years later, he managed to translate social anger into political capital and, through an organized campaign, became president in 1998, marking the beginning of the Bolivarian Revolution.
Chavez rewrote the constitution, renamed the country the “Bolivarian Republic of Venezuela,” abolished term limits, consolidating power in his own hands. He sought to build a coalition of anti-American states to challenge Washington’s hemispheric dominance and make Greater Venezuela faithful to Bolívar’s vision. He formed deep strategic alliances with Cuba, Iran, and Russia (replacing American military equipment with Russian). He opened the door to China, allowing and gaining a strategic foothold in the energy sector of South America.
In 2013, Hugo Chavez appointed Nicolas Maduro as his successor before his death. Since then, Venezuela's GDP has collapsed by 88% (from $370 billion in 2012 to $42 billion in 2020). Since then, due to the increase in energy prices, GDP reached $110 billion in 2025 but is still down 70% from 2012. Central bank interest rates reached 60%, inflation over 170%, public debt 150% of GDP. Real wages collapsed to levels that made survival extremely difficult. Food shortages and malnutrition became a daily reality for many citizens, the health system collapsed and millions of people sought refuge abroad, causing unprecedented migration flows abroad (over 1/3 of the population emigrated). The oil plants that once produced 3 million barrels per day, ended up producing only 1 million per day as there was no money to repair them. Drug trafficking and gold smuggling, etc., began to rise.
The social dimension of Venezuela’s crisis is as significant as the economic one. Suddenly, society saw wage cuts, the loss of scholarships, flight cancellations — all symbols of a sudden poverty for those who believed in eternal abundance. The image of modern Caracas, with its bloated skyscrapers next to dilapidated neighborhoods, remained a lasting monument to irrational choices and mismanagement: too much was spent on “concrete and imports” and too little on human capital and sustainable production.
There is, however, a broader ethical and political reading. The Venezuelan experience demonstrates that natural wealth is not enough to ensure long-term prosperity. Institutional maturity, accountability and investment in productive structures are required. Banks and international financial institutions have profited in the boom and bust, local elites and state corruption have benefited in the short term, but the social costs have been transferred to the poorest layers of society and to future generations.
This story teaches, first, the need for fiscal prudence and for stabilizing reserves to act as “cushions” in periods of falling prices. Second, the importance of diversifying production and investing in human capital instead of opportunistic imports. Third, the crucial value of transparency and accountability in the management of national resources to avoid the trap of clientelism. Finally, the international side: lending terms and clauses must be designed taking into account exogenous financial shocks — because, as history has shown, a significantly increasing interest rate on another continent can mean economic disaster in a dependent country.
Venezuela remains, ultimately, an instructive but bitter reminder that wealth becomes real power only when accompanied by institutions that make it productive, lasting, and fair. The memory of skyscrapers, failed projects, and lost money underlies every contemporary political narrative in Venezuela, influencing both political choices and citizens who are still trying to come to terms with the legacy of an era that seemed like an eternal celebration but ended in a tragic reckoning.
Our country also had a similar experience, when the excessive public borrowing in the period 1980-2009, which was wasted on consumer spending and not on investments, landed us in reality, and even without having extracted oil or natural gas. Politicians should correctly read the lessons of public over-indebtedness and the waste of public money to buy votes. Even oil wealth is not enough to prevent the mismanagement and over-indebtedness of a country. The loans taken against the future of our children, and the installments of these loans, are still being paid today in the form of poverty, immigration and the destruction of the productive fabric. We hope that natural gas extraction will not bring waste and corruption to our country.
photo tzevena, https://pixabay.com
