There was a time when Venezuela was one of the richest countries in the world – wealthier even than Canada.

The year was 1950. And oil-rich Venezuela was thriving, while much of the rest of the world was struggling to recover from the ravages of the Second World War. Only the United States, Switzerland and New Zealand had a higher per capita GDP. Canada ranked sixth.

With its relative stability and prosperity, Venezuela was a magnet for immigrants.

Today it is an economic basket case. The country still has plenty of oil, sitting atop the world’s largest reserves. But it is now a poor country, and its oil production is plunging.

In the nearly five years since Nicolas Maduro became president, its economy has shrunk in half. And economists warn that it is on course to decline by another 25 per cent this year, dragged down by recently imposed U.S. trade sanctions. Hunger, power blackouts, empty store shelves, rampant crime and hyperinflation have become part of everyday life.

As many as 3.3 million Venezuelans – more than 10 per cent of the population – have fled to neighbouring countries, as well as to the U.S. and Spain. Among the refugees are some of the most desperate, but also many of the country’s best and brightest workers.

“Venezuela’s economic collapse is almost unprecedented in recent history,” according to a report this month by the Washington-based Institute for International Finance (IIF). Only Russia’s implosion after the breakup of the Soviet Union comes close.

The central question now is how to make Venezuela whole again, when the Maduro regime inevitably cedes power, presumably to opposition leader Juan Guaido.

Unfortunately, Mr. Maduro’s exit – a change advocated by Canada, the U.S. and dozens of other countries – won’t miraculously fix this badly broken country. It will take years and tens of billions of dollars in emergency loans and longer-term financial support from the international community, including the International Monetary Fund.

“The depth of the recession raises the risk of an incomplete recovery in the event of policy change,” the IIF warned.

The first challenge will be to get inflation under control. Prices are on course to rocket ahead at a staggering 1.3-million-per-cent pace this year, according to the IMF. Money has essentially lost its value.

It doesn’t have to be this way. Experts say a large and quick infusion of foreign cash would allow the government to keep operations running and to buy more local currency, the bolivar. The government could then fund its deficit in local currency without resorting to printing money with reckless abandon, as it does now.

Getting the economy growing again could prove more challenging in a country that no longer has a viable private sector. Mr. Maduro and his predecessor Hugo Chávez expropriated vast swaths of the economy – from banks and telecoms to factories and hotels. And the businesses the government didn’t take, it killed with strict controls on prices, foreign exchange and imports.

Venezuela will also have to work hard to make the country a welcome place again for private investors, and for millions of exiles. That will require ending price controls, relaxing import curbs, enforcing property rights and reopening access to foreign currency markets. Another key precondition for kick-starting private businesses will be to get commercial banks lending again.​

Putting the government on a sustainable financial footing will take more time. A good start would be to cut military spending and phase out massive subsidies for consumers for buying gas and electricity. Many Venezuelans may also need wage supports to adjust to higher prices for some of these necessities.

The oil sector must become a driver of foreign investment again. That means ending the practice of forcing foreign investors to work exclusively with the country’s state-run oil company – Petroleos de Venezuela, or PDVSA.

Venezuela has become increasingly oil dependent, even as the price of crude has slumped and production dwindled. Oil exports bring in about 90 per cent of the country’s hard currency. Beyond people, oil is virtually the only thing the country still exports. But it’s producing less oil now than it did in the late 1990s, and output has fallen by half in just the past two years from lack of investment.

In the short term, the new U.S. sanctions will make the situation worse by cutting off billions of dollars in oil revenue and blocking imports of the U.S.-made refined products it needs to dilute the heavy crude it produces.

Another challenge for whomever succeeds Mr. Maduro will be to keep onside China and Russia, two of Venezuela’s largest foreign creditors.

The sooner Venezuela gets the rebuilding started, the better.

The Globe and Mail, March 18, 2019