1. NS4540 Winter Term 2019 Venezuelan Outlook
Federal Reserve Bank of Chicago, Strong Dollar Weak Dollar

2. Macroeconomic Trends

3. Strengths/Weaknesses

4. Venezuela Vulnerabilities

5. Venezuela Prosperity Gap

6. Trade Blocks

7. Venezuela: Governance Trends

8. Overview
In many ways the current situation in Venezuela is similar to that in Iraq
Question of how long it will take Venezuela to restore oil production critical
Like Iraq, Venezuela will need massive amounts of money to rebuild infrastructure.
Like Iraq Venezuela’s oil industry has suffered serious damage and the damage could be harder to restore than Iraq
Has taken Iraq almost a decade for oil production to get on a positive trajectory
Amy Jaffe, No Easy Path for Venezuela’s Oil in the Struggle for a Transition in Power, CFR January 28, 2019

9. Iraqi Oil Production

10. Oil Sector Recovery I
True Iraq oil facilities took military beating that won’t be analogous to Venezuela
However tremendous violence on the ground in Venezuela
Multiple armed groups looting and raiding the country’s key infrastructure – oil industry has been targeted
Violence has caused many international oil companies to withdraw
New government will have to deal with
Multiple renegade armed groups operating inside Venezuela
Cuban mercenaries and
Others deeply entrenched in drug trafficking
Will make guarding Venezuela’s oil industry a major challenge

11. Oil Sector Recovery II Further complicating restoring oil sector
Venezuelan military has taken over operation of the industry
Employment at PDVSA now 160,000 up from 40,000 at the time Chavez took over
Organizations like the Military Corporation for Mining Petroleum and Gas industries (Camimpeg, created in 2016) now intercept income flow of income from oil sector
Camimpeg’s soldiers have been
Suppressing strikes by oil workers
Siphoning off barrels for smuggling

12. Oil Sector Recovery III
Overall condition in oil industry dire
Of four refineries only one is running
Fires, looting and miss operation has shut down most of the country’s refining capacity
Refining problems have led to gasoline and diesel shortages across the country
Sharp drop in oil production
Fall from 2.2 million b/d in early 2017 to
1.1 million b/d
Estimates are it would take an injection of over $20 billion of new investment to reverse current downward path of production
Situation might be more difficult than that faced in Iraq

13. Oil Sector Recovery IV

14. Assessment
Another source of difficulty is the size of the debt both the country and PDVSA have.
According to IMF estimates
The Venezuelan government has $153 billion in debt (160% of GDP) while
PDVSA reports $35 billion.
In both cases, the issuers have incurred a technical default, but have yet to declare themselves in default.
Lack of infrastructure and brain drain will be big hurdles to the overall recovery.
If the regional and multilateral organizations do not provide funds for initial reconstruction, Venezuela will have a very difficult time stabilizing and transitioning to a normal economy.