CAIMUN 2021
GROUP OF TWENTY
Background Guide B CANADA INTERNATIONAL MODEL UNITED NATIONS Tenth Annual Session | May 28-30, 2021
Dear Delegates,
Othman Mekhlouf Welcome to the Group of Twenty. My name is Andrew Liu, and it is Secretary-General my pleasure to serve as your Director at CAIMUN 2021 alongside your Chairs—Joshua Dar Santos and Megan Wang. I am currently in my junior year at St. George’s School, and I have participated in Model UN since Grade 9 as both a delegate and a staff member. Angel Yuan Director-General Model UN has been an essential part of my high school life, and I am grateful for the amazing friendships and experiences that I have gained Nikki Wu along the way. For me, Model UN is truly the best way to encapsulate Chief of Staff the sophistication of debate, public speaking, and international affairs. My own experiences with Model UN have helped me improve my public speaking skills as well as my interpersonal skills of communication and negotiation. I can assure you that you too will undergo such an Matthew Leung Director of Logistics experience at CAIMUN 2021.
This year, the two topics to be discussed are Adapting Economically Madeline Kim Sustainable Climate Change Policy and The Collapse of the Venezuelan USG of General Assemblies Economy. Our frst topic discusses an environmental threat to global prosperity that the committee must address, and our second topic is a unique crisis that focuses on a volatile economic situation in Venezuela. I Mikael Borres am eager to hear the creative solutions you will doubtlessly conceive. USG of Specialized Agencies
Bearing that in mind, I wish you all the best in your research. If you have Alec Yang any questions, please feel free to contact me via email at g20@caimun. USG of Delegate Affairs ca. I look forward to meeting all of you at the conference.
Sincerely, Caitlin Adams USG of Delegate Affairs Andrew Liu Director of the Group of Twenty — CAIMUN 2021
Emily Hu USG of Media Table of Contents
Committee Description ...... 2
Topic Overview ...... 4
Timeline of Events ...... 5
Historical Analysis ...... 7
Current Situation ...... 13
Initiating Crisis ...... 19
Potential Solutions ...... 20
Bloc Positions ...... 23
Discussion Questions ...... 26
Further Resources ...... 26
Bibliography ...... 27
Canada International Model United Nations 2021 1 Committee Description
In 1997, the Asian financial crisis, sparked by the collapse of the Thai baht—Thailand’s national currency—spread across much of Southeast Asia. The subsequent failure of regional currency markets created a spillover effect whereby investors would pull out of Asian markets one after the other, devastating Asian economies and threatening to spill over into a global economic meltdown.
The Group of Seven (G7), which was the largest and most influential international economic organization at the time, was startled by the financial shocks caused by the Asian financial crisis, which affected all foreign investment into the continent.1 Subsequently, the G7 formed in 1999 a new and larger economic organization that included both advanced and emerging economies from around the world intending to promote international financial stability—the Group of Twenty (G20).2 At its inception, the G7 touted the newly formed G20 as a mechanism to facilitate dialogue on key economic and financial policy issues and to promote cooperation for sustainable economic growth.3
The committee consists of 19 member nations as well as the European Union.4 While Italy currently holds the Presidency, the seat rotates annually, and the country holding the position is given the responsibility to set the committee’s priorities for the year and decide which topics will be discussed at the annual Leaders’ Summit, which is the G20’s annual conference. Along with its permanent member nations, the committee also includes multiple permanent guest invitees, including the World Bank, International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD), African Union (AU), United Nations (UN), and more. These permanent invitees are deemed to be organizations of importance to the global economy that can provide expertise in specific areas.
The G20’s annual topics can be categorized into two groups: financial stability and socio-economic development. Its mandate is to “promote discussion and study and review policy issues among industrialized countries and emerging markets to promote international financial stability.”5 To that end, the G20 is currently involved in three primary areas of discussion: "Empowering people," especially women and youth, "safeguarding the planet" by preserving natural resources and promoting sustainable development, and "fostering prosperity" by promoting digitalization and innovation.6
1 http://www.g20.utoronto.ca/g20whatisit.html 2 Ibid. 3 Ibid. 4 http://www.g20.utoronto.ca/members.html 5 Ibid. 6 https://www.g20.org/en/priorita.html
Canada International Model United Nations 2021 2 The G20 itself does not possess any political or legal power as it serves as a forum more than a decisive body that makes binding or concrete decisions, but the committee’s members wield vast influence around the world—collectively, G20 economies account for nearly 90 percent of global GDP and 80 percent of world trade.7 As such, the committee usually accomplishes its goals by committing its members to sets of actions and policies agreed upon at its annual summits. For example, at its 2019 Osaka Summit, G20 leaders committed to providing universal internet access by 2025 through increased investments in fibre optics infrastructure and pro-competition market policies.8
Historically, the G20 has been successful in guiding the global economy through the macroeconomic financial policies it usually employs, such as when it played a crucial role in stabilizing the global economy during the 2008 financial crisis. After the Great Recession in 2008, the G20 helped to stabilize the world economy by finalizing a USD 1.1 trillion injection of financial stimulus into the global economy, which included tax cuts across the board and increased government spending into infrastructure and social programs.9, 10 Overall, the Centre for International Governance Innovation, a non-partisan think tank on global governance, concludes that the G20’s response to the 2008 crisis was generally effective at mitigating the economic fallout.11
Since then, the G20 has reshaped finance by implementing structural reforms for the global financial sector, mainly through increased government oversight. For example, after the 2008 crisis, the G20 spearheaded the Basel Standards, a global regulatory framework for financial institutions that focuses on increasing bank liquidity and decreasing leverage.12 The committee has also increased the lending capacity of the International Monetary Fund (IMF) to aid economies in crisis.13 In response to the COVID-19 pandemic, the IMF has dispensed over USD 100 billion of emergency loans to over 85 countries to stabilize their struggling economies.14
In recent years, however, confidence in the G20’s effectiveness has waned somewhat as the past few summits have failed to produce concrete economic plans. For example, numerous countries and the International Labour Organization (ILO) have called on the G20 over the last few years to address unemployment and rapidly rising inequality. Yet, the G20 never adopted any of the
7https://ec.europa.eu/info/food-farming-fisheries/farming/international-cooperation/international- organisations/g20_en 8 http://www.g20.utoronto.ca/2019/2019-g20-trade.html 9 https://www.brookings.edu/articles/assessing-the-g-20-stimulus-plans-a-deeper-look/ 10 https://economictimes.indiatimes.com/news/international/world-news/g20s-achievements-for-global-economy- since-the-2008-crisis/articleshow/54251577.cms?from=mdr 11 https://www.cigionline.org/sites/default/files/g20_no_3_0.pdf 12 https://www.rba.gov.au/publications/bulletin/2019/jun/a-decade-of-post-crisis-g20-financial-sector-reforms. html#:~:text=The%20initial%20post%2Dcrisis%20focus,OTC)%20derivatives%20markets%20and%20the 13 Ibid. 14 https://www.imf.org/en/Topics/imf-and-covid19/COVID-Lending-Tracker
Canada International Model United Nations 2021 3 policies recommended by the ILO and other groups; instead, experts agree that the committee has only paid “lip service” to superficially appease them.15
The Collapse of the Venezuelan Economy Topic Overview
Venezuela, which was once referred to as the richest country in Latin America, has spiralled into an economic basket case of epic proportions. Due to the nation’s overreliance on its export of oil, which accounts for 99 percent of its export revenues to this day, their economy was vulnerable to volatility in global oil prices.16 This was the case in 2014, when oil prices dropped from USD 100 to USD 40–50 per barrel, cutting Venezuela’s oil revenues in half. Despite the sharp increase in national debt and inflation of the Venezuela bolívar, the socialist government under President Nicolás Maduro failed to avoid the looming economic crisis by refusing to cut spending on generous social benefits.17 Instead, he tried to mitigate the situation by setting strict price controls on the price of products, such as basic food supplies, which only increased the financial strain on sellers and increased the rate of inflation, leaving millions unemployed as businesses were forced to shut down.18 The economic malaise was further exacerbated as nations such as the United States and Mexico levied sanctions on Venezuelan financial assets, obstructing a significant portion of the country’s economic output, including oil exports.19 Additionally, the decades-long problem of corruption within the government has resulted in billions of dollars being laundered and embezzled out of the country by politicians and the Venezuelan elite.20
All things considered, the individuals who are suffering are Venezuela’s citizens. The economic collapse has started a humanitarian crisis in the country; due to runaway inflation (also known as hyperinflation) when consumer prices increase uncontrollably and at an extreme rate, Venezuelans are unable to buy food as prices increase by the minute and necessities become scarce as sanctions have limited the import of essential goods.21 Consequently, over 6 million Venezuelans are suffering from malnourishment and are in desperate need of medical attention.22 In the same vein, hospitals around the country have closed due to the exorbitant prices of equipment and frequent lapses in access to clean water or electricity, creating a medical crisis that leaves millions
15 https://www.iisd.org/articles/g20-hopes-failures 16 https://www.opec.org/opec_web/en/about_us/171.htm 17 https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro 18 https://www.bbc.com/news/world-latin-america-24897407 19 https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro 20 https://www.dw.com/en/how-millions-of-dirty-dollars-were-laundered-out-of-venezuela/a-47867313 21 https://www.cnbc.com/2019/08/02/venezuela-inflation-at-10-million-percent-its-time-for-shock-therapy.html 22https://www.aljazeera.com/economy/2019/8/20/failed-state-venezuelan-displacement-and-starvation-multiply
Canada International Model United Nations 2021 4 vulnerable.23 Another consequence of the economic collapse is the mass exodus of Venezuelans. According to the United Nations (UN) Refugee Agency, over 5 million people have fled the country, mostly to neighbouring Latin American countries and the Caribbean, creating a migrant crisis bigger than that of Syria.24
Timeline of Events
April 30, 2007 — Following years of high oil prices, Venezuela pays off its debts to the World Bank and International Monetary Fund (IMF) and officially severs ties.25
June 2, 2010 — Venezuelan president Hugo Chávez declares an “economic war,” promising to lower prices and crush inequality through socialist policies like strict price controls, welfare programs, and a state-led economy.26
April 14, 2013 — Nicolás Maduro wins the 2013 Venezuelan presidential election, held following the death of President Hugo Chávez.27
May 2014 — Venezuela enters an economic recession. After hitting 57 percent and continuing to increase, inflation of the Venezuelan bolívar officially becomes the highest in the world.28
June–December 2014 — A supply glut in the oil market leads to the largest drop in oil prices since the Great Recession in 2008, with global oil prices dropping by over 59 percent in seven months.29
December 6, 2015 — The Democratic Unity Roundtable, an electoral coalition of anti-Maduro political parties, wins a legislative majority in the National Assembly. Maduro’s party, the United Socialist Party of Venezuela, previously held the majority.30
January 15, 2016 — President Maduro declares a 60-day economic emergency to deal with the country’s economic crisis, giving him broad powers to impose currency controls and intervene in
23 https://www.npr.org/sections/goatsandsoda/2019/04/05/709969632/researchers-are-surprised-by-the-magnitude- of-venezuelas-health-crisis 24 https://www.unhcr.org/venezuela-emergency.html 25 https://www.reuters.com/article/us-imf-venezuela-idUSN3047381820070501 26 https://www.theguardian.com/world/2010/jun/27/venezuela-hugo-chavez-private-retailers 27 https://www.bbc.com/news/world-latin-america-22149202 28 https://www.forbes.com/sites/mikepatton/2014/05/09/the-three-countries-with-the-highest-inflation/?sh=7ff107b 3172e 29 https://www.bls.gov/opub/btn/volume-4/pdf/the-2014-plunge-in-import-petroleum-prices-what-happened.pdf 30 https://www.nytimes.com/2015/12/07/world/americas/venezuela-elections.html
Canada International Model United Nations 2021 5 the private sector with price controls. This status of “economic emergency” is repeatedly extended.31
June 2016 — Venezuela’s economic crisis worsens as the inflation rate reaches 482 percent and unemployment climbs to 17 percent. The cost of basic groceries that would feed a family for a week now costs 22 times the minimum wage.32
December 1, 2016 — Venezuela’s membership from the South American trade bloc Mercosur is suspended for failing to adhere to basic trade and human rights standards.33
November 2018 — Inflation reaches a peak of 1.3 million percent, and prices double every 19 days on average.34
January 28, 2019 — Under the Trump Administration, the United States imposes economic sanctions on PdVSA, Venezuela’s state-owned oil and natural gas company. Its US assets are frozen, and it is prohibited from engaging in transactions with US companies and individuals.35
February 2019 — Following US sanctions on PdVSA, Venezuelan oil exports fall by over 40 percent. The sanctions deal a devastating blow to Venezuela’s oil-dependent economy, exacerbating inflation and further restricting the country’s ability to import food, medicines, and equipment.36
April 2019 — The IMF estimates Venezuela’s unemployment rate at 44 percent and forecasts it to climb to nearly 50 percent in the next year.37
2020 — The total number of Venezuelan refugees reaches 5 million, with most of them fleeing to neighbouring Latin American countries and the Caribbean. The UN Refugee Agency (UNHCR) declares the situation “one of the largest displacement crises in the world.”38
31 https://www.bbc.com/news/world-latin-america-35329617 32 https://www.theguardian.com/world/2016/jun/22/venezuela-economic-crisis-guardian-briefing 33 https://www.bbc.com/news/world-latin-america-38181198 34 https://www.bbc.com/news/world-latin-america-46999668 35 https://www.wita.org/atp-research/venezuela-overview-of-u-s-sanctions/ 36 https://www.reuters.com/article/us-venezuela-politics-crude-sanctions-ex-idUSKCN1V420P 37 https://www.bloomberg.com/news/articles/2019-04-09/venezuela-unemployment-nears-that-of-war-ruined- bosnia-imf-says 38 https://www.unhcr.org/venezuela-emergency.html
Canada International Model United Nations 2021 6 Historical Analysis
Venezuela Prior to Chávez
During the 1960s and 1970s, Venezuela maintained a strong and stable economy. In 1973, the Organization of the Petroleum Exporting Countries (OPEC) imposed an oil embargo against Israel and its allies, which included large oil-consuming countries like the United States and the United Kingdom, in response to the Yom Kippur War between Israel and Arab nations.39 Venezuela, which did not take part in the embargo, capitalized on embargoed countries’ need for oil by increasing oil prices and selling to them, drastically increasing Venezuela’s government revenues.40 Using the country’s new wealth, Venezuela’s president at the time, Carlos Pérez, then increased public investment and expanded social welfare, ballooning the national debt.41
In the following decade, however, Venezuela’s economy went into a backslide. Despite declining oil prices in the 80s and the resulting low government revenues, Pérez and Venezuela’s next president, Luis Campins, maintained high government spending, which further increased the budget deficit.42 In an effort to combat the growing national debt, the Venezuelan government implemented strict austerity measures, which are economic policies that cut government spending while increasing taxes to reduce debt. These measures dealt devastating blows to public services like education and infrastructure, as well as to public sector workers; however, they proved to be ineffective, as Venezuela still suffered a growing debt problem and rising inflation.43 The toll of austerity, as well as its inefficacy, stirred up civil unrest, leading to protests and strikes. These demonstrations eventually devolved into violent riots, spreading instability and chaos across the country.44
Rise of Hugo Chávez
Venezuela’s internal political strife at the time produced many revolutionaries who aimed to overthrow the unstable government. Among these revolutionaries, Hugo Chávez eventually emerged as one of their key leaders. Originally working as a military officer tasked with hunting down fighters for a Marxist–Leninist insurgency, he eventually left the army and embraced leftist ideologies.45 In 1982, Chávez founded the Revolutionary Bolivarian Movement-200, a political movement with the aim of fomenting a coup d'état to overthrow the Venezuelan government.46 He
39 https://www.history.com/this-day-in-history/opec-enacts-oil-embargo 40 https://www.britannica.com/place/Venezuela/The-Andinos#ref219053 41 Ibid. 42 Ibid. 43 Ibid. 44 Ibid. 45 https://www.britannica.com/biography/Hugo-Chavez 46 Ibid.
Canada International Model United Nations 2021 7 launched his coup d'état in February 1992, which failed and resulted in his imprisonment. This did not last long, however, as he was released in 1994 due to growing public pressure on the government.47 Chávez then founded the Movement of the Fifth Republic, a populist political party, and ran for president in 1998 on an anti-establishment platform.48 With 56 percent of the national vote, Hugo Chávez won the election, becoming President of Venezuela in 1998.49
Venezuela under Hugo Chávez
Under Hugo Chávez, Venezuela’s domestic and foreign policies underwent a radical change. Domestically, Chávez carried out a large expansion of social welfare, including public health, housing, and education programs. For example, Chávez launched Plan Bolívar 2000 in 1999, which was a massive public works campaign that included road building, housing and school construction, and mass vaccination, costing over USD 114 million.50
Chávez’s foreign policy was also a departure from previous Venezuelan leaders and was marked by a focus on expanding economic influence within South America and the Caribbean. In South America, he built trade relations, particularly involving oil, with Mercosur—a South American trade bloc—countries, including Argentina, Brazil, Paraguay, and Uruguay.51 In the Caribbean, he established firm diplomatic and trade ties with Cuba by emphasizing both countries’ shared opposition to American influence, with Venezuela exporting a peak of 95,000 barrels of petroleum per day to Cuba in 2006.52 Chávez also adopted an antagonistic approach toward the United States and capitalism, portraying himself as a leading critic of capitalism and repeatedly threatening to cut off oil shipments to the United States.53 For example, he froze diplomatic relations with the US for several months in 2008 and even expelled the US ambassador to Venezuela after Bolivia, an ally of Chávez’s socialist revolution, accused the US of fomenting a coup d'etat against the Bolivian government.54 Eventually, Venezuela also severed ties with the World Bank and the International Monetary Fund (IMF), which Chávez considered to be capitalist institutions under American influence.55
Initially, Venezuelan citizens benefited from the government’s generous welfare expansions: infant mortality fell 5.9 percent between 1999 and 2013, and the overall poverty rate declined from
47 https://www.britannica.com/biography/Nicolas-Maduro#ref331747 48 Ibid. 49 Ibid. 50https://www.reuters.com/article/us-venezuela-military-specialreport/special-report-why-the-military-still-stands- by-venezuelas-beleaguered-president-idUSKCN1TT1O4 51 https://www.wilsoncenter.org/event/the-domestic-and-foreign-policies-venezuelan-president-hugo-chavez 52 Ibid. 53 https://www.washingtonpost.com/archive/politics/2005/11/22/chavez-pushes-petro-diplomacy/a9a80327-dc41 -4177-a3b7-653a511f2e5a/ 54 https://www.theguardian.com/world/2008/sep/12/venezuela.usa 55 https://www.reuters.com/article/us-imf-venezuela-idUSN3047381820070501
Canada International Model United Nations 2021 8 21.7 percent to 9.9 percent between 1999 and 2006.56, 57 However, the downsides of Chávez’s economic policies would not be seen until after his death. For years, encompassing both Chávez’s rule and previous Venezuelan leaders, the country had been spending irresponsibly and not saving any economic excess from oil exports, eventually contributing to its economic downfall over a decade later. Chávez’s rule ended in 2013 when he passed away from cancer.58
Nicolás Maduro’s Presidency
Maduro holds the official certificate certifying him as the winner of the presidential election in Caracas, 2013.59
Following Chávez’s death, a special election was held on April 14, 2013, to determine who would serve the remainder of his six-year term, which Nicolás Maduro won by a narrow margin.
Nicolás Maduro, who had been exposed to leftist ideologies from an early age, had been deeply involved in activism throughout his youth, from pushing for students’ rights at his high school to advocating for union protections for public workers.60 Maduro’s political career started in the early 1990s when he joined the Revolutionary Bolivarian Movement-200, a socialist political movement led by Hugo Chávez.61 Over the next decade, Maduro continued to support Chávez, including his bid for the Venezuelan presidency in 1998 and even helped establish the Movement of the Fifth
56 http://news.bbc.co.uk/hi/spanish/specials/2009/chavez_10/newsid_7837000/7837964.stm 57 http://mdgs.un.org/unsd/mdg/Data.aspx 58 https://www.britannica.com/place/Venezuela/The-Hugo-Chavez-presidency 59 https://www.theatlantic.com/photo/2013/04/venezuelas-disputed-election/100498/ 60 https://www.britannica.com/biography/Nicolas-Maduro#ref339717 61 Ibid.
Canada International Model United Nations 2021 9 Republic.62 Throughout the 2000s, Maduro rose in Venezuelan politics, serving as the speaker of the National Assembly from 2005 to 2006 and as Chávez’s foreign affairs minister until 2013.63 After Chávez’s reelection in 2012, Maduro served as his vice president until Chávez’s death.64
Upon entering office, Maduro continued Chávez’s expensive socialist policies and increased government spending on welfare, ballooning the inflation rate to above 57 percent by May 2014.65 As a result, the costs of everyday goods such as flour, milk, and toiletries became much more expensive as Venezuela slid into recession.66 For example, average consumer prices rose by 5.3 percent in a single month in December 2014 and continued to rise from there.67 Despite backlash and protests from the population, however, Maduro did not change his economic plans.
While Venezuela’s economic situation had been gradually worsening for years, the national economy could still stay afloat due to relatively high oil prices. The surge in the world economy’s growth during the early 2010s drove up oil demand, keeping global petroleum prices high and providing Venezuela with a stable revenue source.68 This all changed in early 2014, when oil prices crashed due to oversupply in the market, sending Venezuela’s economy, which relied on oil exports for around one-quarter of gross domestic product (GDP)—an indicator of an economy’s growth—and 99 percent of export earnings, into freefall.69 Global oil prices dropped by 59 percent between June and December 2014 from around USD 100 per barrel to just USD 40–50 per barrel.70
Poor economic management by Chávez and Maduro’s administrations also played a crucial role in Venezuela’s sudden economic collapse. The country was flushed with cash during the years when oil prices were high, yet it did not save any of its income in preparation for a dip in the oil market, leaving the country vulnerable to fluctuations in oil prices. Instead, Venezuela used its income to give even more generous social benefits to make food, housing, and health care more widely available.71
By December 2015, inflation had risen to 170 percent, and the economy had contracted by 10 percent, increasing poverty and shortages of goods.72 Inflation of the Venezuelan bolívar, the country’s official currency, made it more difficult for businesses to import foreign supplies and
62 Ibid. 63 Ibid. 64 Ibid. 65 https://www.cnbc.com/2014/03/14/venezuela-inflation-tops-57-percent-amid-protests.html 66 https://www.reuters.com/article/venezuela-inflation-idUSL1N0VN2H720150214 67 Ibid. 68 https://www.cfr.org/backgrounder/venezuela-crisis 69 Ibid. 70 https://www.bls.gov/opub/btn/volume-4/pdf/the-2014-plunge-in-import-petroleum-prices-what-happened.pdf 71 https://www.npr.org/2019/04/08/711169832/how-venezuelas-currency-became-so-worthless 72 https://www.brookings.edu/blog/order-from-chaos/2015/12/08/three-things-to-know-about-the-venezuelan -election-results/
Canada International Model United Nations 2021 10 products, as the national currency became less and less valuable on international markets.73 Maduro’s failure to handle the economy dealt him and his party, the United Socialist Party of Venezuela (PSUV), a political blow in the December 2015 legislative elections: the opposition, the Democratic Unity Roundtable (MUD), secured a majority in the National Assembly, ending 16 years of legislative majorities by socialist parties.74 The MUD, however, did not roll back the PSUV’s expensive social reforms, and they remain a core part of Venezuela’s economy to this day. During this time, many nations, including the United States, European Union, Canada, Mexico, Panama, and Switzerland, imposed economic sanctions on Venezuela in response to Maduro’s increasingly authoritarian actions, further crippling its already struggling economy by restricting the purchase of Venezuelan exports.75 Critically, US sanctions against Petróleos de Venezuela, S.A. (PdVSA) (English: Petroleum of Venezuela), Venezuela’s state-owned oil and gas company, cut national oil exports by half.76
In 2016, the climate catastrophe that had been ongoing at the time worsened, further straining Venezuela’s economy. El Niño events are shifts in the equatorial Pacific region’s climate that occur every few years and are characterized by warm temperatures.77 The 2014–16 El Niño event was one of the strongest on record, diverting rainfall away from the Western Pacific region and causing droughts in South American countries, particularly affecting Venezuela.78 In total, the climate event affected over 60 million people worldwide, exacerbating hunger and malnutrition particularly in Africa and South America.79 The droughts caused shortages in hydroelectric power, resulting in blackouts and forcing Maduro’s government to reduce its workweek to two days in an effort to conserve energy.80 Venezuela’s energy infrastructure and economic productivity had already been in decline due to the financial collapse; the energy shortage and resulting reduction in the workweek only exacerbated the situation.81
Hyperinflation—when average prices rise more than 50 percent per month—is one of the worst situations an economy can find itself in.82 Venezuela entered hyperinflation in 2016, and the annual inflation rate reached a peak of 1.3 million percent at the end of the year, with prices doubling every 19 days on average.83 Total unemployment also hit 18 percent, with over 1.1 million
73 https://www.brookings.edu/blog/order-from-chaos/2015/12/02/venezuelan-elections-could-chavismo-lose/ 74 https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro 75 https://www.csis.org/analysis/are-sanctions-working-venezuela 76 Ibid. 77 https://www.ncdc.noaa.gov/sites/default/files/attachments/ENSOTT_Report_02.26.2018%20FINAL%20draft.pdf 78 Ibid. 79 https://www.who.int/news-room/feature-stories/detail/el-ni%C3%B1o-affects-more-than-60-million-people 80 https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro 81 https://www.nytimes.com/2016/04/22/world/americas/venezuela-officially-adopts-electricity-blackouts.html 82 https://www.thebalance.com/what-is-hyperinflation-definition-causes-and-examples-3306097 83 https://www.bbc.com/news/world-latin-america-46999668
Canada International Model United Nations 2021 11 unemployed in total, and millions had already fled the country.84, 85All the while, the Maduro administration continued to implement socialist economic measures with little effect on the national crisis.
Over the last decade, Venezuela has managed to continue digging itself into a larger and larger economic pit; this timeline of the Venezuelan economy’s collapse is critical to understanding why Venezuela is in such a perilous situation today (see Current Situation for more details).
Economic policy under Maduro
When Maduro first took office, he outlined three major economic objectives: find new ways to spur economic production to counter the slowing economy, dismantle obstacles that prevent goods from reaching citizens, and set fair prices for all.86 Although his first few months in office yielded a slight reduction in unemployment (the rate decreased by less than one percent), Venezuela’s economic situation took a turn for the worse immediately afterward, leading to the country’s current state.87
Throughout his presidency, Maduro relied on a few key economic techniques in his efforts—albeit unsuccessful—to mitigate Venezuela’s economic malaise. First, he routinely imposed price controls on staple food items to facilitate cheaper food supplies; however, this approach backfired every time.88 Producers simply shut down, as they were unable to turn a profit by selling at the low prices that the government’s price ceilings mandated.89 For example, during Maduro’s first year in office, his flagship policy, the Organic Law of Fair Prices, set a maximum profit margin of 30 percent for private firms; as a result, 77,839 businesses were forced to close, and 173,000 Venezuelans lost their jobs.90 The devastation of Venezuela’s private sector and domestic production is one of the fundamental causes of its food shortages.91
Another strategy Maduro employed was raising the minimum wage while ordering re- denominations of the bolívar—devaluing the currency in an attempt to increase its purchasing power.92 Unfortunately, this strategy did not prove to have any tangible effect in any instance that
84 https://www.economy.com/venezuela/unemployment 85 https://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Subdued-Demand-Symptoms-and-Remedies 86 https://www.lapatilla.com/2014/04/21/maduro-anuncia-que-el-martes-arranca-nueva-ofensiva-economica/ 87 https://www.statista.com/statistics/370935/unemployment-rate-in-venezuela/#:~:text=In%202020%2C%20the %20unemployment%20rate,estimated%20at%20approximately%209.38%20percent. 88 https://www.reuters.com/article/venezuela-economy-idUSL2N2CC2JG 89 https://www.theguardian.com/global-development-professionals-network/2015/apr/16/venezuela-economy-black -market-milk-and-toilet-paper 90 https://www.infobae.com/2014/10/23/1603828-por-los-precios-justos-del-chavismo-quebraron-mas-77000- empresas-venezolanas/ 91 https://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in-grocery-staples.html 92 https://www.pbs.org/newshour/world/venezuela-knocks-5-zeros-off-its-currency-will-anything-change
Canada International Model United Nations 2021 12 Maduro employed it, and economists agree that it was merely a psychological ploy to make Venezuelans forget the extent of hyperinflation.93 However, the re-denominations did benefit Venezuelans to some extent in that it lessened the physical strain, as hyperinflation forced Venezuelans to keep literal wheelbarrows or even trucks full of cash on hand to pay for everyday products.94
Finally, Maduro issued currency controls in response to Venezuelans scrambling to convert their savings into foreign currencies like the US dollar, making it extremely difficult for Venezuelans to exchange bolívares for foreign currencies via official government channels.95 However, this proved to be counterproductive, as it only pushed Venezuelans to trade US dollars on illegal black markets.96
Current Situation
Economic Collapse
Ever since entering a full-blown recession in 2014 due to the drop in oil prices, Venezuela’s economic situation has continued to deteriorate due to a combination of economic mismanagement and political chaos.
The inflation of the Venezuelan bolívar has increased exponentially, reaching a peak of 1.3 million percent in 2018.97 Hyperinflation has become so severe that the Venezuelan government has stopped publishing official economic figures in an effort to hide the magnitude of the crisis.98 As a result, the price of goods has become unaffordable to most of the population. For example, one kilogram of milk powder now costs over 400,000 bolívares—nearly double the national minimum wage of 250,000 bolívares per month.99 Maduro’s price controls have also devastated the private sector, and the national currency has become nearly worthless. According to the latest IMF figures from September 2020, the country’s GDP has declined significantly as well, contracting by 35 percent in 2019 and 25 percent in 2020.100
93 https://www.reuters.com/article/us-venezuela-economy/venezuela-knocks-three-zeros-off-ailing-currency-amid- hyperinflation-idUSKBN1GY3AP 94 https://www.cato.org/blog/venezuelas-bolivar-redenomination-will-fail 95 https://theconversation.com/what-caused-hyperinflation-in-venezuela-a-rare-blend-of-public-ineptitude-and -private-enterprise-102483 96 Ibid. 97 https://www.reuters.com/article/us-venezuela-economy-idUSKBN1O91WT 98 https://www.reuters.com/article/us-venezuela-economy-idUSKBN16S1YF 99 https://www.reuters.com/article/us-venezuela-economy-idUSKBN22D41S 100 https://www.imf.org/en/Publications/WEO/Issues/2020/09/30/world-economic-outlook-october-2020
Canada International Model United Nations 2021 13 Overall, there seems to be no hope for recovery for the Venezuelan economy. Despite the country’s enormous oil reserves, oil production is still dismal due to economic sanctions imposed by numerous countries and poor management of the state-owned oil company, PdVSA. For example, Maduro has filled most of the company’s top ranks with his own supporters, mostly from the military, who have little to no expertise in the oil sector.101 As a result, the company lacks any real business strategy and is now routinely unable to scale up basic operations like drilling and pumping.102 Additionally, many oil workers have deserted their positions due to the economic crisis, worsening PdVSA’s troubles.103 National oil production currently sits at around 750,000 barrels of crude per day, down from nearly 3 million per day in 2014.104
Aside from hyperinflation and the sky-high price of goods, Venezuela now faces another economic problem: the utilization of the bolívar. Ecoanalitica, a financial analytics firm, estimates that 60 percent of all purchases in Venezuela are now done using the US dollar instead of the bolívar.105 This represents a critical problem to the recovery of the country’s economy, as hyperinflation can never be curbed if citizens do not use or have confidence in the national currency. Usage and confidence in the bolívar are key, as no efforts to curb hyperinflation will have a tangible effect if the currency is not actually being used or circulated in the economy.106
The crippling national debt is a final major issue plaguing the country. According to the Institute of International Finance, a Washington D.C.-based think tank, Venezuela’s national debt has skyrocketed in recent years, reaching USD 156 billion in 2019, which is 198 percent of its GDP.107 As it currently stands, the country is at significant risk of defaulting on its massive debts—failure to pay back loans—to foreign countries, which include loans from China and Russia, as well as to private entities, which include major Wall Street banks and investors.108 If Venezuela does end up defaulting on its loans, debtors would be able to seize Venezuelan assets, most likely in oil, thus further hampering the country’s ability to make an economic recovery.109
101 https://www.reuters.com/article/us-venezuela-pdvsa-military-specialrepor-idUSKCN1OP0RZ 102 Ibid. 103 Ibid. 104 https://www.forbes.com/sites/simonconstable/2019/11/08/venezuela-sinks-further-into--oblivion--debt-level- doubles-over-one-year/?sh=30d0a3702c0b 105 https://www.aljazeera.com/economy/2020/10/5/venezuela-mulls-100000-bolivar-bill-guess-how-much-its-worth 106 https://www.thebalance.com/consumer-spending-definition-and-determinants-3305917 107 https://www.forbes.com/sites/simonconstable/2019/11/08/venezuela-sinks-further-into--oblivion--debt-level- doubles-over-one-year/?sh=29b77eb62c0b 108 https://www.dw.com/en/how-to-resolve-the-venezuelan-debt-conundrum/a-47483575 109 https://www.imd.org/research-knowledge/articles/venezuela-a-default-in-the-making/
Canada International Model United Nations 2021 14 Figure 1: Venezuela’s GDP, 1990–2023 (projected).110
Economic Case Study: Greece
Historically, sovereign defaults have always had lasting, devastating impacts on countries, both socially and economically. For instance, Greece defaulted on a USD 1.7 billion debt payment to the IMF in 2015 after falling into a severe debt crisis in 2009, which was triggered by aftershocks from the 2008 Great Recession as well as existing weaknesses in the Greek economy.111 Multiple debt relief packages and emergency bailouts—injections of money into a country to prevent economic collapse—had been put in place to avoid such an outcome, and the Greek government had also committed to sweeping austerity measures, which were meant to curtail public spending to limit debt, in an effort to reduce the government's budget deficit.112 These measures slashed billions in government spending, leading to mass unemployment among public sector workers and massive cuts to social programs, including pensions, healthcare, poverty measures, and more.113
All these measures failed, however, as the debt relief programs only served to slow Greece’s economic collapse and never addressed fundamental issues in the Greek economy, such as rampant
110 https://www.statista.com/chart/17366/venezuelan-gdp-from-1990-to-2023/ 111 https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp 112 https://www.thebalance.com/what-is-the-greece-debt-crisis-3305525 113 Ibid.
Canada International Model United Nations 2021 15 tax evasion, corruption, and low business productivity.114 As a result, Greece ended up defaulting on its debt, causing investors to pull out from the country, Greek assets to be seized, and lowering the country’s creditworthiness for future loans. Following the default, average incomes fell by over 25 percent and poverty increased by double digits.115
Today, the Greek economy is still in shambles, and the country’s social situation is decades behind what it once was.116
Sanctions
Since around 2014, the United States, European Union, Canada, Mexico, Panama, and Switzerland have all imposed economic sanctions on Venezuela in response to President Maduro’s authoritarian actions and the humanitarian disaster.117 US sanctions, however, have by far had the largest effect, as they directly target key Venezuelan industries, including oil and mining, instead of only imposing sanctions on individuals.118
Currently, the US sanctions on Venezuela include the freezing of individuals’ and corporations’ assets and the prohibition of transactions in the petrol, gold, mining, food and banking sectors.119 US sanctions also targeted PdVSA, which is responsible for the majority of the country’s oil extraction, treatment, and export.120 Considering that Venezuelan oil exports to the US were previously the country’s single largest source of revenue, American sanctions on PdVSA and the Venezuelan oil sector, in general, are severely limiting their economy.121
Humanitarian Crisis
Amid the economic devastation, Venezuela’s humanitarian crisis has become one of the worst in the world, resulting in a massive decline in quality of life in the country. Malnutrition caused by exorbitantly high prices and frequent food shortages is a major factor. A 2018 study found that Venezuelans lost on average 11 kilograms in body weight in 2017, and almost 90 percent lived in poverty. Clean drinking water and electricity are also scarce, which exacerbates malnutrition rates; most meats and frozen food products require water for meal preparation and power for refrigeration. Even so, many desperate Venezuelans eat spoiled food, often leading to illness.122 The damage is especially noticeable among children; according to the United Nations Children’s
114 https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp 115 Ibid. 116 Ibid. 117 https://sanctionscanner.com/knowledge-base/venezuela-sanctions-against-venezuela-72 118 Ibid. 119 Ibid. 120 https://www.nytimes.com/2019/02/08/world/americas/venezuela-sanctions-maduro.html 121 Ibid. 122 https://disasterphilanthropy.org/disaster/venezuelan-refugee-crisis/
Canada International Model United Nations 2021 16 Fund (UNICEF), 13 percent of the country’s children suffered from malnutrition between 2013– 2018, and a recent study found that 16 percent of children in Venezuela under the age of five suffer from acute malnutrition. Twice as many suffer from stunted growth.123
A severe shortage of medical equipment, medicine, and vaccines is another contributing factor to the humanitarian crisis.124 Underfunded and understaffed hospitals struggle to keep up with the large flow of patients requiring treatment, and the situation is made even worse due to the country’s frequent electricity and water shortages.125 The Pharmaceutical Federation of Venezuela estimated in April 2018 that there was a shortage of 85 percent of medications and 50 percent of medical supplies.126 Additionally, 70 percent of hospitals report power outages and a lack of available drinking water.127 As a result, many diseases such as kidney disease, malaria, HIV, dengue fever, measles and diphtheria are untreated, and mortality rates have increased across the board for all population groups.128
Refugee Crisis
As a direct result of the humanitarian and economic crises, many Venezuelans have been forced to leave the country, searching for a better life abroad. According to the UN Refugee Agency, over 5 million Venezuelans have fled the country to move to neighbouring South American countries like Colombia and Brazil, as well as Caribbean nations like the Dominican Republic and Trinidad and Tobago.129 Unfortunately, most Venezuelan refugees leave the country without legal documentation, leaving them with little to no legal protections and assistance once they have arrived in another nation.130 Frequently, Venezuelan refugees cannot even be guaranteed basic human rights once they have reached another country.
Additionally, most migrants from Venezuela are families with children, the elderly, and people with disabilities; therefore, they are often susceptible to exploitation, violence, and scams. This, coupled with a lack of knowledge of the rugged South American terrain, makes these groups likely to fall prey to traffickers and other illegal groups.131
123 https://www.reuters.com/investigates/special-report/venezuela-malnutrition/ 124 https://disasterphilanthropy.org/disaster/venezuelan-refugee-crisis/ 125 Ibid. 126 Ibid. 127 Ibid. 128 Ibid. 129 https://www.unhcr.org/venezuela-emergency.html 130 https://www.iom.int/venezuela-refugee-and-migrant-crisis 131 https://www.unhcr.org/venezuela-emergency.html
Canada International Model United Nations 2021 17 Venezuelan refugees line up to cross into Colombia, 2019.132
Electricity Sector
Nearly 70 percent of Venezuela’s electricity is currently provided by a single installation, the Simón Bolívar Hydroelectric Plant, situated on the Caroni River.133 The massive dam is capable of producing vast amounts of electricity; however, it is notoriously unreliable due to its vulnerability to droughts, climate changes, or anything that could affect the water levels of the dam’s reservoir. Venezuela’s complete dependence on a single power plant represents a severe vulnerability in the country’s electricity sector, leaving massive implications for hospitals, banks, and other critical infrastructure that depend on electricity to function. For example, in April 2016, an El Niño-derived drought led to a shortage in hydroelectric power, causing an energy crisis and widespread blackouts.134
Additionally, decades of underinvestment and neglect have left the national power grid incapable of reliably distributing electricity. As a result, sporadic blackouts, even during times when power
132 https://foreignpolicy.com/2019/10/25/dont-let-venezuelas-crisis-take-down-colombia-too-refugees/ 133 http://euanmearns.com/drought-el-nino-blackouts-and-venezuela/ 134 https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro
Canada International Model United Nations 2021 18 generation is online, are common. For instance, in July 2019, a blackout hit 16 of the country’s 23 states as well as the capital, Caracas—such cases occur on a monthly basis.135
Initiating Crisis
The crisis begins on December 5, 2020. Following multiple unsuccessful attempts to negotiate with President Nicolás Maduro and persuade him to peacefully cede his position, opposition leader Juan Guaidó and his supporters have decided to force Maduro from power. Guaidó has announced the creation of an expansive coalition of Venezuelan political leaders and military officials with the goal of ousting Maduro by any means necessary. Critically, he has revealed that dozens of top army brass, thousands of soldiers, and hundreds of public sector workers, including in PdVSA, have defected from Maduro’s side to join the coalition, granting Guaidó new access to forceful and potentially violent methods of achieving his goals. Venezuela, now faced with a revitalized political struggle between Guaidó and Maduro, is undergoing a fundamental shift in its internal politics for the first time in nearly a decade, bringing it to the center of world attention.
At nearly the same time, Venezuela also held its 2020 legislative election, where the Democratic Alliance—a coalition group of opposition parties—secured a legislative majority over Maduro’s socialist coalition, the Great Patriotic Pole. While Guaidó is not a member of any of the Democratic Alliance’s political parties, the alliance has allied itself with Guaidó and his coalition, firmly signalling that they will provide their full support in the political battle against Maduro. In the same vein, Venezuelan citizens have poured into the streets in protests and riots to demonstrate their support of the reinvigorated anti-Maduro movement.
In response to the situation, Maduro has announced in a publicized national address that he will ensure that Guaidó’s new coalition will be “trampled underfoot at any cost.” Guaidó and his allies have interpreted Maduro’s words to mean that he is willing to utilize his robust military, control over public services—which includes critical areas like food and water distribution—and any aid from allies of his government, to cling to power.
Guaidó has sent official correspondence to the G20 asking the committee to help respond to the crisis and has voiced his willingness to consider the committee’s advice. Economically, G20 nations are eager to model Venezuela’s economic direction after their own fiscal policies, but the committee is divided between proponents of different budgetary and macroeconomic theories. Politically, the G20 will split into pro-Guaidó, pro-Maduro, and neutral blocs that will attempt to oust Maduro, protect him, or focus on other aspects of the crisis, such as the humanitarian situation.
135 https://www.bbc.com/news/world-latin-america-49079175
Canada International Model United Nations 2021 19 Potential Solutions
Economic Solutions
Removing Sanctions Perhaps the most obvious solution is to remove the largest limiter on Venezuela’s economy— sanctions, particularly on its oil sector and PdVSA. Removing sectoral sanctions on Venezuela’s secondary industries of gold, mining, food, and banking, which still have the potential to contribute a substantial amount of money to the economy, would also be a boon. However, this solution requires the full cooperation of the United States, as its sectoral sanctions have had the largest effect on Venezuela’s oil exports. Nevertheless, the cooperation of other countries that have imposed sanctions on Venezuela, including Canada and the EU, would undoubtedly also relieve some strain on the economy. Countries that oppose international interference in Venezuelan affairs, including those allied with Maduro, would welcome this solution.
Conversely, anti-Maduro nations, eager to maintain the economic pressure on Maduro, would heavily oppose this course of action, as it could grant Maduro access to more economic resources through PdVSA and other economic industries under his control; however, with many PdVSA workers defecting to Guaidó’s side as part of the crisis, the company’s allegiance could change, and lifting sanctions on PdVSA could potentially become beneficial for the pro-Guaidó bloc.
Utilizing International Organizations There are two influential international organizations on the G20 that can be particularly helpful in revitalizing the Venezuelan economy: The International Monetary Fund (IMF) and the World Bank Group. The IMF, which offers long-term loans to help struggling economies with debt and stability issues, can give the Venezuelan economy a considerable amount of breathing room for recovery if they offered large loans. On the other hand, the World Bank focuses primarily on reducing poverty through project financing; considering that Venezuela has a serious poverty problem, utilizing the World Bank could prove to be beneficial in that regard.
Since G20 members are all members of the three aforementioned organizations, they could increase their monetary commitment to those organizations so that Venezuela could receive more aid, although some nations may not want to bear the extra financial cost. There are two main problems with this approach. First is the issue of Venezuela’s membership: Chávez withdrew Venezuela from the two organizations in 2007, and the country would have to rejoin in order to receive aid. The second problem concerns effectiveness: these organizations, particularly the IMF, do not have stellar track records in terms of rebuilding economies, as evidenced by the IMF’s failures in Latin America (e.g. Argentina) and the 2009 European debt crisis.136
136 https://www.cfr.org/backgrounder/imf-worlds-controversial-financial-firefighter
Canada International Model United Nations 2021 20
The committee could also call on multilateral development banks (MDBs), such as the Development Bank of Latin America (CAF), to finance public projects in Venezuela that could boost employment and jumpstart the economy. MDBs are financial institutions that provide financing for development in poorer nations through long-term loans, and the World Bank is one example of an MDB. The G20 has a history of calling upon MDBs to finance projects like public infrastructure in African nations; thus, something similar can be implemented in Venezuela, and the committee can be reasonably confident in its effectiveness. For example, Venezuela’s ageing, ill-maintained power grid and dependence on a single hydroelectric dam for most of its electricity has negatively affected both productivity and quality of life; therefore, funding and starting infrastructure projects to upgrade and diversify Venezuela’s electricity sector would create jobs as well as solve a major infrastructure gap.
Restructuring the Venezuelan Economy A fundamental restructuring of the Venezuelan economy’s inner workings is necessary for any chance at long-term economic recovery. For example, the country’s absolute dependence on oil exports and a complete lack of domestic industry and businesses are vital vulnerabilities. The G20 can help patch them by sending foreign firms into the country to develop different domestic sectors and diversify the economy through foreign direct investments (FDI). Similarly, the state-owned oil and gas company, PdVSA, has been plagued with a series of incompetent and corrupt management officials in recent years; thus, the committee could help reorganize its leadership. However, there is no doubt that any undertaking the committee takes in this direction would spark fierce debate, as G20 members would all want to restructure the Venezuelan economy in their favour; for example, nations in West Europe would want to send in European companies and open up trade and oil exports as much as possible, while oil-exporting countries may wish to prevent Venezuela from regaining their former dominance in the oil market.
Maduro-era price and currency controls, which devastate the private sector and drive citizens away from using the official national currency, are another structural issue that the committee could eliminate, and doing so would have two distinct benefits: First, allowing businesses to sell products at prices that actually return a profit would go a long way in jumpstarting the private sector and thus reduce dependence on imports. This would, in turn, create jobs for Venezuelans, alleviating unemployment. Second, simply promoting the bolívar and fostering confidence in the currency among the Venezuelan populace can help arrest hyperinflation.
The G20 could alleviate Venezuela’s massive debts through restructuring. China and Russia, both G20 members, are Venezuela’s largest creditors, with the Maduro regime has taken out billions of dollars of loans from both countries in years past.137 As such, G20 members could restructure
137 https://www.cnn.com/2019/05/16/americas/venezuela-oil-debt-opinion-intl/index.html
Canada International Model United Nations 2021 21 Venezuela’s debt by providing extensions on loan payments, decreasing interest rates on loans, or even offering some form of debt forgiveness. However, any negotiations about loan contracts are sure to face significant opposition in the committee, particularly from creditors that have loaned significant amounts of money to Venezuela. Additionally, debt restructuring would require concessions from the Venezuelan government; for example, some countries may demand equity in the Venezuelan public sector—such as shares in PdVSA—in exchange for debt forgiveness, which the Venezuelan government may find difficult to accept.
Sending Humanitarian Aid Considering Venezuela’s humanitarian disaster, which includes food, water, and medical supply shortages, the G20 could consider pledging humanitarian aid to allay the crisis at hand. It would not be far-reaching to say that alleviating the humanitarian situation is a prerequisite to any economic recovery; after all, an economy cannot recover without a relatively healthy populace. Traditionally, the G20’s preferred method of sending humanitarian aid has simply been monetary payments, but sending actual supplies, services—such as medical personnel—and food is also something the committee could explore. However, Venezuela—particularly Maduro—may only accept aid if delivered with no conditions, as he has repeatedly stated that the reason he has historically been averse to accepting international aid is to prevent US intervention; therefore, delegates must take great care when negotiating a humanitarian aid package.138
Political/Diplomatic Solutions
Supporting Maduro The most obvious political solution the committee could consider is that of supporting Nicolás Maduro and his government. This support would mainly be delivered through diplomatic channels, such as collectively recognizing that Maduro is the legitimate and rightful president of Venezuela and condemning Guaidó’s coalition. Considering the influence of G20 economies, this action would place immense diplomatic pressure on Guaidó and give Maduro’s government credibility on the international stage, isolating the opposition movement and potentially even encouraging defections from the opposition back to Maduro’s side.
If the committee unilaterally supported this approach, it would all but guarantee Maduro’s victory in the political power struggle, as the opposition would be slowly drained of support, allies, and supporters willing to continue defying international pressure. This would grant some semblance of political stability to Venezuela and allow Maduro and the G20 to focus on resolving the economic and humanitarian crisis. However, this would likely incite further social unrest from the populace, as the opposition currently has popular support from the Venezuelan people. Additionally, this approach would work best when implemented with another economic strategy
138 https://www.bbc.com/news/world-latin-america-47221124
Canada International Model United Nations 2021 22 from above (see Economic Solutions) concurrently, as diplomatic pressure alone would certainly take a long time to produce results and the opposition might even successfully resist it. For example, while Guaidó and his allies might be able to ignore diplomatic pressure in the short term, lifting sanctions to kickstart the Venezuelan economy, which would give Maduro the economic means to continue his rule, would most certainly produce immediate results.
Supporting Guaidó Along the same lines as the approach directly above, the committee could also implement the opposite solution and unilaterally call for Maduro’s removal from office, supporting Guaidó’s bid for power instead. The committee would utilize the same diplomatic channels to put pressure on Maduro’s government, and this solution would also have to be implemented in tandem with an economic strategy from the previous section (see Economic Solutions). In contrast to the previous solution, this strategy may not be quite as effective, as Maduro has thoroughly demonstrated his tenacity and ability to cling to power despite international pressure over the last decade.
The darker side of these two strategies is the precedent either one would establish. Many countries would likely be reluctant to set a precedent that the G20 and its members are willing to depose and actively undermine a government that it deems to be illegitimate or bad. Similarly, countries may not want to set a precedent of unilaterally supporting authoritarian regimes. Thus, delegates may instead want to implement scaled-down versions of these solutions. In any case, it would be unlikely for either this solution or the previous one to be completely adopted by the G20 considering the internal blocs within the committee (pro-Maduro and pro-Guaidó). However, these solutions outline good strategies delegates can use to approach the crisis.
Bloc Positions
Economic Blocs
Delegates should approach this topic with the fiscal policies of their own countries in mind, and they would want to model Venezuela’s new economic plans after those of their own nations. As such, the blocs in this topic primarily center around different macroeconomic theories. To that end, delegates should research how their respective countries dealt with domestic recessions, as well as their actions and stances in other economic situations, such as the 2018 Argentina monetary crisis, the Greek government-debt crisis, and the Mexican peso crisis. This will provide delegates with a good understanding of which macroeconomic theories their countries favour.
Laissez-faire Economics Regarding economic crises like the one Venezuela currently finds itself in, the laissez-faire economics bloc takes the view that the economy should be left alone to sort things out. Laissez-
Canada International Model United Nations 2021 23 faire economic theory posits that the market, operating under the laws of supply and demand, self- adjusts and would recover from economic recession without external intervention. Thus, this bloc would look at encouraging free trade, reducing taxes, and other measures that remove limits on the free market and avoid measures that would involve direct intervention—such as restructuring Venezuela’s economy. This bloc would only take action against anything that limits the free market or affects individuals, such as sanctions and the ongoing humanitarian crisis.
Keynesian Economics Keynesian economics is a school of economic thought based on the idea that using government policy and increasing government expenditure is the best way to pull economies out of recessions. In essence, proponents of Keynesian economics would want to increase Venezuela’s deficit spending to make up for the lack of investment and economic activity. Public infrastructure projects, fiscal stimulus packages, and tax cuts are all examples of government expenditure. The majority of the committee favours Keynesian ideas to some degree, but the types of government expenditures that G20 members support differ. For example, Canada and the United States would prefer funding public infrastructure projects in Venezuela, while other Western powers might stop at tax cuts and not want to go further.
Priorities
While countries’ economic policies regarding Venezuela are primarily divided between the different macroeconomic theories, they also have different priorities—even between countries that use the same macroeconomic policies. The priorities of G20 members are generally split into two groups. First, the “humanitarian bloc” represents the priorities of primarily Western liberal democracies that prioritize their values of human rights. These countries would try to alleviate the humanitarian and refugee crisis as soon as possible by providing immediate aid; economic recovery would come later. Second, countries with corporate and investment interests in Venezuela would focus on economic recovery first and foremost. For example, Russia and China, which have sunk billions of dollars into Venezuela’s oil sector and have yet to see any returns on their investments, would prioritize restructuring the incompetent PdVSA management to increase its oil output. On the other hand, oil-exporting nations without investments in Venezuela like Saudi Arabia may wish to prevent the country from drastically increasing its oil output to maintain its own dominance in the oil market.
Political Blocs
In addition to economic blocs, the political power struggle between Juan Guaidó and Nicolás Maduro is another core issue in the crisis. Some nations may draw a distinction between their preferred economic policies and the Venezuelan leader or political group they support—not every pro-Guaidó nation favours Keynesian economics, and not every pro-Maduro country is opposed to laissez-faire policies. Therefore, delegates should research their respective countries’ stances on
Canada International Model United Nations 2021 24 Venezuela’s political situation across a broad time frame, including during the Chávez administration.
Pro-Maduro (Russia, China, South Africa, Turkey) These nations have historically supported the Maduro regime through military or diplomatic aid. For instance, Russia has provided economic and military assistance to Maduro’s government in the form of military equipment and financial loans for years, presumably as a way to counter US influence in South America.139 Overall, countries in this bloc cite two primary reasons for their support of Maduro: they view the Guaidó government as a form of American or international interference into Venezuelan affairs, thus infringing on their national sovereignty, as is the case with Russia and China, or they align with Maduro on an ideological level, such as with South Africa.
In committee sessions, this bloc will mostly mirror Maduro’s stance on issues and aim to increase his power as much as possible. For example, they would carefully scrutinize opposition efforts to deliver humanitarian aid, as they mirror Maduro’s suspicions that any aid package would come with strings attached or contain some form of US influence. Instead, these countries would welcome other measures that would incontestably benefit Maduro without making any concessions to the opposition, such as the lifting of sanctions.
Pro-Guaidó (Western powers, South America, Asia) Similar to the pro-Maduro bloc, the pro-Guaidó bloc consists of nations that have historically opposed Maduro’s rule. For example, all Western nations and their allies, particularly the United States, heavily oppose Maduro and would spare no expense to support Guaidó and his coalition. Similarly, any countries that oppose socialist influence in South America or have been directly impacted by Venezuela’s economic crisis and subsequent refugee and humanitarian crises, which includes the majority of South American countries, would position themselves in this bloc. However, this bloc is not the perfect opposite of the pro-Maduro bloc. These nations generally reflect Western priorities such as human rights and humanitarian efforts and thus shy away from more forceful or brutal methods like direct military aid. Instead, they favour economic and humanitarian aid, as well as diplomatic pressure, to achieve their goals.
Neutral (Indonesia, Mexico, India) These nations have chosen to maintain neutrality regarding Venezuela and favour diplomatic negotiations over confrontation. Although small, this bloc can resolve deadlocks between the other two blocs if they break their neutrality. These countries would most likely side with whichever bloc aligns more closely with their national values. For example, if a neutral nation has been democratizing or progressing in relations with Western powers, it may be swayed to support the
139 https://www.bbc.com/news/world-latin-america-47053701
Canada International Model United Nations 2021 25 opposition. On the other hand, if they are progressing in the opposite direction or are drawing closer to China and Russia, it would likely support Maduro.
Discussion Questions
1. Which school of macroeconomic thought does your country favour? Why does your nation favour such policies?
2. What role can international financial institutions play in Venezuela’s economic recovery?
3. Which groups of people are particularly affected by the humanitarian and economic crisis?
4. To what extent have international sanctions hampered the Venezuelan economy?
5. To what extent would the Venezuelan government accept your proposed economic measures?
6. Which industries does your country specialize in? How can they help diversify or jumpstart the Venezuelan private sector?
Further Resources
Lumen Learning | Overview of Macroeconomic Theories https://courses.lumenlearning.com/boundless-economics/chapter/major-theories-in- macroeconomics/
Encyclopædia Britannica | The Economy of Venezuela https://www.britannica.com/place/Venezuela/The-economy
UN Refugee Agency | Information on Venezuelan Crisis https://www.unhcr.org/venezuela- emergency.html
International Monetary Fund | Economic Overview of Venezuela https://www.imf.org/en/Countries/VEN
Index of Economic Freedom | Venezuela https://www.heritage.org/index/country/venezuela
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Canada International Model United Nations 2021 27 Borger, Julian. “Venezuela’s Worsening Economic Crisis – the Guardian Briefing.” The Guardian, June 22, 2016. https://www.theguardian.com/world/2016/jun/22/venezuela- economic-crisis-guardian-briefing.
Bris, Arturo, and José Caballero. “Venezuela: A Default in the Making: IMD Article.” IMD Business School, August 23, 2018. https://www.imd.org/research- knowledge/articles/venezuela-a-default-in-the-making/.
Britannica. “The Presidency of Nicolás Maduro.” Encyclopædia Britannica, 2021. https://www.britannica.com/place/Venezuela/The-presidency-of-Nicolas-Maduro.
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Carroll, Rory. “Venezuela’s Private Retailers Targeted as Hugo Chávez Declares’ Economic War’.” The Guardian, June 27, 2010. https://www.theguardian.com/world/2010/jun/27/venezuela-hugo-chavez-private-retailers
CDP. “Venezuelan Humanitarian and Refugee Crisis.” Centre for Disaster Philanthropy, January 18, 2021. https://disasterphilanthropy.org/disaster/venezuelan-refugee-crisis/.
Cheatham, Amelia, and Rocio Labrador. “Venezuela: The Rise and Fall of a Petrostate.” Council on Foreign Relations, January 22, 2021. https://www.cfr.org/backgrounder/venezuela- crisis.
Constable, Simon. “Venezuela Sinks Further Into Oblivion — Debt Level Doubles Over One Year.” Forbes, November 8, 2019. https://www.forbes.com/sites/simonconstable/2019/11/08/venezuela-sinks-further-into-- oblivion--debt-level-doubles-over-one-year/?sh=15f0b22e2c0b.
Eaton, Collin, and Luc Cohen. “Explainer: US Sanctions and Venezuela’s Trade and Oil Industry Partners.” Reuters, August 14, 2019. https://www.reuters.com/article/us-venezuela- politics-crude-sanctions-ex-idUSKCN1V420P.
Ellsworth, Brian, and Keren Torres. “The Hungry Generation: Malnutrition Curses the Children of Venezuela.” Reuters, December 18, 2019. https://www.reuters.com/investigates/special-report/venezuela-malnutrition/.
Canada International Model United Nations 2021 28 Epatko, Larisa. “Venezuela Knocks 5 Zeros off Its Currency. Will Anything Change?” PBS, August 21, 2018. https://www.pbs.org/newshour/world/venezuela-knocks-5-zeros-off-its- currency-will-anything-change.
Frank, Allan. “Who Gets Venezuela’s Oil?” CNN, May 17, 2019. https://www.cnn.com/2019/05/16/americas/venezuela-oil-debt-opinion-intl/index.html.
Hudson, Saul. “Venezuela to Quit IMF, World Bank.” Reuters, May 1, 2007. https://www.reuters.com/article/us-imf-venezuela-idUSN3047381820070501.
IMF. “IMF World Economic Outlook, October 2016: Subdued Demand: Symptoms and Remedies.” International Monetary Fund, October 1, 2016. https://www.imf.org/en/Publications/WEO/Issues/2016/12/31/Subdued-Demand- Symptoms-and-Remedies.
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Infobae. “Por Los ‘Precios Justos’ Del Chavismo, Quebraron Más De 77.000 Empresas Venezolanas.” Infobae, October 23, 2014. https://www.infobae.com/2014/10/23/1603828-por-los-precios-justos-del-chavismo- quebraron-mas-77000-empresas-venezolanas/.
IOM. “Venezuelan Refugee and Migrant Crisis.” International Organization for Migration, May 15, 2020. https://www.iom.int/venezuela-refugee-and-migrant-crisis.
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Kurmanaev, Anatoly, and Clifford Krauss. “US Sanctions Are Aimed at Venezuela’s Oil. Its Citizens May Suffer First.” The New York Times, February 8, 2019. https://www.nytimes.com/2019/02/08/world/americas/venezuela-sanctions-maduro.html.
LeVine, Steve. “Venezuela Has a 93% Chance of Defaulting on Its Debt.” Quartz, December 11, 2014. https://qz.com/310478/venezuela-has-a-93-chance-of-defaulting-on-its- debt/#:~:text=Judging%20by%20the% 20bond%20market,bonds%2C%20plus%20%24500%2C000%20a%20year.
Mead, Dave, and Porscha Stiger. “The 2014 Plunge in Import Petroleum Prices: What Happened?” US Bureau of Labor Statistics, May 2015.
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Neuman, William. “Venezuelan Opposition Claims a Rare Victory: A Legislative Majority.” The New York Times, December 7, 2015. https://www.nytimes.com/2015/12/07/world/americas/venezuela-elections.html.
Neuman, William. “With Venezuelan Food Shortages, Some Blame Price Controls.” The New York Times, April 21, 2012. https://www.nytimes.com/2012/04/21/world/americas/venezuela-faces-shortages-in- grocery-staples.html.
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Patton, Mike. “The Three Countries With The Highest Inflation.” Forbes, December 15, 2020. https://www.forbes.com/sites/mikepatton/2014/05/09/the-three-countries-with-the- highest-inflation/?sh=7ff107b+3172e.
Phillips, Tom. “Venezuela Elections: Maduro Wins Second Term.” The Guardian, May 21, 2018. https://www.theguardian.com/world/2018/may/21/venezuela-elections-nicolas- maduro-wins-second-term.
Pons, Corina, and Deisy Buitrago. “Venezuela Knocks Three Zeros off Ailing Currency amid Hyperinflation.” Reuters, March 22, 2018. https://www.reuters.com/article/us-venezuela- economy/venezuela-knocks-three-zeros-off-ailing-currency-amid- hyperinflation- idUSKBN1GY3AP.
Rendon, Moises. “Are Sanctions Working in Venezuela?” CSIS, December 22, 2020. https://www.csis.org/analysis/are-sanctions-working-venezuela.
Schreiber, Melody. “Researchers Are Surprised By The Magnitude Of Venezuela’s Health Crisis.” NPR, April 5, 2019. https://www.npr.org/sections/goatsandsoda/2019/04/05/709969632/researchers-are- surprised-by-the-magnitude- of-venezuelas-health-crisis.
Seelke, Clare. “Venezuela: Overview of US Sanctions.” WITA, October 16, 2019. https://www.wita.org/atp-research/venezuela-overview-of-u-s-sanctions/.
Canada International Model United Nations 2021 30 Shapiro, Ari. “How Venezuela’s Currency Became So Worthless.” NPR, April 8, 2019. https://www.npr.org/2019/04/08/711169832/how-venezuelas-currency-became-so- worthless.
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United Nations High Commissioner for Refugees. “Venezuela Situation.” UNHCR, 2021. https://www.unhcr.org/venezuela-emergency.html.
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