Wednesday, 29 June 2016

Economy of Venezuela

The economy of Venezuela is largely based on the petroleum sector and manufacturing. Revenue from petroleum exports accounts for more than 50% of the country's GDP and roughly 95% of total exports. Venezuela is the fifth 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. According to Central Bank of Venezuela, the government received from 1998 to 2008 around 325 billion USD through oil production and export in general, 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.

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, there has been a steady decline in oil production and exports and a series of stern currency devaluations, disrupting the economy. 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. In 2015, Venezuela had over 100% inflation - the highest in the world and the highest in the country's history - with inflation expected to reach 700% in 2016 and increase nearly 2,000% in 2017 while the population's poverty rate was between 76% to 80% according to independent sources.

In 2013, according to the Global Misery Index Venezuela ranked as the top spot globally with the highest misery index score. 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. In early 2013, the bolívar fuerte was devalued due to growing shortages in Venezuela. The shortages included necessities such as toilet paper, milk, and flour. 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. 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 to use methods that were replaced decades ago.

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%. Venezuela was placed at the top of the Global Misery Index for the second year in a row. The Economist said Venezuela was "probably the world’s worst-managed economy". Citibank believed that "the economy has little prospect of improvement" and that the state of the Venezuelan economy was a "disaster". 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. 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. 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. 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. 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, with Venezuela owing such foreign companies billions of dollars. 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.

Venezuela again topped the Global Misery Index according to the World Bank in 2015. 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%. 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%.

President Maduro reorganized his economic cabinet in 2016 with the group mainly consisting of leftist Venezuelan academics. 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. 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.One estimate by Bank of America stated that inflation could top 1,000% in 2016. An April 2016 IMF report forecast an inflation rate of 4,500% in 2021. Analysts have believed that the Venezuelan government has been manipulating economic statistics, especially since they did not report adequate data since late-2014. 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.

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. 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. 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. 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.

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. However, shortages in Venezuela as a result of Chávez's policies left the majority of Venezuelans without adequate products after his death.

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

As of December 2015, the official exchange rate wwas 1 USD to 6.3 VEF while the black market exchange rate was 1 USD to 800 VEF 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. 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. 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. The last report of shortages in Venezuela showed that 22.4% of necessary goods are not in stock. 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.

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