Here's the story of Venezuela's economic crisis, a country rich in oil

Venezuela was hit by a severe economic crisis, marked by skyrocketing inflation. With local currency, tissues are sold for 2.6 million while chicken meat is 14.6 million.

In the midst of a crisis, many residents chose to leave the country.

What is the root of Venezuela's economic crisis?

Venezuela is rich in oil. The country has proven to have the largest oil reserves in the world. But this wealth is the root of most economic problems.

Venezuela's oil profits constitute 95% of export revenues. This means that when oil prices are high, a lot of money flows into the Venezuelan government revenues.

When President Hugo Chavez of the socialist group came to power, from February 1999 to his death in March 2013, he used some of the funds to finance a number of social programs to reduce inequality and poverty generously.

Two million houses were established through the government program Misión Vivienda (Housing Mission), according to official figures.

But when oil prices plummeted in 2014, the government suddenly faced a big hole in financing and had to cut a number of popular programs.

Is too high dependence on oil, the only problem?

No, many other policies introduced by Hugo Chavez also became negative.

To make the basic needs affordable to the poor, the government sets the price of goods and services, sets the funds that the people spend to get items such as flour, cooking oil and bathing needs.

But this means that many companies no longer reap profits when producing these items, so they go bankrupt.

This, coupled with the scarcity of foreign currency to import basic necessities, causes scarcity.

The Chavez government in 2003 decided to control the foreign exchange market.

Since then, Venezuelans who intend to exchange local currency, bolivars, with dollars must register with the government-run currency agency.

Only those who are seen as having a strong reason to buy dollars, for example to import goods, are permitted to exchange their bolivars based on the fixed exchange rate determined by the government.

Because many Venezuelans cannot buy dollars freely, the black market develops and inflation rises.

Why is inflation out of control?

Venezuela's annual inflation rate is currently the highest in the world and it seems that this will not change in the near future.

The Venezuelan Central Bank has not published statistical data since 2015, but Johns Hopkins University economist Steve Hanke estimates that the figure jumped to nearly 18,000% in April.

High inflation was driven by the government's willingness to print additional money and its readiness to regularly increase minimum wages in order to regain the support of the Venezuelan poor.

The government is also increasingly difficult to get loans after the failure of a number of bonds.

Because lenders are increasingly unwilling to risk money in Venezuela, the government is again printing money, thus further reducing its value and boosting inflation.

Oil prices have increased and should inject funds that are needed by the government.

But the lack of public infrastructure investment means that PDVSA's state oil production has declined, making it increasingly difficult to rise.

Plus hundreds of thousands of Venezuelans left the country, causing scarcity of quality residents and the future is not too encouraging.

The spread of allegations of corruption and the government's unfriendly attitude towards private business also alienates prospective foreign investors.

A number of countries have said they will not recognize new governments, including Brazil, Canada, Chile and Panama.

But what can really stop the Venezuelan government's move is likely to be US sanctions against the Venezuelan oil industry.

The US declares that the Venezuelan elections are a "fraud", so this is likely to happen soon.Source