Economy of Venezuela

Economy of Venezuela

Currency Bolívar fuerte (VEF)
DIPRO/DICOM:
Bs. 10.00 = 1 USD: subsidy to food and medicines
Bs. 639.44 = 1 USD: rest of the economy.[1][2][3]
calendar
Trade organizations
 WTO, OPEC, Unasur, MERCOSUR, ALBA
Statistics
GDP $404.1 billion (2017, PPP)
$131.9 billion (2015, nominal)[4][5]
GDP rank 32nd (nominal) / 47st (PPP)
GDP growth
 Decrease -14% (2017)[6]
GDP per capita
 $15,891 (2015, PPP)
$4,262 (2015, nominal)[5]
GDP by sector
 agriculture: 3.9%, industry: 32.9%, services: 63.2% (2015 est.)
Negative increase720.5% (2017)[6]
Population below poverty line
 Negative increase 81.77% (2016 est.)[7]
Labor force
 13.08 million (2016 est.)
Labor force by occupation
 Communal, social and personal services: 31.4%,
Commercial, restaurants and hotels: 23.4%,
Manufacturing industry: 11.6%,
Construction: 9.0%,
Transport, storage and communications: 8.7%,
Agriculture: 6.5%,
Financial, insurance and real estate: 6.1% (2015)[8]
Unemployment Negative increase 25.3% (2017)[6]
Main industries
 Petroleum, construction materials, food processing, iron ore mining, steel, aluminum; motor vehicle assembly, real estate, tourism and ecotourism
187th (2017)[9]
External
Exports $28.07 billion (2016 est.)[4]
Export goods
 Petroleum, chemicals, agricultural products, basic manufactures
Main export partners
  United States 24.5%
 China 14.1%
 Colombia 10.8%
 Netherlands 9.3%
 Brazil 6.8%
 Cuba 4.2% (2015 est.)[10]
Imports $17.8 billion (2016)[11]
Import goods
 food, clothing, cars, technological items, raw materials, machinery and equipment, transport equipment, construction material
Main import partners
  United States 24%
 China 18.3%
 Brazil 8.9%
 Colombia 5.1%
 Mexico 4.4%
 Argentina 4% (2015 est.)[12]
Public finances
28.2% of GDP (2016 est.)
Revenues $42.2 billion (2016 est.)
Expenses $84.1 billion (2016 est.)

Standard & Poor's:[13]
CCC- (Domestic)
CCC- (Foreign)
Outlook: Negative

Moody's:[14]
Caa3
Outlook: Negative

Fitch:[15]
CCC
Outlook: Negative
Foreign reserves
 Decrease $9.988 billion (July 2017)[16]
Main data source: CIA World Fact Book
All values, unless otherwise stated, are in US dollars.

The economy of Venezuela is largely based on the petroleum sector and manufacturing.[17] Revenue from petroleum exports accounts for more than 50% of the country's GDP and roughly 95% of total exports. Venezuela is the sixth largest member of OPEC by oil production. From the 1950s to the early 1980s the Venezuelan economy experienced a steady growth that attracted many immigrants, with the nation enjoying the highest standard of living in Latin America. During the collapse of oil prices in the 1980s the economy contracted, the monetary sign commenced a progressive devaluation, and inflation skyrocketed to reach peaks of 84% in 1989 and 99% in 1996, three years prior to Hugo Chávez taking office.

Venezuela manufactures and exports heavy industry products such as steel, aluminium and cement, with production concentrated around Ciudad Guayana, near the Guri Dam, one of the largest in the world and the provider of about three-quarters of Venezuela's electricity. Other notable manufacturing includes electronics and automobiles, as well as beverages, and foodstuffs. 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, pork, and beef. The country is not self-sufficient in most areas of agriculture.

In spite of strained relations between the two countries, the United States has been Venezuela's most important trading partner. U.S. exports to Venezuela have included machinery, agricultural products, medical instruments, and cars. Venezuela is one of the top four suppliers of foreign oil to the United States. About 500 U.S. companies are represented in Venezuela.[17] According to Central Bank of Venezuela, the government received from 1998 to 2008 around 325 billion USD through oil production and export in general,[18] and according to the International Energy Agency, to August 2015 has production of 2.4 million barrels per day, 500,000 of which go to the United States of America.[19]

Since Hugo Chávez's "socialist revolution" half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital, and imposed stringent currency controls in 2003 in an attempt to prevent capital flight,[20] there has been a steady decline in oil production and exports and a series of stern currency devaluations, disrupting the economy.[21] Further yet, price controls, expropriation of numerous farmlands and various industries, among other disputable government policies including a near-total freeze on any access to foreign currency at reasonable "official" exchange rates, have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country, as has been the case with several technological firms and most automobile makers.[22][23] In 2015, Venezuela had over 100% inflation – the highest in the world and the highest in the country's history at that time.[24] The rate increased to nearly 500% by the end of 2016[25][26] with Venezuela spiraling into hyperinflation[27] while the population poverty rate was between 76%[28] and 82%[7] according to independent sources.

History

1922–1959

When oil was discovered at the Maracaibo strike in 1922, Venezuela's dictator, Juan Vicente Gómez, allowed US oil companies to write Venezuela's petroleum law.[29] 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."[30] Terms even more favorable to Venezuela were negotiated in 1945, after a coup brought to power a left-leaning government that included Juan Pablo Pérez Alfonso.

From the 1950s to the early 1980s buoyed by high oil prices, the Venezuelan economy was one of the strongest and most prosperous in South America. The continuous growth during that period attracted many immigrants.

In 1958 a new government again included Pérez Alfonso, who devised a plan for the international oil cartel that would become OPEC.[31] In 1973 Venezuela voted to nationalize its oil industry outright, effective 1 January 1976, with Petróleos 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.[32]

During Pérez 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 that of West Germany. In 1950, Venezuela was the world's 4th largest wealthiest nation per capita[33] 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 an unsuccessful agrarian reform.[34]

1960s–1990s

Buoyed 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. Literacy and welfare programs benefited tremendously from these conditions.[35] Because of the oil wealth, Venezuelan workers "enjoyed the highest wages in Latin America."[36] This situation was reversed when oil prices collapsed during the 1980s.

When world oil prices collapsed in the 1980s, the economy contracted and inflation levels (consumer price inflation) rose, remaining between 6 and 12% from 1982 to 1986,[37][38] The inflation rate peaked in 1989 at 84%,[38] the year the capital city of Caracas suffered from rioting during the Caracazo following the cut of government spending and the opening of markets by President Carlos Andrés Pérez.[39] After Pérez initiated such liberal economic policies and made Venezuelan markets more free, Venezuela's GDP went from a -8.3% decline in 1989 to growing 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment was high among Venezuelans.[39]

Some state that "neoliberalism" was the cause of Venezuelan economic difficulties, though overreliance on oil prices and a fractured political system without parties agreeing on policies caused much of the problems.[40] By the mid-1990s under President Rafael Caldera, Venezuela saw annual inflation rates of 50-60% from 1993 to 1997 with an exceptional peak in 1996 at 99.88%.[38] The number of people living in poverty rose from 36% in 1984 to 66% in 1995[41] with the country suffering a severe banking crisis (Venezuelan banking crisis of 1994). In 1998, the economic crisis had grown even worse. Per capita GDP was at the same level as 1963 (after adjusting 1963 dollar to 1998 value), down a third from its 1978 peak; and the purchasing power of the average salary was a third of its 1978 level.[42]

1999–2013

In 2016, Venezuela had the highest annual inflation in the world. Venezuela is the country colored black in northern South America.
Venezuela's historic inflation rate beside annual oil revenues.
Sources: EIA 1, EIA 2, International Monetary Fund: Data & Statistics (1980-2008, 2015), CIA: The World Factbook (2009–2014), Business Insider (2014, 2015)

Hugo Chávez was elected president in December 1998 and took office in February 1999. In 2000, oil prices soared, offering Chavez funds not seen since Venezuela's economic collapse in the 1980s.[37] Chavez then used economic policies that were more socialistic than those of his predecessors, using populist approaches with oil funds that made Venezuela's economy dependent on high oil prices.[37] Chavez also 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 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." [43]

In the first four years of the Chávez presidency, the economy grew at first (1999–2001), then contracted from 2001–2003 to GDP levels similar to 1997, 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 reluctance of foreign investors. 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).[44] However, with a calmer political situation in 2004, GDP rebounded 50.1 trillion bolivares, and rose to 66.1 trillion bolivares in 2007 (both in constant 1998 bolivares).[45]

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, 2002–2003, 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 Venezuelan general strike of 2002–2003. The non-petroleum sector of the economy contracted by 6.5% in 2002. The bolivar, which had been suffering from serious inflation and devaluation relative to international standards since the late 1980s,[46] continued to weaken.

The inflation rate, as measured by consumer price index, was 35.8% in 1998, falling to a low of 12.5% in 2001 and rising to 31.1% in 2003. Historically, the highest yearly inflation was 99.9% in 1996. 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 housing market in Venezuela shrunk significantly with developers avoiding Venezuela due to the massive number of companies who have had their property expropriated by the government.[47] According to The Heritage Foundation and the Wall Street Journal, Venezuela had the weakest property rights in the world, scoring only 5.0 on a scale of 100; expropriation without compensation is common.[48] The shortage of housing is so significant that in 2007, a group of squatters occupied Centro Financiero Confinanzas, a cancelled economic center that was supposed to symbolize Venezuela's growing economy.[49]

The Venezuelan economy shrank 5.8% in the first three months of 2010 compared to the same period of 2009[50] and now had the highest inflation rate in Latin America at 30.5%.[50] President Hugo Chávez expressed optimism that Venezuela would emerge from recession,[50] despite the International Monetary Fund forecasts showing that Venezuela would be the only country in the region to remain in recession that year.[51] The IMF qualified the economic recovery of Venezuela as "delayed and weak" in comparison with other countries of the region.[52] Following Chavez's death in early 2013, Venezuela's economy continued to fall into an even greater recession.

2013–present

Shortages in Venezuela leave store shelves empty

In 2013, according to the Global Misery Index Venezuela ranked as the top spot globally with the highest misery index score.[53][54] 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.[55][56] In early 2013, the bolívar fuerte was devalued due to growing shortages in Venezuela.[57] The shortages included necessities such as toilet paper, milk, and flour.[58] Shortages also affected healthcare in Venezuela, with the University of Caracas Medical Hospital ceasing to perform surgeries due to the lack of supplies in 2014.[59] The Bolivarian government's policies also made it difficult to import drugs and other medical supplies.[60] Due to such complications, many Venezuelans died avoidable deaths with medical professionals having to use limited resources using methods that were replaced decades ago.[61][62]

An opposition protester during the 2014 Venezuelan protests holding a sign saying, "I protest for the scarcity. Where can we get these?'

In 2014, Venezuela entered an economic recession having its GDP growth decline to -3.0%.[63] Venezuela was placed at the top of the Global Misery Index for the second year in a row.[64] The Economist said Venezuela was "[p]robably the world’s worst-managed economy".[65] Citibank believed that "the economy has little prospect of improvement" and that the state of the Venezuelan economy was a "disaster".[66] For the Doing Business 2014 report by the International Finance Corporation and The World Bank, Venezuela continued to be ranked low and dropped down one rank.[67] The Heritage Foundation ranked Venezuela 175th out of 178 countries in economic freedom for 2014, classifying it as a "Repressed" economy according to the principles the foundation advocates.[68][69] According to Foreign Policy, Venezuela was ranked last in the world on its Base Yield Index due to low returns that investors receive when investing in Venezuela.[70] In a 2014 report titled Scariest Places on the Business Frontiers by Zurich Financial Services and reported by Bloomberg, Venezuela was ranked as the riskiest emerging market in the world.[71] Many companies such as Toyota, Ford Motor Co., General Motors Company, Air Canada, Air Europa, American Airlines, Copa Airlines, TAME, TAP Airlines, and United Airlines slowed or stopped operation due to the lack of hard currency in the country,[72][73][74][75][76] with Venezuela owing such foreign companies billions of dollars.[77] Venezuela also dismantled CADIVI, a government body in charge of currency exchange. CADIVI was known for holding money from the private sector and was suspected to be corrupt.[78]

Venezuela again topped the Global Misery Index according to the World Bank in 2015.[79][80] The IMF predicted in October 2015 an inflation rate of 159% for the year 2015 - the highest rate in Venezuelan history and the highest rate in the world - and predicted the economy would contract by 10%.[24][81] According to leaked documents from the Central Bank of Venezuela, the country ended 2015 with an inflation rate of 270% and a shortage rate of goods over 70%.[82][83]

President Maduro reorganized his economic cabinet in 2016 with the group mainly consisting of leftist Venezuelan academics.[84] According to Bank of America's investment division, Merrill Lynch, Maduro's new cabinet was expected to tighten currency and price controls in the country.[84] Alejandro Werner, the head of IMF's Latin American Department, stated that 2015 figures released by the Central Bank of Venezuela were not accurate and that Venezuela's inflation for 2015 was 275% and expected the figure to rise to about 720% in 2016.[85][86] One estimate by Bank of America stated that inflation could top 1,000% in 2016.[87] An April 2016 IMF report forecast an inflation rate of 4,500% in 2021.[88] Analysts have believed that the Venezuelan government has been manipulating economic statistics, especially since they did not report adequate data since late-2014.[87] According to economist Steve Hanke of Johns Hopkins University, the Central Bank of Venezuela delayed the release of statistics and lied about figures much like the Soviet Union did, with Hanke saying that a lie coefficient had to be used to observe Venezuela's economic data.[89]

By 2016, media outlets said that Venezuela was suffering an economic collapse[90][91] with the IMF estimating a 500% inflation rate and 10% contraction in the GDP.[92] On 3 December 2016, monthly inflation exceeded 50 percent for the 30th consecutive day, meaning the Venezuelan economy was officially experiencing hyperinflation, making it the 57th country to be added to the Hanke-Krus World Hyperinflation Table.[93]

Sectors

Under the tenures of Hugo Chávez and his successor Nicolás Maduro, many businesses abandoned Venezuela. In 1999, there were 13,000 companies in the country. By 2016, less than a third of companies remained in Venezuela with only 4,000 companies operating in the nation.[94]

Petroleum and other resources

Venezuela is a major producer of petroleum products, which remain the keystone of the Venezuelan economy. The International Energy Agency shows how Venezuela's oil production has fallen in the last years, producing only 2,300,000 barrels (370,000 m3) daily, down from 3.5 million in 1998, but with the recent currency devaluation the oil incomes will double its value in local currency.[95] Venezuela has large energy subsidies. In 2015 the cost of petrol was just US$0.06 per gallon, costing 23% of government revenues.[96] In February 2016 the government finally decided to raise the price, but only to 6 bolivar (about 60¢ at the official rate of exchange) per litre for premium and just 1 bolivar (10¢) for lower-grade petrol.[97][98]

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. During Venezuela's economic crisis, the rate of gold excavated fell 64.1% between February 2013 and February 2014 and iron production dropped 49.8%.[99]

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.

Manufacturing

Manufacturing contributed 15% of GDP in 2009. The manufacturing sector is experiencing severe difficulties, amidst lack of investment and accusations of mismanagement.[100][101] 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.

In 2014, General Motors Venezolana stopped automotive production after 65 years of service due to a lack of supplies[102][103] while the Central Bank of Venezuela announced that the shortage rate of new automobiles was at 100%.[104] By the first half of 2016, only 10 vehicles were manufactured per day in Venezuela with production dropping 86%.[105]

In 2015, estimates showed that Venezuela's industrial production fell about 8% that year alone.[4]

Agriculture

Agriculture in Venezuela accounts for approximately 3% of GDP, 10% of the labor force, and at least a quarter 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. Recent government policies have led to problems with food shortages.[20]

Trade

Venezuela private sector nonpetroleum exports in millions of USD from 1997 to 2015. (Orange=Goods, Yellow=Services)[106]

Thanks to petroleum exports, Venezuela usually posts a trade surplus. From 2005, nontraditional (i.e., nonpetroleum) private sector exports have been declining rapidly. By 2015 they constitute 8% of total exports.[106] 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.

Since 1998 People's Republic of China-Venezuela relations have seen 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,[107] and Venezuela China's biggest investment destination in Latin America. Various bilateral deals have seen China invest billions in Venezuela, and Venezuela increase exports of oil and other resources to China. China has demanded payment in oil for its exports to Venezuela, because of its unwillingness to accept Venezuelan currency, and the inability of Venezuela to pay in dollars or gold.

Labor

Under Chávez, 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.[108]

In November 2010, following the expropriation of U.S. bottle-maker Owens-Illinois, workers spent a week protesting outside factories in Valera and Valencia.[109]

Labor disputes have continued to increase since the financial crisis in 2008. According to the World Economic Forum, Venezuela is ranked as 134th of the 148 countries for economic competitiveness. Many in the private sector attribute these findings to the inflexible labor market.

In recent years, a barrage of pro-worker decrees have been passed. The most significant could be the 2012 labor laws known as the LOTTT. These laws included the virtual ban on dismissal, shorter work week, improved holidays, and enhanced maternity benefits. The LOTTT offers job security to most workers after the first month. Employers have reported an absenteeism rate of up to 40% which they blame on the leniency of these labor laws. As expected, employers have been less willing to recruit.[110]

On November 17, 2014, President Maduro issued a decree to increase the minimum salary for all workers by 15%. The decree became effective on December 1, 2014.[111] On April 28, 2015, as part of the May Day celebrations in honor of workers' day, President Maduro announced that the minimum wage would increase 30%; 20% in May and 10% in July, with the newly announced minimum wage for Venezuelans being only about $30 per month at the widely used black market rate.[112]

Infrastructure

In the 20th century when Venezuela benefitted from oil sales, infrastructure flourished in Venezuela.[37] However, in recent years, Venezuela's public services and infrastructure has suffered; especially utilities such as electricity and water.[37][113]

Transportation

Venezuela has an extensive road system that was initially created in the 1960s helped aid the oil and aluminum industries.[37] The capital Caracas had a modern subway system designed by the French that was finished in 1995, with the subway tunneling more than over 31.6 mi (51 km).[37]

In 1870, Antonio Guzmán Blanco helped create Venezuela's railway system.[37]

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. 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.[114]

Lufthansa said it would stop all flights to Venezuela on 18 June 2016, citing difficulties with currency controls.[115] Other airlines also cut back on flights and required that passengers pay fares in US dollars.[115]

Energy

The Venezuelan electrical grid is 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.[113] 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.[116] Another power outage on December 2, 2013 left most of Venezuela in the dark again and happened just days before elections.[117]


Energy statistics

Electricity – production by source:
fossil fuel: 35.7% (2012 est.)
"hydroelectric" 64.3 (2012 est.)
nuclear: 0% (2012 est.)
other: 0% (2012 est.)

Electricity production 127.6 billion kWh (2012 est.)

Electricity – consumption: 85.05 billion kWh (2011 est.)

Electricity – exports: 633 million kWh (2009 est.)

Electricity – imports: 260 million kWh (2009 est.)

Electricity - installed generating capacity: 27.5 million kW (2012 est.)

Statistics

Economy Data

The blue line represents annual rates. The red line represents trends of annual rates given throughout the period shown. Sources: International Monetary Fund, World Bank, Central Intelligence Agency.

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$19.67 billion in October 2003.From 2004 to the first half of 2006, non-petroleum On the black market the bolívar fell 28% in 2007 to Bs. 4,750 per US$,[118] and declined to around VEF 5.5 (Bs 5500) per US$ in early 2009.[119]

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 (old data, probably circa 2004). Polling firm Datanalysis noted that real income in the poorest sectors of society grew by 33% in 2004.

On 7 March 2007 the government announced that the Venezuelan bolívar would be redenominated at a ratio of 1 to 1000 at the beginning of 2008 and renamed the bolívar 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 bolívar fuerte per US$.[120] The ISO 4217 code for the bolívar 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%).[121] According to official sources from the United Nations, the percentage of people below the national poverty line has decreased during the presidency of Hugo Chávez, from 48.1% in 2002 to 28% in 2008.[122][123]

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 the second quarter of 2009,[124] contracting a further 4.5% in the third quarter of 2009. Chavez's response has been that these standards mis-state economic fact and that the economy should be measured by socialistic standards.[125] For 17 November 2009 the Central Bank reported that private sector activity declined by 4.5% and that inflation was averaging 26.7%. Compounding such problems is a drought which the government says was caused by El Niño, resulting in rationing of water and electricity and a short supply of food.[126]

The year 2010 promises a Venezuela still in recession as Gross Domestic Product has fallen by 5.8% in the first quarter of 2010.[127] The Central Bank has stated that the recession is due largely "to restricted access to foreign currency for imports, lower internal demand and electricity rationing." The oil sector's performance is also particularly troubling, with oil GDP shrinking by 5%. More importantly the Central Bank hints at the root cause of the oil contraction: "the bank said it was due to falls in production, "operative problems", maintenance stoppages and the channeling of diesel to run thermal generators during a power crisis."[127] While the public sector of the economy has fallen 2.8%, the private sector has dropped off 6%.[127]

The year 2013 proved to be difficult for Venezuela as shortages of necessities and extreme inflation attacked the nation's economy. Items became so scarce that nearly one quarter of items were not in stock.[128] The bolívar was devalued to 6.3 per USD in early 2013 taking one third of its value away.[129] However, inflation still continued to rise drastically in the country to the point President Maduro forced stores to sell their items just days before elections. Maduro said that the stores were charging unreasonable prices even though the owners were only charging so much due to the actual devaluation of the bolivar.[130]

As the year 2014 began, it was pretty rough as well. The central bank of Venezuela stopped releasing statistics for the first time in its history as a way to possibly manipulate the image of economy.[131] Venezuela has also dismantled CADIVI, a government body in charge of currency exchange.[78]

Currency Black Market

Blue line represents implied value of VEF compared to USD. The red line represents what the Venezuelan government officially rates the VEF.
*March/April 2013 data is missing
Sources: Banco Central de Venezuela, Dolar Paralelo, Federal Reserve Bank, International Monetary Fund.

The implied value or "black market value" is what Venezuelans believe the Bolivar Fuerte is worth compared to the United States dollar.[132] 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.[133] 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.[134]

As of December 2015, the official exchange rate was 1 USD to 6.3 VEF while the black market exchange rate was 1 USD to 800 VEF[81] 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.[135] 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.[136] Since businesses make low profits, this leads to shortages since they are unable to 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.[137] The last report of shortages in Venezuela showed that 22.4% of necessary goods are not in stock.[138] 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.[139]

Socioeconomic indicators

Like most Latin American countries, Venezuela has an unequal distribution of wealth. Although distribution improved when the surplus of rural labor started to diminish and the educational system improved in the middle of the 20th century,[140] equality is far from coinciding with western standards. The rich tend to be very rich and the poor very poor. In 1970, the poorest fifth of the population had 3% of national income, while the wealthiest fifth had 54%.[141] For comparison the UK 1973 figures were 6.3% and 38.8%, and the US in 1972, 4.5% and 42.8%.[141]

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
Year Share of personal income (%) received by: GINI index
Poorest fifth 2nd fifth 3rd fifth 4th fifth Wealthiest fifth Wealthiest 10%
1987 4.7 9.2 14.0 21.5 50.6 34.2 ~43.42
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 42.0
2004 3.5 — 12.9 — 54.8 — 45.59
2007 5.1 — 14.2 — 47.7 — 42.37
2010 5.7 — 14.9 — 44.8 — 38.98
2011 5.7 — 15.9 — 44.8 — 39.02
2013 — — — — — — 44.8

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. 262–3.
1995 data: 1998 World Development Report, Table 2.8, p. 70.
1996 data: 2000/2001 World Development Report, Table 5, pp. 282–3.
2000 data: 2006 World Development Indicators, Table 2.8.

All of the above publications are by the World Bank.

2004 data: Instituto Nacional de Estadística, p. 8[142]
2007 data: Instituto Nacional de Estadística, p. 8[142]
2010 data: Instituto Nacional de Estadística, p. 8[142]
2011 data: Instituto Nacional de Estadística, p. 8[142]
2013 data: United Nations Development Programme[143]

Poverty in Venezuela increased during the 1980s and early 1990s, but decreased greatly in the mid to late 1990s. The decreasing trend continued through the Chávez presidency, with the exception of the troubled years 2002 and 2003. Under the Bolivarian government, poverty decreased initially when Venezuela acquired oil funds, though poverty began to increase to its highest level in decades in the 2010s.[144]

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.[145]

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 2009 2010 2011 2012 2013
Households – - 48.1 43.9 42.0 40.4 39.0 48.6 55.1 47.0 37.9 30.6 28.5 27.5 26.7 26.9 26.5 21.1 27.3
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 32.6 31.8 32.5 31.6 25.4 32.1
Sources
World Bank, 1997 World Development Indicators, p. 52;
Venezuela, Instituto Nacional de Estadística, Pobreza por línea de ingreso, 1er semestre 1997 - 2do semestre 2013. Retrieved December 2014.
Note
The Instituto Nacional de Estadística 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.
Venezuela's extreme poverty rate from 1990 to 2013.
Source: INE[146][147]
Note: Interim presidents excluded. One year delay of data transferred during presidential term changes due to new policies, inaugurations, etc.
Venezuela Economic Indicators (2014)[4]
indicator %
Real GDP growth -4.0
Inflation 69.8
Gross national saving: (% of GDP) 22.9
Foreign trade[4]
Leading markets 2013 % of totalLeading suppliers % of total
United States 39.1 United States 31.7
China 14.3 China 16.8
India 12.0 Brazil 9.1
Netherlands Antilles 7.8 Colombia 4.8
Foreign trade[148]
Major exports % of totalMajor imports % of total
Oil & gas 90.4Raw materials and intermediate goods 44.5
Other 9.6Consumer goods 24.5
Capital goods 31.0

Social development

In the early 2000s when oil prices soared and offered Chavez funds not seen since the beginning of Venezuela's economic collapse in the 1980s, Chávez's government became "semi-authoritarian and hyper-populist" and consolidated its power over the economy in order to gain control of large amounts of resources.[37][149] 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.[37][150] From 1999—2009, 60% of government revenues focused on social programs[151] while social investment went from 8.4% of Gross Domestic Product (GDP) in 1988 to 18.8% in 2008.[152] Despite warnings near the beginning of Chávez's tenure in the early 2000s,[37] Chávez's government continuously overspent in social spending and did not save enough money for any future economic turmoil, which Venezuela faced shortly before and after his death.[149][153] On the year of Chávez's death, Venezuela was still categorized as having high human development on its Human Development Index in 2013 according to the United Nations Development Programme, although human development began to decline in Venezuela within a year, with the country dropping 10 ranks by 2014.[154]

Poverty and hunger

Although poverty initially declined under Chávez, by 2013, Venezuela's poverty rate increased to 28.35% with extreme poverty rates increasing 44% to 10.3% according to the Venezuelan government's INE.[155] Estimates of poverty by the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) and Luis Pedro España, a sociologist at the Universidad Católica Andrés Bello, showed an increase of poverty in Venezuela.[156] ECLAC showed a 2013 poverty rate of 32% while Pedro España calculated a 2015 rate of 48% with a poverty rate of 70% possible by the end of 2015.[156] According to Venezuelan NGO PROVEA, by the end of 2015, there would be the same number of Venezuelans living in poverty as there was in 2000, reversing the advancements against poverty by Hugo Chávez.[156]

In relation to hunger, under-nutrition, undernourishment and the percentage of children under the age of five who are moderately or severely underweight decreased earlier in Chávez's tenure.[157] However, shortages in Venezuela as a result of price control policies left the majority of Venezuelans without adequate products after his death.

Education

The total net enrollment ratio in primary education for both sexes increased from 87% in 1999 to 93.9% in 2009.[157] The primary completion rate for both sexes reached 95.1% in 2009, as compared to 80.8% in 1991.[157] The literacy rates of 15- to 24-year-olds in 2007, for men and women, were 98% and 98.8%, respectively.[157] During the Bolivarian diaspora, a large percentage of the millions of Venezuelans who left the country were highly educated, resulting in a brain drain in the country.[158][159]

The free government program, Misión Robinson, since starting in 2003, had taught more than 2.3 million people to read and write as of 2012. The program also focused much of its attention on reaching out to geographically isolated and historically excluded members of the population, including indigenous groups and Afro-descendents.[160] In 2008, Francisco Rodríguez of Wesleyan University in Connecticut and Daniel Ortega of IESA stated that there was “little evidence” of “statistically distinguishable effect on Venezuelan illiteracy” during the Chávez administration.[161] The Venezuelan government claimed that it had taught 1.5 million Venezuelans to read,[162] but the study found that "only 1.1m were illiterate to begin with" and that the illiteracy reduction of less than 100,000 can be attributed to adults that were elderly and died.[161]

Health care

Healthcare spending by percentage of Venezuela's GDP.
Source: World Bank

Following the Bolivarian Revolution and the establishment of the Bolivarian government, initial healthcare practices were promising with the installation of free healthcare and the assistance received from Cuban medical professionals providing aid. The Bolivarian government's failure to concentrate on healthcare for Venezuelans, the reduction of healthcare spending and government corruption eventually affected medical practices in Venezuela; causing avoidable deaths along with an emigration of medical professionals to other countries.[61][163]

Venezuela's reliance of imported goods and its complicated exchange rates initiated under Hugo Chávez led to increasing shortages during the late-2000s and into the 2010s that affected the availability of medicines and medical equipment in the country.[163] The United Nations reported an increase in the maternal mortality ratio, which increased from 93 per 100,000 in 1990 to 110 per 100,000 in 2013.[164] In 2014 following shortages of many medical and common goods, Venezuelan women have had difficulties accessing contraceptives and were forced to change prescriptions or search several stores and the Internet for their medications.[165] Shortage of antiretroviral medicines to treat HIV/AIDS affected about 50,000 Venezuelans in 2014 as well, potentially causing thousands of Venezuelans with HIV to develop AIDS.[166]

Venezuela is also the only country in Latin America where the incidence of malaria is increasing, allegedly due to illegal mining and in 2013, Venezuela registered the highest number of cases of malaria in the past 50 years, with 300 of 100,000 Venezuelans being infected with the disease.[167]

Technology

In 1990, the number of Internet users was minimal, but by 2010, 35.63% of Venezuelans were Internet users.[157] In fact, the number of Internet subscribers has increased sixfold.[168] Programs such as the National Technological Literacy Plan, which provides free software and computers to schools, have assisted Venezuela in meeting this goal.[169] However, several experts state that the poor infrastructure in Venezuela had created a poor quality of Internet in Venezuela, which has one of the slowest Internet speeds in the world.[170] The lack of US dollars due to the Venezuelan governments currency controls has also damaged Internet services because technological equipment must be imported into Venezuela.[170]

The number of fixed telephone lines per 100 inhabitants was 7.56 in 1990. The number increased to 24.44 in 2010.[157] In 2000, 2,535,966 Venezuelans had landline telephones. By 2009, this had increased to 6,866,626.[151]

The Bolivarian government has also launched an aerospace program in cooperation with the People's Republic of China who built and launched two satellites that are currently in orbit—a communications satellite called Simón Bolívar, and a remote sensing satellite called Miranda. In July 2014 President Maduro announced that a third satellite would be built by Chinese-Venezuelan bilateral cooperation.[171][172]

See also

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  158. ↑ Maria Delgado, Antonio (28 August 2014). "Venezuela agobiada por la fuga masiva de cerebros". El Nuevo Herald. Retrieved 28 August 2014.
  159. ↑ "El 90% de los venezolanos que se van tienen formación universitaria". El Impulso. 23 August 2014. Retrieved 28 August 2014.
  160. ↑ Ellis, Edward. "Venezuela Celebrates Five Years Free of Illiteracy." Venezuela Analysis. 7 November 2010. Web. 20 March 2012.
  161. 1 2 "Propaganda, not policy". The Economist. 28 February 2008. Retrieved 3 May 2014.
  162. ↑ Márquez, Humberto (28 October 2005). "Venezuela se declara libre de analfabetismo" (in Spanish). Inter Press Service. Retrieved 29 December 2006.
  163. 1 2 Wilson, Peter (27 April 2015). "The Collapse of Chávezcare". Foreign Policy. Retrieved 17 May 2015.
  164. ↑ "Maternal mortality ratio per 100,000 live births". Millennium Development Goals Indicators. United Nations.
  165. ↑ Higuerey, Edgar (5 September 2014). "Escasez de anticonceptivos hace cambiar tratamientos". El Tiempo. Retrieved 7 September 2014.
  166. ↑ "Venezuela Faces Health Crisis Amid Shortage of HIV/Aids Medication". Fox News Latino. 14 May 2014. Retrieved 31 August 2014.
  167. ↑ Pardo, Daniel (23 August 2014). "The malaria mines of Venezuela". BBC. Retrieved 31 August 2014.
  168. ↑ "Venezuela Achieves Millennium Goals." Ministry of People's Power for Communication and Information. 2010. Web 4 March 2012.
  169. ↑ "Fact Sheet: Venezuela and the Millennium Development Goals." Embassy of the Bolivarian Republic of Venezuela to the UK and Ireland. Web. 20 March 2012.
  170. 1 2 Pardo, Daniel (22 September 2014). "¿Por qué internet en Venezuela es tan lento?". BBC. Retrieved 25 September 2014.
  171. ↑ 21 July 2014. "En 7 claves - Los acuerdos China-Venezuela firmados este lunes". Últimas Noticias. Retrieved 28 September 2014. The agreement, signed for the development of the program satellite VRSS2, provides for the two nations to share knowledge about the manufacture of the new remote sensing satellite, which will serve to strengthen mapping capabilities in the country, and to contribute to the development of the Venezuelan aerospace industry.
  172. ↑ Magan, Veronica (23 August 2013). "Venezuela: Latin America’s Next Space Pioneer?". Satellite Today. Retrieved 28 September 2014.

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