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Economy of Venezuela

Economy of Venezuela | Economy of Venezuela Forum

The economy of Venezuela is a mixed economy based in large part on petroleum. The petroleum sector dominates the economy, accounting for roughly a third of GDP, around 80% of export earnings, and more than half of government operating revenues. Venezuela is the fifth biggest member of OPEC by production. From the 1950s to the early 1980s the Venezuelan economy was the strongest in South America. The continuous growth during that period attracted many immigrants. During the collapse of oil prices during the 1980s the economy contracted. With the 2007 rise in oil prices and rising government expenditures, Venezuela's economy grew by 9% in 2007. There was income inequality.

Government spending as a percentage of GDP in Venezuela in 2007 was 30%, smaller than other capitalist mixed-economies such as France (49%) and Sweden (52%) . According to official sources, the percentage of people below the national poverty line has decreased significantly during the presidency of Hugo Chavez, from 48.1% in 2002 to 30.2% in 2006.

History

Economy 1922 - 1964

When oil was discovered at the Maracaibo strike in 1922, Venezuela's dictator, Juan Vicente Gomez, allowed US oil companies to write Venezuela's petroleum law (Daniel Yergin, The Prize: The Epic Quest for Oil, Money, and Power But oil history was made in 1943 when Standard Oil of New Jersey accepted a new agreement in Venezuela based on the 50-50 principle, "a landmark event." Terms even more favorable to Venezuela were negotiated in 1945, after a coup brought to power a left-leaning government that included Juan Pablo Perez Alfonso.

From the 1950s to the early 1980s the Venezuelan economy was the strongest in South America. The continuous growth during that period attracted many immigrants.

In 1958 a new government again included Perez Alfonso, who devised a plan for the international oil cartel that would become OPEC. In 1973 Venezuela voted to nationalize its oil industry outright, effective 1 Jan. 1976, with Petroleos de Venezuela (PDVSA) taking over and presiding over a number of holding companies; in subsequent years, Venezuela built a vast refining and marketing system in the US and Europe.

During Jimenez' dictatorship from 1952 to 1958, Venezuela enjoyed remarkably high GDP growth, so that in the late 1950s Venezuela's real GDP per capita almost reached West Germany's. However, from 1958/1959 onward, Romulo Betancourt (president from 1959 to 1964) inherited an enormous internal and external debt caused by rampant public spending during the dictatorship. Nevertheless, he managed to balance Venezuela's public budget and initiate a successful agrarian reform.

1960s - 1990s

Bouyed by a strong oil sector in the 1960s and 1970s, Venezuela's governments were able to maintain social harmony by spending fairly large amounts on public programs including health care, education, transport, and food subsidies. "Great strides were made in literacy and welfare programs."

Because of the oil wealth, Venezuelan workers "enjoyed the highest wages in Latin America."

This situation was reversed when oil prices collapsed during the 1980s. The economy contracted. The number of people living in poverty rose from 36% in 1984 to 66% in 1995.

Table

Venezuelan Economy
Year	GDP			.	Oil
Year	bolivares x 10⁹, current	bolivares x 10⁹, constant 1990	per capita bolivares x 10³, constant 1990	.	Petroleum exports, $US x 10⁹, constant 2007	Crude oil price per barrel, $US, constant 2007	Crude oil exports, barrels x 10⁶
.	.			.	.
2007	508,239	3,680	134	.	52.1	69	772
2006	396,140	3,395	126		49.7	63	701
2005	304,087	3,077	116		41.4	53	653
2004	212,683	2,789	107		30.4	37	572
2003	134,228	2,358	92		20.9	31	560
2002	107,840	2,556	101		21.3	27	574
2001	88,946	2,804	113		23.2	26	717
2000	79,656	2,713	112		31.3	32	731
1999	59,345	2,616	110		19.7	21	702
1998	50,013	2,782	119		14.7	15	819
1997	41,943	2,774	121		22.5	23	807
1996	28,486	2,608			23.3	26	721
1995	13,243	2,613	119		17.6	22	664

1990	2,206	2,206	112		20.4	35	453

1985	450	1,937	111		21.9	52	301

1980	297	2,073	137		38.9	82	470

1975	138	1,760	138		26.2	50	537

1970	61	1,383			10.3	12	889

1965					12.1		851

1960					11.3		729

Sources:

Gross National Product (GNP) data:
United Nations, UNdata (online), Databases, UNSD National accounts official country data:

Table 1.1, "Gross domestic product by expenditures at current prices;"

Table 1.2, "Gross domestic product by expenditures at constant prices;"

United Nations, UNdata (online), Databases, UNSD Key Global Indicators >> World Bank, World Development Indicators:

"GDP per capita, current international dollars (ppp);"

"GDP in current international dollars (ppp)."

Oil data:OPEC, Annual Statistical Bulletin :

Summary tables and basic indicators:

Table 5: "OPEC Members' values of petrolem exports;"

Table 23: "Crude oil exports by OPEC Member Countries;"

Prices:

Table 72: "Spot crude oil prices;

United States Department of Commerce, Bureau of Economic Analysis, Interactive Access to National Income and Product Accounts Tables, Table 1.1.9: "Implicit Price Deflators for Gross Domestic Product."

Notes:

The crude oil price given here is the world crude oil price from the OPEC Annual Statistical Bulletin, Table 73. Particular countries sell somewhat above or below this price. The price given for Venezuelan crude (TJL) in the OPEC Bulletin is typically about 5 to 10% below the world price."Petroleum Exports," data column 4 in this table, encompass crude oil plus petroleum products such as refined products and natural gas liquids. OPEC gives this data in current dollars; we have converted to constant dollars using the US government Bureau of Economic Analysis deflator cited above. The price deflator that OPEC uses to put its crude oil price in constant dollars is not the same; it is based on world averages and gives a higher estimate of inflation than the US data.

1999 - present

Hugo Chavez was elected president in December 1998 and took office in February 1999. His economic policies have been more socialistic than those of his predecessors.

In the first four years of the Chavez presidency, the economy contracted, at first because of low oil prices, then because of the turmoil caused by the 2002 coup attempt and the 2002-2003 business strike. Other factors in the decline were an exodus of capital from the country, and a sudden reluctance of foreign capitalists to invest there. Gross Domestic Product was 50.0 trillion bolivares in 1998. At the bottom of the recession, 2003, it was 42.4 trillion bolivares (in constant 1998 bolivares).

However, with a calmer political situation in 2004, GDP rebounded 50.1 trillion bolivares, and has risen strongly since, to 66.1 trillion bolivares in 2007 (both in constant 1998 bolivares). Particularly important in the recovery was the defeat of the oppositionist management at PdVSA after the 2002-2003 lockout/strike, which gave the government, for the first time, actual control of the state oil company and allowed the pursuit of a unified economic policy.

In response to the low oil prices at the end of the 1990s, Chavez played a leading role within OPEC to reinvigorate that organisation and obtain members' adherence to lower production quotas designed to drive up the oil price. Venezuelan oil minister Ali Rodriguez's announcement in 1999 that his country would respect OPEC production quotas marked "a historic turnaround from the nation's traditional pro-US oil policy."

Rising petroleum prices in 2000 took some pressure off the budget and currency. However, with the president's economic cabinet attempting to reconcile a wide range of views, the country's economic reform program had largely stalled. Reforms that were undertaken included the reduction or abolition of education, healthcare and nutrition fees to millions of Venezuelans.

The government sought international assistance to finance reconstruction after massive flooding and landslides in December 1999 caused an estimated US$15 billion to $20 billion in damage.

The hardest hit sectors in the worst recession years, 20022003, were construction (-55.9%), petroleum (-26.5%), commerce (-23.6%) and manufacturing (-22.5%). The drop in the petroleum sector was caused by adherence to the OPEC quota established in 2002 and the virtual cessation of exports during the PdVSA-led strike/lockout. The non-petroleum sector of the economy contracted by 6.5% in 2002. The bolivar, which has been suffering from serious inflation and devaluation relative to international standards since the late 1980s,UN data site >> World Bank estimates >> GDP deflator, national currency. continued to weaken.

The inflation rate, as measured by consumer price index, was 12.3% in 2001 and 31.2% in 2002. On 23 January 2003, in an attempt to support the bolivar and bolster the government's declining level of international reserves, as well as to mitigate the adverse impact from the oil industry work stoppage on the financial system, the Ministry of Finance and the central bank suspended foreign exchange trading. On 6 February, the government created CADIVI, a currency control board charged with handling foreign exchange procedures. The board set the US dollar exchange rate at 1,596 bolivares to the dollar for purchases and 1,600 to the dollar for sales.

The Macroeconomic Stabilization Fund (FIEM) decreased from US$2.59 billion in January 2003 to US$700 million in October, but central bank-held international reserves actually increased from US$11.31 billion in January to US$19.67 billion in October 2003.

The economy recovered and grew by 16.8% in 2004. This growth occurred across a wide range of sectors - the oil industry directly provides only a small percentage of employment in the country. International reserves grew to US$27 billion . Polling firm Datanalysis noted that real income in the poorest sectors of society grew by 33% in 2004.

From 2004 to the first half of 2006, non-petroleum

On the black market the bolivar fell 28% in 2007 to Bs. 4,750 per US$, and declined to around VEF 5.5 (Bs 5500) per US$ in early 2009.Latin American Herald Tribune, 16 March 2009, Molano: Venezuela is Priced for Failure

On 7 March 2007 the government announced that the Venezuelan bolivar would be redenominated at a ratio of 1 to 1000 at the beginning of 2008 and renamed the bolivar fuerte ("strong bolivar"), to ease accounting and transactions. This was carried out on 1 January 2008, at which time the exchange rate was 2.15 bolivar fuerte per US$.

The ISO 4217 code for the bolivar fuerte is "VEF".

Government spending as a percentage of GDP in Venezuela in 2007 was 30%, smaller than other capitalist mixed-economies such as France (49%) and Sweden (52%) . According to official sources, the percentage of people below the national poverty line has decreased during the presidency of Hugo Chavez, from 48.1% in 2002 to 30.2% in 2006.

With the 2007 rise in oil prices and rising government expenditures, Venezuela's economy grew by 9% in 2007.

Oil prices fell starting in July 2008 resulting in a major loss of income.

Hit by a global recession, the economy contracted by 2% in early 2009.

The economy contracted 4.5% in the third quarter, 2009. Chavez stated that this mis-stated economic facts; that the economy should cease to be measured by "capitalistic standards"; that socialistic ones were needed.

The central bank reported on 17 November 2009, that private sector activity declined by 4.5% and that inflation was averaging 26.7%.

A drought which the government says was caused by El Nino, has resulted in rationing of water and electricity and placed food in short supply.

Economic policy (1999 - present)

At the beginning of Chavez's presidency, from 1999 to 2004, per-capita gross domestic product (GDP) dropped 12%,Economist (June 2003). "Country Briefings: Venezuela Factsheet". The Economist. Accessed 4 June 2003. but with the help of rising petroleum prices, the end of the petroleum strike, and strong consumption growth, recent economic activity under Chavez has been robust. GDP growth rates were 18% in 2004,The Economist (16 February 2006), Venezuela: Mission Impossible, The Economist, Retrieved 22 June 2006. 9% in 2005, Imported goods are cheaper, BCV acknowledges. El Universal (9 August 2006).

and 9.6% in the first half of 2006, with the private sector growing at a 10.3% clip.Banco Central de Venezuela (BCV 15 August 2006). Actividad economica crece en 9,6% durante el primer semestre de 2006 Retrieved 16 August 2006 "Este resultado, unido al aumento de 9,9% observado en el primer trimestre, ubica el crecimiento del primer semestre en 9,6%." "Desde el punto de vista institucional, el sector publico crecio en 4,6% y el privado en 10,3%." ""La inversion bruta fija continuo su ritmo expansivo, alcanzando niveles superiores a los observados en toda la serie desde el ano 1997." From 2004 to the first half of 2006, non-petroleum sectors of the economy showed growth rates greater than 10%.El Universal (2006) 2006g.jpg Movimiento del producto interno bruto. Retrieved 25 June 2006 Datos reports real income grew by 137% between 2003 and Q1 2006.Datos, (2006). Perspectivas Sociales 2006 de VenAmCham p.18. Retrieved 29 August 2006. Official poverty figures dropped by 10%.Weisbrot, Mark & Sandoval, Luis & Rosnick, David (CEPRMay 2006). Poverty Rates in Venezuela: Getting the Numbers Right Retrieved 19 August 2006El Universal Mas de dos millones de hogares en Venezuela son pobres Retrieved 23 September 2006 "La pobreza se ubico en 33,9% en el primer semestre del ano, lo que represento una disminucion de 8,5 puntos porcentuales con respecto an igual periodo de 2005" Some economists argue that this subsidized growth could stop if oil prices decline,Bronstein, H. (14 June 2006), "Colombians in Venezuela thank Chavez for new life", Washington Post, Accessed 22 June 2006. Also available at boston.com, Accessed 28 May 2007. but the government argues its budget uses US$29 a barrel and 60 billion dollars in reserves as a cushion for a sudden drop.Marx, Gary(Chicago Tribune'' 13 November 2006) Venezuela riding wave of prosperity Retrieved 14 November 2006

Some social scientists and economists claim that the government's reported poverty figures have not fallen in proportion to the country's vast petroleum revenues in the last two years. The president of Datos said that, although his surveys showed rising incomes because of subsidies and grants, the number of people in the worst living conditions has grown. "The poor of Venezuela are living much better lately and have increased their purchasing power... [but] without being able to improve their housing, education level, and social mobility," he said. "Rather than help [the poor] become stakeholders in the economic system, what [the government has] done is distribute as much oil wealth as possible in missions and social programs."Lakshmanam, Indira A.R. Critics slam Venezuelan oil windfall spending. Boston.com Boston Globe (13 August 2006).

According to government figures, unemployment has dropped by 7.7% since the start of Chavez's presidency.Instituto Nacional de Estadistica. Globales de Fuerza de Trabajo. Retrieved 13 June 2006."Tasa de Desocupacion 16.6%" Instituto Nacional de Estadistica. Globales de Fuerza de Trabajo. Retrieved 18 November 2006."Tasa de Desocupacion 8.9%" It dropped to 10% in February 2006, from the 20% high in 2003 during a two-month strike and business lockout that shut down the country's oil industry. According to the government, an unemployed person is a citizen above the age of 15 who has been seeking employment for more than one week.Instituto Nacional de Estadisticas. Tasa de desocupacion Retrieved 19 August 2006 "Personas de 15 anos o mas, de uno u otro sexo, quienes declararon que durante la semana anterior al dia de la entrevista no estaban trabajando y estaban buscando trabajo con remuneracion. Asimismo, se incluyen aquellas personas que nunca han trabajado y buscan trabajo por primera vez." But, according to The Boston Globe, critics say that the government defines "informal workers, such as street vendors, as employed, and exclud[es] adults who are studying in missions from unemployment numbers." Critics also point to figures released by the president of the Venezuelan National Statistics Institute, Elias Eljuri, which showed that poverty had risen by more than 10% under Chavez (to 53% in 2004). Chavez called for a new measure of poverty, a "social well-being index". Under this new definition, poverty registers at 40%. Eljuri denies changing the statistic and claims it is entirely income excluding social programs.El Universal (El Universal 15 October 2005) La pobreza se redujo en 14,6 puntos en un ano Retrieved 19 August 2006 "Segun explico Elias Eljuri, las cifras presentadas por el instituto en esta oportunidad miden la pobreza solo por el nivel de ingreso de los hogares. " "Aclaro que las cifras presentadas no incluyen el efecto que han logrado en el tema la aplicacion de los programas sociales del actual gobierno y que esto sera presentado en otra oportunidad. " The World Bank calculated a 10% drop in poverty.Panodi (Venezuelanalysis.com 3 June 2006). World Bank: Venezuela decreased poverty Retrieved 19 August 2006

In 2006, while the Venezuelan Government was benefititing from windfall taxes from high petroleum profitsaccording to El Universal the business environment was "risky and discouraged investment". As measured by prices on local stock exchanges, foreign investors were willing to pay on average 16.3 years worth of earnings to invest in Colombian companies, 15.9 in Chile, 11.1 in Mexico, and 10.7 in Brazil, but only 5.8 in Venezuela. The World Economic Forum ranked Venezuela as 82 out of 102 countries on a measure of how favorable investment was for financial institutions. In Venezuela, a foreign investor needed an average of 119 days and had to complete 14 different applications to organize a business, while the average in OECD countries was 30 days and six applications. A dual economy. El Universal (17 August 2006).

Chavez announced Venezuela's withdrawal from the International Monetary Fund and World Bank after paying back all his country's debts to both institutions; he charged them with being an imperial tool that aims to exploit poor countries, news sources reported. But as of March 2008, Venezuela is still a member of both institutions. In June 2007, the Bank for International Settlements forecast an economic growth of 7% and a 18.9% inflation rate for Venezuela.

In January 2008, Hugo Chavez stated that Latin American countries needed to begin their withdrawal of money from United States-based banks. His statement went on to say,

"We should start to bring our reserves here," Chavez said. "Why does that money have to be in the north? You can't put all your eggs in one basket." and "imperialism is entering into a crisis that can affect all of us" and said Latin America "will save itself alone."

Consumer prices

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Venezuela: inflation (average consumer prices)
Year	Inflation rate (%)	Year	Inflation rate (%)	Year	Inflation rate (%)
1980	21.4	1990	40.7	2000	16.2
1981	16.2	1991	34.2	2001	12.5
1982	9.6	1992	31.4	2002	22.4
1983	6.2	1993	38.1	2003	31.1
1984	12.2	1994	60.85	2004	21.7
1985	11.4	1995	59.9	2005	16.0
1986	11.5	1996	99.9	2006	13.7
1987	28.1	1997	50.0	2007	18.7
1988	29.5	1998	35.8	2008	30.4
1989	84.5	1999	23.6	2009

Source: International Monetary Fund: Data and Statistics

Price controls

Since 2003, the Venezuelan government has set price controls on around 400 basic foods in an effort according to the Washington Post, to "counter inflation and protect the poor." However it is reported that these price controls have caused "sporadic food shortages"Reuters, 5 March 2009, Food, farms the new target for Venezuela's Chavez due to the regulated prices not keeping pace with inflation so that producers are faced with either selling their goods at 30-60% above the regulated price, or with hoarding in hope of government action to revise regulated prices upwards.Washington Post, 8 February 2007, Meat, Sugar Scarce in Venezuela Stores

The measures have also caused problems with smuggling, with products being bought at regulated prices in Venezuela and smuggled across the border into Colombia, leading the Venezuelan government to strengthen border security in early 2008 with an additional 1200 troops.Reuters, 22 January 2008, Venezuela troops to block food smuggling to Colombia

Similarly, the price controls have, according to the government, led Venezuelan food producers to try to evade them, for example by focussing on non-regulated foods, or by cutting back production. As a result, in February 2009 the government's National Institute in Defense of People's Access to Goods and Services (INDEPABIS) temporarily took control of a rice processing plant in Guarico State that is owned by the nation's largest food producer, Empresas Polar. The plant was operating at only 50% capacity and had switched to producing 90% of its rice as flavoured rice, which is not subject to price controls; INDEPABIS immediately stopped the addition of artificial flavouring to the rice so that production was 100% regular rice (which is price-controlled). Polar complained that the regulated price, 2.33 bolivares per kilogram, was below its production cost, which it claimed was more than 4 bolivares/kg. It also said that it was operating at half capacity because of a shortage of rice; however the government reported finding 16,000 tons (2 months' production supply) of raw rice at the plant. Venezuelan rice production has risen considerably since Chavez took office: by 94% according to the Agriculture and Land Ministry; by 50% according to the opposition group Fedecamaras.

In March 2009, the BBC reported that Chavez had set minimum production quotas for 12 basic foods that were subject to price controls, including white rice, cooking oil, coffee, sugar, powdered milk, cheese, and tomato sauce. Food processing companies said regulated prices had not kept pace with inflation, forcing them to produce at a loss. In mid-2009 the Venezuelan government took temporary control of Fama de America and Cafe Madrid coffee plants, accusing the manufacturers, which together have 70% of the Venezuelan market, of hoarding and of smuggling coffee to Colombia.

Inflation

According to the Banco Central de Venezuela, inflation dropped from 29.9% in 1998 to 14.4% in 2005.Banco Central de Venezuela. (BCV 12 December 2006). INDICE DE PRECIOS AL CONSUMIDOR DEL AREA METROPOLITANA DE CARACAS DICIEMBRE 1998. Retrieved 11 August 2006 "la variacion acumulada del IPC para el ano 1998, se ubico en 29,9%" During 2005, imported goods were cheaper than commodities made in Venezuela; variability in the price of goods was linked to import performance and exchange stability. In the second quarter of 2006, gross fixed investment was the highest ever recorded by the Banco Central de Venezuela since it started tracking the statistic in 1997. However, the BBC reported on 15 February 2007 that Venezuela's inflation rate rose to a two-year high in January, with consumer prices rising 18.4% in 12 months.

Public spending in Venezuela has reached unprecedented highs, as measured by local currency Central Bank debt, which could increase inflation. Venezuelan Central Bank debt smashes unprecedented record. El Universal (18 August 2006).

In 2007, while Venezuela earned record proceeds from oil exports, consumers faced at times shortages of foodstuffs, since the companies refuse to sell at a loss, a consequence of the consumer prices set by the government which are lower than the production costs. The price for a liter of gasoline in Venezuela is 3 cents, the cheapest in the world. The government has responded by giving importers more dollars at the official exchange rate. Imports soared 43% in 2007 after tripling from 2004 to 2007. The account surplus fell almost in half to $8.8 billion even as near record high oil prices buoyed exports. Around 2007, annual inflation was 16%, the highest in the Americas, as President Chavez tripled government spending from 2003 to 2007.

Nationalisations

The Chavez government nationalised several industries in 2007 and 2008. The nation's largest private electricity producer, 82-percent owned by US-based AES Corp, was obtained by paying $740 million to AES for its share – fair compensation according to financial analysts cited by Reuters.

In 2008, cement production was largely nationalised, with Venezuelan-located plants belonging to Mexico's Cemex, Switzerland's Holcim, and France's Lafarge being bought by the government. Compensations of $552 million for Holcim and $267 million for Lafarge were agreed upon, with both of those companies agreeing to stay on as minority partners and retaining 10 to 15 percent shares; the takeover from Cemex was less friendly and compensation had not been agreed on as of March 2009.

According to Chavez, the cement plants were exporting cement that was needed in Venezuela, because they could obtain higher prices outside Venezuela.

In 2007 the main telephone company, CANTV, was nationalised by buying US-based Verizon Communications' 28.5 percent share for $572 million – again, fair compensation according to analysts cited by Reuters.

In 2008 Chavez ordered the halting of the construction of a mega-shopping mall, in downtown Caracas by Sambil, saying that it was inappropriate development in an already overcrowded, over-trafficked area. He suggested the land would be nationalized and turned into a hospital or university.

In 2008 the Venezuelan government nationalized the leading steel company, Argentine-controlled Sidor, following months of strikes and labour-management disputes.

A food plant owned by US giant Cargill was nationalised in early 2009.

Petroleum and other resources

Venezuela is a major producer of petroleum products, which remain the keystone of the Venezuelan economy. Chavez has gained a reputation as a price hawk in the Organization of the Petroleum Exporting Countries (OPEC), pushing for stringent enforcement of production quotas and higher target petroleum prices. At a June 2006 meeting, Venezuela was the only OPEC country calling for lowered production to drive petroleum prices higher.

Chavez has attempted to broaden Venezuela's customer base, striking joint exploration deals with other developing countries, including Argentina, Brazil, China and Russia. Record oil prices have meant more funding for social programs, but have left the economy increasingly dependent on both the Chavez government and the oil sector; the private sector's role has correspondingly diminished.

Chavez has redirected the focus of PDVSA by bringing it more closely under the direction of the Ministry of Energy and Petroleum. He has also attempted to repatriate more petroleum funds to Venezuela by raising royalty percentages on joint extraction contracts that are payable to Venezuela. Chavez has also explored the liquidation of some or all of the assets belonging to PDVSA's US-based subsidiary, Citgo. Citgo, whose profitability made many Venezuelans skeptical, has been paying record dividends to the government of Venezuela. Chavez said that "Venezuela had not received a penny from this enterprise for 20 years". According to finance minister Nelson Merentes, the Venezuelan 2006 budget would get more income from taxation than from the petroleum industry, unlike formerly. A key non-oil related poverty reduction policy has been the application of the concept of the microcredit pioneered by Nobel peace prize laureate Muhammad Yunus of the Grameen Bank.Unb, Dhaka (The Daily Star May 2007) Prof Yunus gets highest Venezuelan honour Accessed 14 May 2007.

Economic prospects remain highly dependent on oil prices and the export of petroleum. A founding member of OPEC, Venezuela reasserted its leadership within the organization during its year as OPEC's president, hosting the organization's second leadership conference in 40 years, as well as having its former Minister of Energy, Alvaro Silva Calderon, appointed as Secretary-General. The collapse of oil prices in 1997-98 prompted the Rodriguez administration to expand OPEC-inspired production cuts in an effort to raise world oil prices. In 2002, this sector accounted for roughly a quarter of GDP, 73% of export earnings, and about half of central government's operating revenues. Venezuela is the fourth-leading supplier of imported crude and refined petroleum products to the United States.

The government of Venezuela has opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. The Venezuelan national petroleum company Petroleos de Venezuela and foreign petroleum companies have signed 33 operating contracts for marginal fields in three bidding rounds. New legislation dealing with natural gas and petrochemicals is further opening the sector. A new domestic retail competition law, however, disappointed investors who had been promised market-determined prices.

On 13 November 2001, under the enabling law authorized by the National Assembly, President Chavez enacted the Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all petroleum production and distribution activities were to be the domain of the Venezuelan state, with the exception of joint ventures targeting extra-heavy crude oil production. Under the new Hydrocarbons Law, private investors can own up to 49% of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly.

During the December 2002-February 2003 lock-out where managers and skilled highly-paid technicians of PDVSA locked out PDVSA and sabotaged the industry, petroleum production and refining by PDVSA almost ceased. This sabotage was politically motivated; at the same time, many business owners across Venezuela closed down their stores in order to create instabilitiy within Venezuela. Despite the lock-out, these activities eventually were substantially restarted when the rank-and-file oil workers restarted PDVSA without the managers. Out of a total of 45,000 PDVSA management and workers, 19,000 were subsequently dismissed, many of which were managers and highly paid technicians.

Venezuela's crude oil production was 3.12 million barrels a day when Chavez took office and in 2007 was 2.949 million barrels a day.OPEC Annual Statistical Bulletin, online version, Oil and gas data, Table 38, Crude oil production in OPEC member countries since commencement (www.opec.org/library/ ).
Also,

A range of other natural resources, including iron ore, coal, bauxite, gold, nickel, and diamonds, are in various stages of development and production. In April 2000, Venezuela's President decreed a new mining law, and regulations were adopted to encourage greater private sector participation in mineral extraction.

Venezuela utilizes vast hydropower resources to supply power to the nation's industries. The national electricity law is designed to provide a legal framework and to encourage competition and new investment in the sector. After a 2-year delay, the government is proceeding with plans to privatize the various state-owned electricity systems under a different scheme than previously envisioned.

Socioeconomic indicators

Like most Latin American countries, Venezuela has an unequal distribution of wealth. The rich tend to be very rich and the poor very poor. The table below shows the distribution of household income in Venezuela in 1970. For comparison, the distributions in the USA and UK are shown in the table below that.

Household Income Distribution
	Share of household income (%) received by:
Year	Poorest fifth	2nd fifth	3rd fifth	4th fifth	Wealthiest fifth	Wealthiest 10%
1970	3.0	7.3	12.9	22.8	54.0	35.7
Source: World Bank, World Development Report, 1980, Table 24, pp 1567.

Comparison: USA and UK Household Income Distribution
	Share of household income (%) received by:
Country and Year	Poorest fifth	2nd fifth	3rd fifth	4th fifth	Wealthiest fifth	Wealthiest 10%
United Kingdom 1973	6.3	12.6	18.4	23.9	38.8	23.5
United States 1972	4.5	10.7	17.3	24.7	42.8	26.6
Source: World Bank, World Development Report, 1980, Table 24, pp 1567.

The more recent income distribution data available is for distribution per capita, not per household. The two are not strictly comparable because poor households tend to have more members than rich households; thus, the per household data tends to show less inequality than the per capita data. The table below shows the available per capita data for recent years from the World bank.

Personal Income Distribution
	Share of personal income (%) received by:
Year	Poorest fifth	2nd fifth	3rd fifth	4th fifth	Wealthiest fifth	Wealthiest 10%	GINI index
1987	4.7	9.2	14.0	21.5	50.6	34.2
1995	4.3	8.8	13.8	21.3	51.8	35.6	46.8
1996	3.7	8.4	13.6	21.2	53.1	37.0	48.8
2000	4.7	9.4	14.5	22.1	45.4	29.9	42
Note that personal (per capita) income distribution, given in this table, is not exactly comparable with household income distribution, given in the previous table, because poor households tend to have more members. Sources:1987 data: 1991 World Development Report, Table 30, pp 2623. 1995 data: 1998 World Development Report, Table 2.8, p 70.1996 data: 2000/2001 World Development Report, Table 5, pp 2823.2000 data: 2006 World Development Indicators, Table 2.8.All of the above publications are by the World Bank.

Poverty in Venezuela increased during the 1980s and 1990s but has decreased during the Chavez presidency, with the exception of the troubled years 2002 and 2003. The table below shows the percentage of people, and the percentage of households, whose income is below a poverty line which is equal to the price of a market basket of necessities such as food.

Note that as an income-based measure of poverty, this omits the effect of some other factors that may affect economic wellbeing, such as the availability of free health care and education.

P o v e r t y
Percentage of people and households with income below national poverty line
Year	1989	1997	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008

Households	–	48.1	43.9	42.0	40.4	39.0	48.6	55.1	47.0	37.9	30.6	28.5
People	31.3	54.5	50.4	48.7	46.3	45.4	55.4	62.1	53.9	43.7	36.3	33.6

Sources:

World Bank, 1997 World Development Indicators, p 52;
Weisbrot et al., Poverty Rates in Venezuela ;
Venezuela, Instituto Nacional de Estadistica, Venezuela. Medicion de la pobreza, segun hogares y personas, 2000-07 (./pobreza/LIhogares.asp), accessed May 2009.

Note: The Instituto Nacional de Estadistica gives these poverty data twice yearly. For brevity we have included only the end of year data. For example, in 2007, household poverty in the first six months was 27.5% (not shown), and in the last six months, 28.5% (shown). The 1989 datum is from the World Bank and, as far as we know, is a whole year average.

Manufacturing, agriculture, and trade

Manufacturing contributed 17% of GDP in 2006. The manufacturing sector continues to increase dramatically in spite of private under-investment. Venezuela manufactures and exports steel, aluminium, transport equipment, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets.

Agriculture in Venezuela accounts for approximately 3% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, corn, fish, tropical fruit, coffee, beef, and pork. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs. In 2002, U.S. firms exported $347 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies more than one-third of Venezuela's food imports.

Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years, nontraditional exports have been growing rapidly but still constitute only about one-fourth of total exports. The United States is Venezuela's leading trade partner. During 2002, the United States exported $4.4 billion in goods to Venezuela, making it the 25th-largest market for the U.S. Including petroleum products, Venezuela exported $15.1 billion in goods to the U.S., making it its 14th-largest source of goods. Venezuela opposes the proposed Free Trade Agreement of the Americas.

Labor

Venezuela has a labor force of about 12.1 million, and in June 2007, official unemployment was 8%. In May 2007, 55.9 percent of Venezuelan workers are included in the formal sector, with 44.1 percent in the informal sector.

Chavez has had a combative relationship with the nation's largest trade union confederation, the Confederacion de Trabajadores de Venezuela (CTV), which is historically aligned with the Accion Democratica (AD) party. During the December 2000 local elections, Chavez placed a referendum measure on the ballot that would mandate state-monitored elections within unions. The measure, which was condemned by the International Labour Organization (ILO) and International Confederation of Free Trade Unions (ICFTU) as undue interference in internal union matters, passed by a large margin on a very low electoral turnout. In the ensuing CTV elections, Carlos Ortega declared his victory and remained in office as CTV president, while chavista (pro-Chavez) candidates declared fraud.

The Union Nacional de Trabajadores , a new pro-Chavez union federation, formed in response and has been growing in membership; it seeks to ultimately supplant the CTV. Several chavista unions have withdrawn from the CTV because of their strident anti-Chavez activism, and have instead affiliated with the UNT. In 2003, Chavez chose to send UNT, rather than CTV, representatives to an annual ILO meeting.

Further augmenting state involvement in Venezuela's economy, Chavez nationalized Venepal, a formerly closed paper and cardboard manufacturing firm, on 19 January 2005. Workers had occupied the factory floor and restarted production, but following a failed deal with management and amidst management threats to liquidate the firm's equipment, Chavez ordered the nationalization, extended a line of credit to the workers, and ordered that the Venezuelan educational missions purchase more paper products from the company.

Under Chavez, Venezuela has also instituted worker-run "co-management" initiatives in which workers' councils play a key role in the management of a plant or factory. In experimental co-managed enterprises, such as the state-owned Alcasa factory, workers develop budgets and elect both managers and departmental delegates who work together with company executives on technical issues related to production.

Infrastructure

Venezuela has an extensive road system. The capital Caracas has a modern subway system over 31.6 mi long. Maracaibo and Valencia (third city) has recently inaugurated a metro system. The Maracaibo (second city) metro system is still unfinished.

Rail transport in Venezuela has been practically non-existent since the 1950s (with only one line operating), but the IAFE is currently working on several lines, hopefully connecting most of Venezuela via railway by 2020, which, if achieved, would lead to a significant improvement in the countries' transport infrastructure.

At the beginning of August 2008, Venezuelan president Hugo Chavez and his colleagues from Argentina and Brazil spoke about Latin American integration and Chavez threw an ambitious idea out: a train that would connect Venezuela's capital (Caracas) with Argentina's (Buenos Aires), and cities in between .

The Chavez government has launched a National Railway Development Plan designed to create 15 railway lines across the country, with 8500 miles of track by 2030. The network is being built in cooperation with China Railways, which is also cooperating with Venezuela to create factories for tracks, railway cars and eventually locomotives.

Miscellaneous data

Electricity production by source:

fossil fuel:

25.46%

nuclear:

other:

0% (1998)

Electricity Production

110.7 KWh (2007)

Electricity consumption:

83.84 KWh (2006)

Electricity exports:

0.542 kWh (2006 est.)

Electricity imports:

0 kWh (2007)

Agriculture products:

maize, sorghum, sugar cane, rice, bananas, vegetables, coffee; beef, pork, milk, eggs; fish

Currency:

1 bolivar fuerte (Bs.F.) = 100 centimos

Exchange rates:bolivares fuertes (Bs. F) per US$1: 2,15 (January 2008)bolivares (Bs) per US$1: 2150 (January 2006), 1440 (September 2002), 652,33 (January 2000), 605,71 (1999), 547,55 (1998), 488,63 (1997), 417,33 (1996), 176,84 (1995)

Sources

Government of Venezuela, Instituto Nacional de Estadistica (National Institute of Statistics.) Wide range of statistics. Adding pobreza/menupobreza.asp to the URL gives a menu of poverty statistics.

Michael McCaughan, The Battle of Venezuela, London, 2004.

United Nations, UNdata Explorer.

Mark Weisbrot and Luis Sandoval:

The Venezuelan Economy in the Chavez Years, Center for Economic and Policy Research, 2007.

Update: The Venezuelan Economy in the Chavez Years CEPR, 2008.

Mark Weisbrot, Luis Sandoval, and David Rosnick, Poverty

External links

Wilpert, Gregory. Venezeula's Alternative to Neo-Liberalism IslamOnline.net, retrieved on 19-03-2009.

Venezuela Energy Profile from the Energy Information Administration

Venezuela to Give Currency New Name and Numbers

Banco Central de Venezuela

Venezuela's Economy During the Chavez Years

Venezuela Nationalizes Gas Plant and Steel Companies, Pledges Worker Control by James Suggett, 22 May 2009

The Chavez Administration at 10 Years: The Economy and Social Indicators - CEPR report, 2009

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