Venezuela Chris Batt Sam Hering Wes Barton
Background Information • Government • Federal republic made up of 23 states. • Central Bank • Banco Central de Venezuela • Formed in 1939 • Originally owned 51% by the public sector, 49% privately. • Under President Perez, the government bought out the remaining 49% and the banks independence. • Economy • Heavily reliant on petroleum and manufacturing.
Economic Regimes • Carlos Andres Perez, President 1974-1979, 1989-1993 • First presidency known for social and economic prosperity due to oil income. • Petroleum industry nationalized; formation of Petroleos de Venezuela S.A. • Second presidency known for continuation of 1980s economic and social crises. • Luis Herrera Campins, President 1979-1984 • Continued Perez’ policy of borrowing heavily against future high oil prices. • Jaime Lusinchi, President 1984-1989 • Characterized by economic crisis, growth of external debt, currency depreciation, inflation and corruption.
Venezuela and Organization of Petroleum Exporting Countries • The formation of OPEC • The petroleum industry was originally dominated by multinational corporations. • Policy Statement: There is a right for all countries to exercise sovereignty over their natural resources. • OPEC member states work together to control the supply and prices of the oil market through export quotas. • The original member states were Iran, Saudi Arabia, Iraq, Kuwait and Venezuela • Libya, UAE, Qatar, Indonesia, Algeria, Nigeria, Ecuador, Angola, Gabon joined later.
Build Up to the Crisis • Rise in Crude Oil Prices from 1973-1982 • Oil Embargo of 1973 • In response to United States support of Israel, countries in the Persian Gulf refused to export oil to the United States 1972-1974. • Impact on Venezuela • Government revenues quadrupled. • Spent largely on education, health and infrastructure to modernize the country. • “The government spent more money from 1974 to 1979 than in its entire independent history dating back to 1830.” (Centeno and Revello)
Build Up to the Crisis • The 1979 Oil Crises • Decreased oil output in wake of the Iranian Revolution. • Although the oil supply only decreased about 4%, the market overcorrected causing prices to skyrocket. • By 1981, OPEC had lost its dominant market share and member states were becoming divided.
Build Up to the Crisis • Responses to the Global Oil Market • Industrial nations look towards other fuel sources as crude oil prices continued to rise. • Coal, natural gas, nuclear became popular, while governments invested billions into research programs for alternatives.
The ‘Oil Glut’ • There was a serious surplus of oil following the Energy Crises of the 1970’s. • Economic slowdowns in developing nations along with conservation efforts and the availability of alternative fuels decreased oil demand. • OPEC nations flooded the market with oil, violating agreed upon quotas, in attempts to recapture market share.
Effect on Venezuela • With the sharp decline in the price of crude oil, Venezuela could no longer repay its public debt. • Venezuela reached rescheduling agreements in 1983, 1986 and 1987. • By the early 1990’s the government had agreed in principle with the U.S. Treasury, IMF and the World Bank to a series of measures to reduce the nation’s debt.
Effect on Venezuela • Prior to oil glut, Venezuela became import-dependent. • Following the crisis, Venezuela focused on positive balance-of-trade to strengthen the national economy. • They were still heavily dependent on oil revenues despite falling prices.
Effect on Venezuela • Up until 1983, the Venezuela Bolivar was tied to the United States dollar. • Venezuela ran out of reserves to maintain a fixed exchange rate, and had to adopt an adjustable exchange system. • This helped strengthen Venezuelan exports.
Resolution Attempts • The IMF imposed an Adjustment Plan known as the 8th Plan of the Nation. • It targeted sustained development through price stabilization. • Initial results were not as expected. • Economic activity contracted 7.6%, average inflation reached 84.5% and the national currency devaluated 83.3%. (Centeno and Revello)
Inflation and Purchasing Power • The IMF plan to make Venezuela’s economy more open and market oriented had negative effects. • The 1990’s saw annual inflation rates between 30% and 40% with a peak of almost 100% in 1996. • Current inflation rates remain between 15% and 30% annually. • Purchasing power over the last two decadesdeclined to less than a third of that from the 1970’s.
Hugo Chavez Era • Chavez adopted policies more socialist than previous governments, increasing government expenditure, while enforcing a new Constitution of the Republic. • Changes were made in legal and institutional structures. • Property rights are poorly protected. • Following his election, Venezuela has experienced moderate growth and mild economic recovery, while benefiting from rising oil prices.
Works Cited • In Notes