The recent removal of Nicolás Maduro from Venezuela’s presidency is a dramatic development after more than two decades of socialist experimentation under Hugo Chávez and Maduro, characterized by expropriation, macroeconomic mismanagement, and political repression.
Although there is much uncertainty about the economic and political future of Venezuela, economics can offer some guidance—and warnings. One such lesson has to do with the dangerous temptation to base economic recovery solely on the oil sector. Venezuela’s prospects depend critically on the quality of its institutional and policy choices from now on.
In Venezuela today, the judiciary, the electoral authorities, public prosecutors, and the police have lost their independence. The restoration of individual and political rights by reforming instrumental institutions, by which the Venezuelan people may again impose accountability on their political leaders and government agents, must be the first order of business.
Secondly, it is necessary to restore private property rights and free enterprise to unleash the creative powers of the Venezuelan people.
Finally, leadership should turn to the design of foreign-exchange policy and the management of oil rents, both of which are essential to avoiding a renewed cycle of dependency, rent seeking, and stagnation.
A political transition that included meaningful electoral reforms and credible guarantees of fair competition would likely be accompanied by a gradual normalization of relations with the United States. Such normalization could, in turn, allow for the partial lifting of sanctions and renewed participation of private—especially foreign—oil companies in Venezuela’s energy sector. Given the country’s vast proven reserves and deteriorated but recoverable infrastructure, even modest institutional improvements could translate into significant increases in oil production and export revenues. These revenues would provide a rare opportunity: the chance to stabilize public finances, begin repaying defaulted foreign debts, and reestablish Venezuela’s credibility in international capital markets.
Yet this opportunity carries well-known dangers. Chief among them is the risk of Dutch disease—the tendency of resource booms to appreciate the real exchange rate, undermine non-resource tradable sectors, and entrench an undiversified economic structure. Venezuela’s historical experience provides ample warning. During previous oil booms, exchange-rate appreciation and fiscal profligacy devastated agriculture and manufacturing, increased import dependence, and reinforced the political power of rent-seeking coalitions. Any serious reconstruction strategy must therefore treat exchange-rate policy not as a technical afterthought but as a central pillar of economic reform.
Avoiding Dutch disease requires resisting sustained appreciation of the local currency, even in the face of rising export revenues, as I have argued elsewhere. A freely appreciating currency would make non-oil exports uncompetitive and discourage the revival of sectors that are essential for long-term growth and employment. This does not necessarily imply a return to rigid exchange controls—whose catastrophic consequences in Venezuela are well documented—but it does suggest the need for a carefully designed regime. Sterilization of foreign-exchange inflows, accumulation of external assets, and institutional mechanisms to prevent excessive domestic spending of oil revenues would all play a role in maintaining a competitive real exchange rate.
Closely related to a successful foreign-exchange policy design is the question of oil rents. The central political economy challenge for post-socialist Venezuela will be to prevent these rents from being captured by entrenched interests, whether public or private. Without credible constraints, oil revenues tend to fuel corruption, clientelism, and fiscal irresponsibility, undermining both democracy and economic freedom. For this reason, the creation of a dedicated “sink fund” deserves serious consideration. Unlike a traditional sovereign wealth fund designed to maximize returns or smooth consumption, a sink fund would have a narrow and transparent mandate: the systematic repayment of Venezuela’s foreign debts over a foreseeable horizon.
Channeling a substantial portion of oil revenues into such a fund would yield several benefits. First, it would reduce the immediate pressure to spend domestically, thereby supporting exchange-rate stability and mitigating Dutch disease. Second, it would help rebuild Venezuela’s reputation as a responsible borrower, lowering future borrowing costs and expanding access to international finance. Third, by placing oil rents beyond the discretionary control of day-to-day politics, it would limit opportunities for rent-seeking and signal a credible commitment to fiscal discipline.
Over time, the restoration of basic protections for private property and free enterprise would allow economic activity outside the oil sector to recover. Venezuela once possessed a relatively diversified economy by regional standards, with significant capabilities in agriculture, manufacturing, services, and human capital–intensive industries. While much of this capacity has been destroyed or driven into the informal sector, it has not vanished entirely. The Venezuelan diaspora—now numbering in the millions—represents a particularly important reservoir of skills, entrepreneurial experience, and international connections. If institutional reforms are credible and durable, many expatriates may choose to return or to invest from abroad, accelerating reconstruction and diversification.
Perhaps, the political demands of an impoverished people for public transferences could be diverted by allowing profit making and income generation by the private sector. If that is not understood and implemented, rent seeking will become irresistible, and the oil rents will be once more dissipated and political representation corrupted as government revenues are divorced from the broader well-being of Venezuelans and their economy.
In this broader context, exchange-rate policy and oil-rent management should be understood as enabling conditions for a deeper transformation. The goal is not merely macroeconomic stabilization but the reconstitution of a society in which economic opportunity is decoupled from political privilege. By avoiding currency overvaluation, insulating oil revenues from predation, and prioritizing debt repayment over short-term consumption, a post-Maduro Venezuela could lay the foundations for sustainable growth and genuine reintegration into the world economy.
None of this would be easy, and success would depend a lot on luck and on political will as much as technical design. But if the assumptions of political normalization, institutional reform, and renewed oil production were to hold, the prudent management of exchange rates and rents could help ensure that Venezuela’s next encounter with resource abundance becomes a source of recovery rather than another missed opportunity.
Leonidas Zelmanovitz is a Liberty Fund Senior Fellow and a part-time instructor at Hillsdale College.
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