Economic policy of the Hugo Chávez government

From his election in 1998 until his death in March 2013, the administration of the late Venezuelan president, Hugo Chávez, proposed and enacted socialistic economic policies. In the early 2000s, oil prices soared, offering Chavez funds not seen since Venezuela's economic collapse since the 1980s.^[1] Domestically, Chavez used such oil funds for populist policies, creating the "Bolivarian Missions," aimed at providing public services to improve economic, cultural, and social conditions.^[1][2] Domestic policies included redistribution of wealth, land reform, and democratization of economic activity via workplace self-management and creation of worker-owned cooperatives.^[2] Internationally, the Chávez administration used oil production to increase autonomy from U.S. and European governments and used oil funds to promote economic and political integration with other Latin American nations.^[2]

Despite warnings near the beginning of Chávez's tenure in the early 2000s,^[1] Chávez's government overspent in social spending and did not save enough money for any future economic distresses, which Venezuela faced shortly after his death.^[3] Despite high oil revenues, other industries suffered. The share of manufacturing in GDP was 14.2% in 2012, compared to 17.4% in 1998 when Chavez took office.^[4] During the latter part of his presidency after strict price controls were put in place, there were shortages of staple goods and Venezuela's inflation rate grew to one of the highest in the world.^[5][6]

Government policies

Petroleum and natural resources

Venezuela is a major producer of oil products, which remains the keystone of the Venezuelan economy. Under the Chávez government, crude oil production decreased from 3.12 million barrels a day when Chávez took office in 1999, to 2.949 million barrels a day in 2007,^[8] whilst oil prices increased 660%. The state income from oil revenue "increas[ed] from 51% of total income in 2000 to 56% 2006";^[9] oil exports "have grown from 77% in 1997 [...] to 89% in 2006";^[9] and some economists view "this dependence on oil is one of the chief problems facing the Chávez government".^[9] Indeed, Stephen Randall, Director of the University of Calgary's Latin American Research Centre, points out that during his years in power Venezuela increased it dependency on oil exports to 95% (2012) from 80% when he took power in 1999.^[10] Furthermore, before the financial crisis in 2008 Venezuelan oil was selling at $129/bbl. It then dropped to $43/bbl by March 2009. Instead of reigning in spending Chavez responded to reduced revenues by introducing more exchange controls and continuing with nationalizations. A 2014 article by CNBC stated that under Chávez, oil production declined from 3.5 million barrels per day to 2.6 million barrels per day, though Venezuela only made a profit from 1.4 million barrels per day due to Venezuela giving large amounts of its oil away for free.^[11] CNBC continued stating that though oil production decreased, public spending increased to over 50% of the GDP, spending more than received in oil profits which led to foreign loans that amounted to over $106 billion as of 2012.^[11] Foreign investment flows by the end of his presidency in 2013 were half what they had been in 1999.^[10]

In response to the low oil prices at the end of the 1990s, Chavez played a leading role within the Organization of the Petroleum Exporting Countries (OPEC) to reinvigorate that organisation and obtain members' adherence to lower production quotas designed to drive up the oil price. Venezuelan oil minister Alí Rodríguez Araque'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."^[9][12] On 13 November 2001, under the enabling law authorized by the National Assembly, President Chávez enacted the Hydrocarbons Law, which came into effect in January 2002. The new Hydrocarbons Law required that a minimum of 51% of PDVSA be owned by the Venezuelan government, and increased royalties paid by foreign corporations from 16.6% to 30% in an attempt to repatriate more petroleum funds to Venezuela.^[13]

Chávez used PDVSA funds to support political projects. In 2004, $1.5 billion of the $15 billion budget of PDVSA was directed to be used for funding social programs, and later this was raised to $4 billion per year.^[14] Chávez also explored the liquidation of some or all of the assets belonging to PDVSA's US-based subsidiary, Citgo, which received criticism amongst the Venezuelan public due to corruption.^[15][16] According to finance minister Nelson Merentes, the Venezuelan 2006 budget would get more income from taxation than from the petroleum industry, unlike formerly.^[17]

The economist and Chávez policy supporter Mark Weisbrot, in an analysis of the Chávez administration, said: "The current economic expansion began when the government got control over the national oil company in the first quarter of 2003. Since then, real (inflation adjusted) GDP nearly doubled, growing by 94.7 percent in 5.25 years, or 13.5 percent annually. Most of this growth has been in the non-oil sector of the economy, and the private sector has grown faster than the public sector."^[18] Political analyst and Venezuelanalysis.com contributor, Barry Cannon, wrote that spending had increased under Chavez.^[19] "[S]pending on education as a percentage of GDP stood at 5.1% in 2006, as opposed to 3.4% in the last year of the Caldera government."^[19] Spending on health "has increased from 1.6% of GDP in 2000 to 7.7% in 2006".^[19]

In 2012, analysts said that PDVSA was in a "crisis" since “in the last ten years, they haven’t been able to grow production". Analysts and OPEC also disagreed with Venezuela's claims of oil output. Critics have also noticed that investments in oil and natural gas production only amounted to US $17.9 billion while the government spent US $30.1 billion on social programs and Russian fighter jets.^[20] The secretary general of the United Federation of Petroleum Workers of Venezuela (FUTPV) said "PDVSA is falling apart" and that "lack of direction, investment and maintenance are wrecking the oil and natural gas industries". Critics have also accused Chavez of letting loyalists run PDVSA instead of those qualified for the positions^[21] since the company only hires political supporters of the president.^[6] In 2013, PDVSA took more than US $10 billion in loans from China and Russia due to an alleged lack of hard currency and had a financial debt of US $39.2 billion.^[22]

Cooperatives and economic democratization

Since Chávez was elected in 1998, over 100,000 worker-owned cooperatives—representing approximately 1.5 million people—were formed with the assistance of government start-up credit, technical training, and by giving preferential treatment to cooperatives in state purchases of goods and equipment. As of 2005, approximately 16% of Venezuela's formally employed citizens were employed in a cooperative. However, a 2006 census showed that as many as 50% of the cooperatives were either functioning improperly, or were fraudulently created to gain access to public funds.^[23][24]

Additionally, several thousand "Communal Councils" (Consejos Communales) were created. In these Communal councils, citizens form assemblies to determine what will be done with government funds in their local area. Groups are made up of 150-200 or more families in urban areas, and starting at around 15-20 families in rural areas, and their decisions are binding to local government officials. 21,000 of these groups were created in 2007, and 30,179 by 2009. As of 2007, about 30% of state funds were directly controlled by communal councils, with a goal of eventually having them control 50%.^[25][26]

As of 2007, 300 communal banks had been established, and had received $70 million in government funding, to be used for local micro-loans. With these funds, the councils implemented thousands of community projects, such as paving streets, creating sports fields, building medical centers, and constructing sewage and water systems. Some leaders proposed that the councils replace city and state governments entirely, or work parallel to them.^[27] By 2008, there were more than 3,500 such banks, which received $140 million in funding in 2008, and were budgeted to receive $1.6 billion in 2009.^[28] The Venezuelan government also created an extensive micro-credit program, targeted towards the poor, with a goal of enabling them to start their own small businesses. Several micro-credit banks were created, including Banco del Pueblo (People's Bank), Banco de la Mujer (Women's Bank), and the Fondo de Desarollo Microfinanciero (Fund for Micro-Finance Development, "Fondemi"). Additionally, banking laws passed in 2001 require that all banks set aside at least 3% of their capital for micro-loans.^[23]

Poverty reduction programs and social spending

One of the primary ways that the Chávez administration attempted to fix the problem of economic inequality was by wealth redistribution, primarily via land reform, and social programs.^[23] The Chávez government pursued a series of Bolivarian Missions aimed at providing public services (such as food, healthcare, and education) to improve economic, cultural, and social conditions. According to the United Nations Economic Commission for Latin America and the Caribbean (ECLAC), from 1999 to 2012, Venezuela achieved the second highest rate of poverty reduction in the region: 25.6%, falling from 49.4% to 25.6%.^[29][30] A 2010 OAS report criticizing Venezuela's human rights standards indicated achievements in addressing illiteracy, healthcare and poverty, and economic and social advances.^[31] From 2011 to 2013, when the rate of poverty reduction was in decline across Latin America, Venezuela was the country that recorded the greatest reduction in poverty in the region; ECLAC reports that the poverty rate in Venezuela declined 5.6%, from 29.5% to 23.9%.^[32][33][34] The Chávez government overspent in social spending, however, and did not save enough money for any future economic difficulties.^[3] In 2014 El Universal reported that in the previous five years that included years under Chávez's policies, purchasing power for those with minimum wage jobs had dramatically decreased compared to other countries in the region, supposedly due to the high inflation rate and the multiple devaluations of Venezuela's currency.^[35]

Stanford University's Security Studies also reported:

"Whereas oil windfalls under high oil prices allowed Chavez to distribute political patronage for social and military projects, subvention of regional allies, and subversion of others - a pattern reminiscent Qadhafi's Libya in the 1970s - Venezuela's economy suffered a pronounced decline. Even according to Venezuela's Central Bank, inequality measured by GINI coefficients has increased under Chavez, and the results of his socials programs were not better than those of his predecessors"^[36]

Price controls

The Venezuelan government also set price controls in 2003 on around 400 basic foods in an effort according to the Washington Post, to "counter inflation and protect the poor", and in March 2009, they 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.^[37][38] However, these economic policies led higher inflation rates and caused more shortages which in turn hurt those in poverty.^[6][39][40]

Missions and other projects

Chávez created many projects and missions during his presidency, though he often took credit for some started by his predecessors as well.^[41] Many projects initiated during his presidency have remained incomplete and have experienced difficulties due to funding issues, political costs, corruption and bad execution.^[41] As of late 2013, over 4,000 projects initiated remained incomplete with 25% of those projects beginning before 2006.^[41] Despite the investment of billions of dollars, such projects that were not completed and experienced multiple delays included repairs to the Parque Central Complex, moving the Las Mayas garbage center, the clean up of the Guaire River, a National Cancer Center, Plan Vargas 2005, and multiple transportation projects.^[41][42]

Chávez also initiated Mission Habitat, a Venezuelan government program to construct new housing units for the poor. The housing mission has also experienced difficulties with El Universal stating that one of the Chávez administration's outstanding weaknesses was the failure to meet its goals of construction of housing.^[43] Chávez promised to build 150,000 houses in 2006, but in the first half of the year, completed only 24 percent of that target, with 35,000 houses.^[43] In 2013, the Venezuelan government also failed to complete nearly 50% of projected homes.^[44] The housing market in Venezuela had also shrunk significantly. Developers have avoided Venezuela due to the massive number of companies who have had their property expropriated by the government.^[45]

In 2003, the Venezuelan government created Mission Mercal—a chain of state-owned grocery stores, selling staple foods at 39% below market value, and which tries to buy 40% of all of its products from small or medium-sized domestic producers.^[46] As of 2005, there were 13,392 Mercals and 102 warehouses, in addition to 31 recently built Supermercals, 12,500 Mercalitos (small Mercals), and several hundred cooperatives and other entities that work in conjunction with Mercal.^[47] Additionally, the government created 6,000 mobile soup kitchens, which together with Mercal, comprise 22% of national food distribution.^[46] It has been reported that there are shortages in Mercal stores. Customers who wait in long lines for discounted products say that there were a lack of products in Mercal stores and that items available at the stores change constantly.^[48] Some customers complained about rationing being enforced at Mercal stores due to the lack of products.^[49]

According to the Venezuelan government, the "Miracle Mission" program had the Venezuela and Cuban governments collaborated to perform free eye care to over 1,139,798 people, with an average of 5,000 operations occurring on a weekly basis in 74 medical centers around Venezuela, as of July 2010. Several thousand people from other Latin American nations—including Argentina, Bolivia, Brazil, Costa Rica, Chile, the Dominican Republic, Ecuador, Guatemala, Nicaragua, Paraguay, Peru, and Uruguay—were also given free treatment under the program.^[50]

Agriculture and land reform

From 2003, Chavez set strict price controls on food, and these price controls caused shortages and hoarding.^[51] In January 2008, Chavez ordered the military to seize 750 tons of food that sellers were illegally trying to smuggle across the border to sell for higher prices than what was legal in Venezuela.^[52] In February 2009, Chavez ordered the military to temporarily seize control of all the rice processing plants in the country and force them to produce at full capacity, which he claimed they had been avoiding in response to the price caps.^[53] In May 2010, Chavez ordered the military to seize 120 tons of food from Empresas Polar.^[54] In March 2009, Chavez 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. Business leaders and food producers claimed that the government was forcing them to produce this food at a loss.^[55] Chávez nationalized many large farms. Chávez said of the farmland, "The land is not private. It is the property of the state." Some of the farmland that had been productive while under private ownership is now idle under government ownership, and some of the farm equipment sits gathering dust. As a result, food production fell substantially. One farmer, referring to the government officials overseeing the land redistribution, stated, "These people know nothing about agriculture."^[56] Chávez seized many supermarkets from their owners. Under government ownership, the shelves in these supermarkets are often empty.^[57] In 2010, after the government nationalized the port at Puerto Cabello, more than 120,000 tons of food sat rotting at the port.^[58] In May 2010, after price controls caused shortages of beef, at least 40 butchers were arrested, and some of them were held at a military base and later strip searched by police.^[59]

The Chávez government passed several laws designed to support food sovereignty by increasing domestic agricultural production in Venezuela and reducing agricultural imports, and to more equitably redistribute unused agricultural lands.^[46][60] Before Chavez was elected 75% of the agricultural land in Venezuela was owned by 5% of landowners and the smallest 75% landowners controlled only 6% of the land. Much of the land held by large landholders, was held in extremely large "latifundios", and was idle and unproductive. The "Law of the Land" passed by the Chávez administration, declared such landholdings to be illegal, and mandated that it be given to families who needed land to grow food. As of January 2009, the Venezuelan government had redistributed nearly 2.7 million hectares of idle land (6.6 million acres—nearly 1/3 of the latifundio land existing prior to 1998) to 180,000 landless peasant families.^[61] Additionally, reforms to Venezuela's Penal Code de-criminalized the occupation of idle private lands by landless peasants, and started an initiative known as Mision Zamora to assist small and medium scale producers gain title to land.^[46] Although the Venezuelan government allows small farmers to work the land, it does not always give them title to the land, and they are sometimes required to work as part of a collective.^[56] This reallocation of land does not necessarily lead to better food production; farmers are hurt by the state setting low prices for their produce.^[62]

Agricultural credit also increased dramatically, from approximately $164 million in 1998 to nearly $7.6 billion in 2008, with many of the credit decisions being made by local communal councils, rather than government bureaucrats. Additionally, in 2008, several laws were passed to provide financial assistance to struggling small farmers, such as debt relief programs and crop-failure insurance.^[61]

The Venezuelan government, under the Chávez administration, also began offering free technical assistance and education to farmers, through its National Agriculture Research Institute (INIA), which performs agricultural research and projects with small farmers.^[46]

The government also tried to introduce large-scale urban agriculture to the populace, to increase local self-reliance. In Caracas, the government launched Organoponico Bolivar I, a pilot program to bring organopónicos to Venezuela. Urban agriculture was not embraced in Caracas as it has been in Cuba. Unlike Cuba, where organopónicos arose from the bottom-up out of necessity, the Venezuelan organopónicos were clearly a top-down initiative based on Cuba's success. Another problem for urban agriculture in Venezuela was the high amounts of pollution in major Venezuelan urban areas. At the Organoponico Bolivar I, a technician comes every 15 days to take a reading from the small pollution meter in the middle of the garden.^[63]

Urban land titling program

Following an initial proposal for a land titling program in 2000 by the opposition Justice First, influenced by the Peruvian economist Hernando de Soto Polar,^[64] President Hugo Chavez issued Presidential Decree 1666 in February 2002, providing a legal basis for Urban Land Committees (Comités de Tierras Urbanas, CTUs) to be formed.^[64] These develop land titling in urban areas. Under the February 2002 decree, local committees (representing 100-200 families) may apply to a government office for the local "barrio" residents to be given property title for state-owned land they have informally occupied on a long-term basis. The committees operate on the principle of participatory democracy, and create maps of the local area, on the basis of which (after official verification) land titles are drawn up.^[64] By mid-2005, there were around 5000 CTUs, representing around 5m Venezuelans, and the government had issued over 84,000 titles to 126,000 families, benefiting about 630,000 inhabitants (out of a total urban poor population of around 10m).^[65] By October 2006 the government said that over 200,000 titles had been assigned, benefiting about 1m inhabitants.^[66]

Nationalizations

The Chávez government nationalized several industries in 2007 and 2008, as part of its policy of wealth redistribution and reducing the influence of multinational corporations. As a result of these nationalizations, production of goods in Venezuela had dropped.^[67]

• A 3 January 2007 article in the International Herald Tribune reported that price controls were causing shortages of materials used in the construction industry.^[68] 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.^[69] According to an 4 April 2008 article from CBS News, Chavez ordered the nationalization of the cement industry, in response to the fact that the industry was exporting its products in order to receive prices above those which it was allowed to obtain within the country.^[70] In 2013, it was reported that production of cement dropped by 60%, furnaces stopped and cement had to be imported from Colombia.^[71] It was also reported that some stores had shortages of cement and would ration the number of cement bags purchased.^[72] Workers of the Socialist Cement Corporation protested against their employers due to not being paid and not being able to receive help at clinics due to company debt.^[73]

• Chavez nationalized Venezuela's largest telephone companies and electric utilities.^[74] The main telephone company, CANTV, was nationalised by buying US-based Verizon Communications' 28.5 percent share for $572 million.^[75] Since the nationalizations of communication companies, allegations of censorship by the government and CANTV have been made, especially during the 2014 Venezuelan protests.^{[76][77][78][79][80][81][82][83]}

• 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.^[75] Since then, Venezuela's electrical grid has been plagued with occasional blackouts in various districts of the country. In 2011, it had so many problems that rations on electricity were put in place to help ease blackouts.^[84] On September 3, 2013, 70% of the country plunged into darkness with 14 of 23 states of Venezuela stating they did not have electricity for most of the day.^[85]

• In 2008 the Venezuelan government nationalized the leading steel company, Argentine-controlled Sidor, following months of strikes and labour-management disputes.^[86] Since the nationalization of Sidor, the production of the company has dropped ever year.^[87]

• In 2008 Chávez 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.^[74] Since then, the mall has rarely been used. It opens occasionally and its parking garage shelters the homeless.^[88]

• A food plant owned by US giant Cargill was nationalised in early 2009.^[75]

• On 28 February 2009 Chavez ordered the military to temporarily seize control of all the rice processing plants in the country and force them to produce at full capacity, which he claimed they had been avoiding in response to the price caps.^[89] The country's largest food processor, Empresas Polar, said that the regulated price of plain rice was well below the cost of production, and as a result 90% of its rice output was flavoured rice not subject to price controls. It also said that its plant was operating at 50% capacity due to raw material shortages; the government however claimed to have found 2 months' worth of raw rice in storage at the plant.^[90]

• 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.^[91]

• Banco de Venezuela was nationalized in 2009; Banco Bicentenario was created in late 2009 from nationalized banks taken over in the course of the Venezuelan banking crisis of 2009-2010.

Taxation

The Venezuelan government instituted several new taxes on non-priority and luxury goods, aiming to shift the nation's tax burden from the poor to the wealthy, and to control inflation.^[92][93][94] In 2012, Venezuela's taxes were ranked 188th out of 189 countries due to the high number of payments per year and a 61.7% tax on income per year.^[95]

From November 2007 until the end of 2007, all bank transactions between businesses had a 1.5% tax extracted, as a means of controlling inflation by soaking up excess liquidity.^[93]

From March 2009 VAT tax rate was raised to 12% to cover for oil price reduction ^[96]

In October 2009, SENIAT, the Venezuelan tax collection agency announced that it would tax cigarettes and alcohol, in order to reduce their consumption.^[93]

Infrastructure

Transportation

Despite the large scale of road building beginning in 1960s that benefitted the aluminum and oil industry; public services, especially within the infrastructure of Venezuela, was poor.^[1] At the beginning of August 2008, Chávez announced that Venezuela would partner with Argentina and Brazil to build a train that would connect Venezuela's capital (Caracas) with Argentina's (Buenos Aires), and cities in between.^[97][98]

The Chavez government launched a National Railway Development Plan designed to create 15 railway lines across the country, with 8,500 miles (13,700 km) 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.^[99] However, Venezuela's rail project is being put on hold due to Venezuela not being able to pay the $7.5 billion and owing China Railway nearly $500 million.^[100]

International economic policies

One of the Chávez administration's primary goals was to reduce the influence of foreign capitalists in Venezuela, as part of its overall push towards localized economic democratization. Towards this aim, it strongly promoted various forms of Latin American economic and political integration—such as regional currencies (e.g. SUCRE, somewhat analogous to the Euro), regional credit/financial institutions such as Bancosur (to remove dependence on the IMF/World Bank), and trade pacts (such as ALBA, Petrosur, or bartering oil for doctors with Cuba).

The SUCRE system is a virtual currency system used mainly by Venezuela and Ecuador. There are some risks such as money laundering and fraud. However, it has been seen as beneficial for trade since Ecuador uses the United States dollar as its national currency and Venezuela's strict currency controls have created a US dollar shortage in Venezuela.^[101]

Regional integration

One of the Chávez administrations' key goals was the creation of a regional trade/political bloc, the Bolivaran Alliance for the Americas (ALBA), which would act as an alternative to the Free Trade Agreement of the Americas (FTAA). The Venezuelan government claims that the FTAA's decision-making process is undemocratic, that it boosts the power of corporations at the expense of national sovereignty, and that privatization kills the poor.^[102]

Cuba, Nicaragua, Honduras, Bolivia, and the Dominican Republic joined Venezuela as members of ALBA. For example, in exchange for discounted Venezuelan oil (which Cuba needs due to the U.S. embargo), Cuba (which has a relatively well-developed system of medical care) has provided Venezuela with thousands of doctors and teachers, who provide healthcare and education to Venezuela's poor.^[46] Chávez described ALBA as "a flexible model for the integration of Latin America that places social concerns in the forefront."^[103] and advocates "socially-oriented" forms of trade instead of those "strictly based on the logic of deregulated profit maximization".^[102]

Eudomar Tovar, president of the Unified System of Regional Compensation (SUCRE) said:^[104]

The dollar is a reserve currency, but it has been losing relevancy. Through the cooperation and integration agreements between our countries, we are trying to avoid the effects of the problems generated by capitalist economies on our regional finances ... From that point on, our process of integration seeks to progressively decrease our dependence on the dollar, and diminish its regional domination as the principle currency. The United States is just one economy that emits huge quantities of dollars that actually have no real, solid support, and as a consequence, this has affected the interests of world economies"

Foreign debt

Chávez 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.^[105][106]

In 2005, the Venezuelan government partnered with Argentina, and Brazil to negotiate their foreign debt as a collective bloc. Chávez also suggested that at least 10% of all Latin American foreign debt be paid into an "International Humanitarian Fund", that would be used to fund social programs without having neo-liberal structural adjustment requirements attached.^[107][108]

The Venezuelan government had been running out of hard currency to pay bills before the death of Chavez.^[109] A major railway project in Venezuela was delayed because Venezuela cannot pay US$7.5 billion and owes China Railway nearly US$500 million.^[100] Many international airlines such as Air Canada, Air Europa, American Airlines, and United Airlines suspended operation in Venezuela.^{[110][111][112]} The Venezuelan government faced accusations of owing international airlines more than $3.7 billion and violating treaties, with the International Air Transport Association accusing the government of failing to "repatriate" $3.7 billion in air ticket revenue owed to foreign airlines.^[113]

Currency and foreign reserves

In order to prevent capital flight, and maintain the stability of the bolivar (Venezuela's currency), the Chávez administration enacted strict currency controls in January 2003, making it more difficult for investors to exchange bolivars for dollars. The controls forced many Venezuelan investors to seek out domestic investment opportunities, rather than foreign investments. It also resulted in a large increase in foreign currency reserves, which had reached $35 billion by 2006, which is as high as Canada's (which has a slightly higher population), and on a per capita basis is much larger than Germany's ($55 billion)^[114] By the end of 2013, gold and foreign reserves of Venezuela dropped $9 billion in one year to $21 billion.^[109]

Since the currency controls were imposed in 2003, there was a series of devaluations, disrupting the economy;^[115][116] the devaluation of February 2013 was the seventh since Chavez took power.^[117]

Foreign trade

Foreign trade from Venezuela was ranked 179 out of 185 countries due to many reasons. One was the large number of documents that are needed in order to export and import. The amount of time to export goods from Venezuela is more than 5 times longer than the average country with the time importing is 8 times longer than average. Prices for trade are also 3 times higher than the average country.^[95]

Even though Venezuela has been trying to seek autonomy from most foreign countries, the United States has continued to be its largest trade partner. Venezuela sends 39.3% of its exports to the United States and the majority of imports compiling to 31.2% are from the United States.^[118][119]

Since 1998 People's Republic of China-Venezuela relations saw an increasing partnership between the government of the Venezuelan president Hugo Chávez and the People's Republic of China. Sino-Venezuelan trade was less than $500m per year before 1999, and reached $7.5bn in 2009, making China Venezuela's second-largest trade partner,^[120] and Venezuela China's biggest investment destination in Latin America. Various bilateral deals saw China invest billions in Venezuela, and Venezuela increase exports of oil and other resources to China.

Economic indicators

Economic Growth and Production

The Chavez government's confiscations of private businesses, especially oil businesses, greatly weakened the private sector; oil production collapsed.^[117] The government of Venezuela treats PDVSA as a cash-cow,^[121] and the company only hires political supporters of the president.^[6] The GDP of Venezuela was approximately the same in 2012 as it was in the 1970s.^[11]

According to Mark Weisbrot's Center for Economic and Policy Research (CEPR), the Venezuelan economy grew on average by 11.85% in the period 2004–2007.^[122] For the year 2009, the Venezuelan economy shrank by an average of 2.9% due to the global recession.^[123]

Income and Poverty

During the past decade under Chavez, the income poverty rate in Venezuela dropped by more than half, from 54% of households below poverty level in the first half of 2003, down to 26% at the end of 2008. "Extreme poverty" fell even more - by 72%. Further, "these poverty rates measure only cash income, and doesn't take into account increased access to health care or education."^[18][124]

Datos reports real income grew by 137% between 2003 and Q1 2006.^[125] Official poverty figures dropped by 10%.^[126] However, the World Bank estimates that 31.9% are below the poverty line.^[127]

Some social scientists and economists claim that the government's reported income poverty figures did not fall in proportion to the country's vast petroleum revenues in the last two years, much of which was directed to social spending to decrease the cost of living.^[128]

Venezuela's infant mortality rate fell by 18.2% between 1998 and 2006.^[129][130]

Consumer prices and inflation

When Chávez took office, the annual inflation rate was at 29.5% and according to Banco Central de Venezuela, inflation dropped to 14.4% in 2005.^{[131][132][133]} 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.^[132] 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.^[134]

In 2009 the inflation rate was 27.1%.^[135] According to the Economist, the Chávez government's economic policies, including strict price controls, have led to Venezuela having the highest inflation in the world at the time.^[136] When Chávez left office, the inflation rate was at 29.4%, which was .1% less than when he first took office.^[131][137]

Government spending

Most areas of social spending increased dramatically since Chávez was first elected in 1998.^[19]

Spending on education as a percentage of GDP (which grew dramatically since 1998) stood at 5.1% in 2006, as opposed to 3.4% in the last year of the Caldera government.^[19] Spending on health increased from 1.6% of GDP in 2000 to 7.71% in 2006.^[19] Spending on housing "receives low public support", increasing only "from 1% in GDP to 1.6% in 2006".^[19]

Teresa A. Meade wrote that Chávez's popularity "rests squarely on the lower classes who have benefited from these health initiatives and similar policies".^[138]

Implied value & Currency Black Market

The implied value or "black market value" is what Venezuelans believe the Bolivar Fuerte is worth compared to the United States dollar.^[139] In the first few years of Chavez's office, his newly created social programs required large payments in order to make the desired changes. On February 5, 2003, the government created CADIVI, a currency control board charged with handling foreign exchange procedures. Its creation was to control capital flight by placing limits on individuals and only offering them so much of a foreign currency.^[140] This limit to foreign currency led to a creation of a currency black market economy since Venezuelan merchants rely on foreign goods that require payments with reliable foreign currencies. As Venezuela printed more money for their social programs, the bolívar continued to devalue for Venezuelan citizens and merchants since the government held the majority of the more reliable currencies.^[141]

At the end of 2013, the official exchange rate was 1 USD to 6.3 VEF while the black market exchange rate was over ten times higher since the actual value of the bolívar is overvalued for Venezuelan businesses. Since merchants can only receive so much necessary foreign currency from the government, they must resort to the black market which in turn raises the merchant's prices on consumers.^[142] The high rates in the black market make it difficult for businesses to purchase necessary goods since the government often forces these businesses to make price cuts. This leads to businesses selling their goods and making a low profit, such as Venezuelan McDonald's franchises offering a Big Mac meal for only $1.^[143] Since businesses make low profits, this leads to shortages since they are unable import the goods that Venezuela is reliant on. Venezuela's largest food producing company, Empresas Polar, has stated that they may need to suspend some production for nearly the entire year of 2014 since they owe foreign suppliers $463 million.^[144] The last report of shortages in Venezuela showed that 22.4% of necessary goods are not in stock.^[145] This was the last report by the government since the central bank no longer posts the scarcity index. This has led to speculation that the government is hiding its inability to control the economy which may create doubt about future economic data released.^[146]

Food and agriculture

When agricultural measures of the Chávez administration took effect, food imports rose dramatically, and such agricultural mainstays as beef, rice, and milk saw drops in production.^[56] With declining oil revenues, food shortages became more widespread.^[147] Venezuela faced serious food shortages, as the Chávez government's price controls distorted the market.^[148][149]

In January 2008, Chávez ordered the military to seize 750 tons of food that sellers were illegally trying to smuggle across the border to sell for higher prices than what was legal in Venezuela.^[52] In February 2009, Chávez ordered the military to temporarily seize control of all the rice processing plants in the country and force them to produce at full capacity, which he claimed they had been avoiding in response to the price caps.^[150] In May 2010, Chávez ordered the military to seize 120 tons of food from Empresas Polar after inconsistencies in reports from the Empresas Polar conglomerate were said to have been detected by authorities.^[151]

As part of his strategy of food security Chávez started a national chain of supermarkets, the Mercal network, which had 16,600 outlets and 85,000 employees that distributed food at highly discounted prices, and ran 6000 soup kitchens throughout the country.^[152] In 2008 the amount of discounted food sold through the network was 1.25 million metric tonnes,^[153] often sold at as much as 40% below the price ceiling set for privately owned stores. Simultaneously Chávez expropriated many private supermarkets.^[152] According to Commerce Minister Richard Canan, "The average [savings] for the basic food bundle (at the Mercal Bicentennial markets) is around 30%. There are some products, for example cheese and meat, which reach a savings of 50 to 60% compared with capitalist markets."^[154] The Mercal network was criticized by some commentators as being a part of Chávez's strategy to brand himself as a provider of cheap food, and the shops feature his picture prominently. The Mercal network was subject to frequent scarcities of basic staples such as meat, milk and sugar – and when scarce products arrived, shoppers had to wait in line.^[152]

In March 2009, the Venezuelan government 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, which is intended to stop food companies from evading the law. Business leaders and food producers claimed that the government was forcing them to produce this food at a loss.^[155] Chávez expropriated and redistributed 5 million acres of farmland from large landowners, saying: "The land is not private. It is the property of the state... The land is for those who work it." But, the lack of basic resources made it difficult or impossible to make full use of the expropriated lands by its new tenants – leading to a lower overall degree of productivity in spite of a larger overall area of land under cultivation.^[156]

In 2011, food prices in Caracas were nine times higher than when the price controls were put in place and resulted in shortages of cooking oil, chicken, powdered milk, cheese, sugar and meat.^[157] Datanálisis, an independent polling firm found that powdered milk could be found in less than half of grocery stores in Venezuela and that liquid milk was even more scarce in the country.^[158] Jose Guerra, former executive of the Central Bank of Venezuela (BCV) explained that Venezuela's large increases on purchasing food in 2012 and reserves that are at their lowest levels since 2004 contributed to dollar shortages that Venezuela suffered in the years following 2012.^[159]

In 2012, total food consumption was over 26 million metric tonnes, a 94.8% increase from 2003.{^[160]

In 2007 14,383 tonnes of milk, rice, pasta, beef and chicken, worth $54 million were also abandoned. In 2010, after the government nationalized the port at Puerto Cabello, more than 120,000 tons of food worth 10.5 bolivares sat rotting at the port.^[58][161] In May 2010, during a shortage of beef, at least 40 butchers were detained on charges of speculation for allegedly selling meat above the regulated price; some of them were held at a military base and later strip-searched by police.^[162]

Employment

In June 2010 Mark Weisbrot, a supporter of Chávez policies, wrote that jobs were much less scarce then than when Chávez took office, with unemployment at 8% in 2009 compared with 15% in 1999. He also stated that the number of front-line doctors had increased tenfold in the public sector and that enrolment in higher education had doubled, noting that these statistics were backed up by the UN and the World Bank.^[163]

According to government figures, unemployment dropped by 7.7% since the start of Chávez's presidency.^[164][165] 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.^[166]

Business Environment

According to Gilberto Gudino Millán, president of the Trade Union and Business Services in the Zulia State (UCEZ), 490,000 businesses had left Venezuela from 1998 to 2014 in what he called a "business holocaust".^[167] In 2006, the business environment in Venezuela was listed as "risky and discouraged investment", by El Universal. 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.^[168] The International Finance Corporation ranked Venezuela one of the lowest countries for doing business ranking it 180 of 185 countries for its Doing Business 2013 report with protecting investors and taxes being its worst rankings.^[95][169] In January 2013, the Heritage Foundation and the Wall Street Journal gave Venezuela's economic freedom a low score of 36.1, twenty points lower than 56.1 in 1999 and was ranked very low at 174 of 177 countries on its 2013 Index of Economic Freedom report with its freedom trend heading downward.^[170]

Foreign Investment

In 2006, the business environment in Venezuela was listed as "risky and discouraged investment" by El Universal. 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.^[168]

See also

• Economy of Venezuela
• Shortages in Venezuela

References

Further reading

• Mark Weisbrot; Rebecca Ray "Update on the Venezuelan Economy", Center for Economic and Policy Research, September 2010

Hugo Chávez 52nd President of Venezuela (1999–2013) Early life and career Early life Military career Coup attempt of 1992 Presidential election of 1998 Death and state funeral Presidency Cabinet 1999 Constitution Presidential election of 2000 Presidential election of 2006 Presidential election of 2012 United Socialist Party of Venezuela Constitutional referendum of 2007 Constitutional referendum of 2009 Political events Coup attempt of 2002 Venezuelan general strike of 2002–03 Recall referendum of 2004 Venezuelan parliamentary election, 2005 Domestic policy Boliburguesía Bolivarianism Bolivarian Circles Bolivarian missions Bolivarian Revolution Chavismo Economic policy Plan Bolívar 2000 Socialism of the 21st century Venezuelan Communal Councils Foreign policy Bank of the South Bolivarian Alliance for the Americas (ALBA) Petrocaribe Image Bolivarian propaganda Media representation of Hugo Chávez Aló Presidente The Revolution Will Not Be Televised X-Ray of a Lie teleSUR ¿¡Revolución!? ¿Por qué no te callas? Venezuelanalysis.com Venezuela Information Office