NS4540 Winter Term 2018 The Venezuelan Economy europa

Overview I Venezuela has the largest proven oil reserves in the world. Petroleum has been the mainstay of the economy since the discovery of deposits at the end of the 19th century. Successive government have relied on oil as the driving force of the economy This reliance on petroleum –related taxes and export revenues rendered the country vulnerable to fluctuations in international oil prices Created a series of “boom and bust cycles” High petroleum prices led to expansionary spending policies Led to severe fiscal problems when the petroleum price dropped

Overview II Venezuela remained trapped in a development dilemma common to many commodity-dependent countries Strong petroleum prices have traditionally inflated the value of the domestic currency, the bolivar Made non-oil imports cheap and Venezuela’s own non-oil exports uncompetitive This process rendered Venezuela import dependent and without food sovereignty Declines in the oil price combined with the devaluation of the currency have prompted attempts to stimulate non-oil sectors over the short term Strategy has been repeatedly abandoned when oil prices resumed an upward trend

Overview III Such efforts have included Agricultural reform programs in the 1960s State-led heavy industrialization policies in the 1970s and A neo-liberal inspired program in the 1990s that looked to the private sector as the driver of non-oil export growth Government of Hugo Chavez (1999-2013) rejected orthodox economic strategies and looked to widen economic base through state promotion of Small and medium-sized industries, Cooperatives, and Diversification into “downstream” and agricultural activities

Overview IV These programs Were implemented ineffectively Were weakened by corruption and bureaucracy and Failed to break the country’s dependence on oil export revenue After re-election in 2006, Chavez administration sought to exploit benefits of high oil prices with the oil sector serving as the economic motor of the “Bolivarian revolution: which Supported high levels of social spending and state intervention Reinforced Venezuela dependence on oil revenues and Led to contradictions in the government’s development policy – programs working at cross-purposes

Recent Developments I Strong rise in oil prices between 2003 and 2008 Boosted economic performance allowing the government to increase pubic sector spending and investment Government’s expansionary fiscal policy contributed to growth over this period Non-oil sector and private economic activity also showed strong improvement However reflecting the fall in oil prices the economy Contracted by 3.2% in 2009 and By 1.5% in 2010

Recent Developments II As a result of a pro-cyclical economy Venezuela experienced a strong recovery in 2011 with GDP growth of 4.2% This continued into 2012 with economic growth of 5.6% of which 58.2% was from the private sector However a three fold increase in public spending coincided with Chavez’s 2012 re-election bid together with uncertainty generated by the elections and bottlenecks in the economy led only 1.3% in 2014 Largely due to falling prices of oil economy contracted by 4.0% in 2014, 10% in 2015 and an anticipated 10% in 2016