Transcript Venezuelan Economy

NS4540
Winter Term 2017
The Venezuelan Economy
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
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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
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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
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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
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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
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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
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