Saturday, April 7, 2012

Venezuela

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Individual Project


“Venezuela”


Over the past ten years Venezuela has lived historical moments that have affected its economical development tremendously. Most likely what altered the “traditional” ways of governing the country has been the past election of President Hugo Chavez Frias in 1. The results of the analysis, based on the degree of instability Venezuela could face in the near future, have been mainly focused on the direct effect Chavez has had on the economical, political and social reforms applied.


ECONOMICAL RISK


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Falling GDP per person 7/8


By the end of 00 the Venezuelan economy reported a contraction in its GDP of 8. % with a purchasing power parity of $5,500. This is a drastic change compared to the .8 % growth in GDP reported in 001, even though in 1 it showed signs of a strong recession with its economy falling 7. %. The main events that occurred in the past year that had a significant effect on the fall of the economy were last April’s failed coup, severe financial government problems and a tense situation between Chávez and the private sector. The petroleum sector is about 80 % of Venezuela’s exporting earnings and more than half of the government’s operating revenues. Last December the country suffered a national oil strike that had a negative impact on the economy and it is predicted that this current year Venezuela will live a recession that will take down 5 % of the economic development. Mainly because the first month of the year is practically lost and the political crisis is anything but solved.


High Inflation /5


The inflation rate for the year 00 was of 1. %, which can be considered quite high in comparison to the previous year (1. %) and to the rest of the world. Nevertheless it is important to point out that in 15 Venezuela had an uncontrollable inflation of 10 %.


Capital Flight 4/4


Due to the two-month national strike against the government a strong deterioration in the currency and international reserves resulted from the political disarray that prompted the government to impose foreign exchange, capital and price controls. In December, the bólivar depreciated 5.% to the US$, and by February the currency had depreciated 4.4% to reach 1,84 bolivares to the US$. This was accompanied by an 11.1% decline in international reserves, as investors sold off Venezuelan assets and monetary officials intervened in the exchange rate markets by selling an estimated US$ 70 to US$ 80 million in reserves daily. To slow down the strong capital flight, the government decided to suspend foreign exchange trading for five days on January in order to give monetary and government officials time to study more permanent exchange and capital restrictions. On 6 February, a new exchange rate regime came into force which included a fixed exchange rate where the exchange rate is fixed at 1,56 bolivares to the US$ for buying and 1,600 bolivares to the US$ for selling. Nearly 115- 4,55 companies have shut down since 18.


High and Rising Foreign Debt as Proportion of GDP /6


Last year’s external debt reported for the year 00 as being of $8. billion (GDP $18 billion), compared to the previous year with an external debt of $4.5 billion (GDP $146. billion). This has been an improvement since the external debt reduced and the GDP increased.


Decline in Food Production per Person /4


There have been attempts by the current government to “farm in Caracas”, in other words isolated patches of land being farmed in the capital behind wired fences. Nevertheless the decline in food production can’t be reversed since the value of the total agricultural production (including vegetable, animal, fisheries and forestry products) has been systematically declining. The national association of rural producers have claimed that the decline was in the order of 5.1 % in 001 and 4.8 % in 00 (10 % in the last 10 years). The area under cultivation has gone from million hectares in 18 to less than 1.6 million hectares in 00, as 40,000 jobs have been lost in rural areas in the food industry.


Raw Materials as a High Percentage of Exports 5/6


Venezuela’s major exports in 00 were oil and gas (81. %) and others (including bauxite and aluminum, steel, chemicals, agricultural products and basic manufactures) 18.8 %. This means it mostly exports raw materials even though it currently has a merchandise trade surplus. The inefficiency in manufacturing finished products limits the export of raw materials in order to import manufactured goods at a higher price.


POLITICS


Bad Neighbors /


Venezuela borders with Colombia, Brazil and Guyana, with whom it has good relations. Nevertheless Colombia lives an internal war between the government and the guerrilla (FARC) that in one way or another can affect Venezuela’s stability. Such problems arise in the western border dealing with drug traffic and kidnapping. Large quantities of cocaine, heroin, and marijuana transit the country from Colombia bound for US and Europe.


Authoritarianism 4/7


President Chavez was democratically elected in 1. The release of a new constitution where it states only one consecutive re-election of president to a six-year term. All elected officials, including the president, can be subjected to revocatory referendums half through their terms.


Staleness /5


Before 1 Venezuela had been rules by the same two dominant political parties (AD and COPEI). Since 1 a new political party took power (Movimiento Quinta República), where the president can last at the most 1 years in power. This could seem like along time, but it’s an effective way to carry about the changes in an economy.


Illegitimacy /


As mentioned before, President Chavez was democratically elected and legally elected by the people. But it is important to measure the current support he has with the whole population. For instance 5% of the Venezuelans support President Chavez. The other 48% are against him and demands that he resigns as soon as possible since they consider him a dictator. So officially Chavez is legally elected, but is rejected by a large percentage of the population that has stopped believing in him.


Generals in Power 6/6


Hugo Chavez was a former lieutenant colonel, who had led a failed coup against President C. A. Perez in February 1. He later on ran democratically for president in 1 and won the elections.


Armed Insurrection or War 10/0


Due to the unstable economic and social situation that Venezuela faces, several civil confrontations have occurred between those that support the government and those that don’t. This has led to several deaths and left a lot of political resentment from both sides.


SOCIETY


Urbanization 1/


In the past five years there has been an urban population rate of . % , which is not a very high number that represents the movement of people off the land and into cities. This means that people are actually moving to the cities but at a normal pace.


Islamic Fundamentalism 0/4


It’s not an issue that can raise big political storms in the region.


Corruption 4/6


Venezuela ranks among the most corrupt countries in the world according to Transparency International, and it is among the least economically free countries in the world. The most corrupt countries in the world also tend to be the least economically free, this is mainly due to the government’s regulations and controls over the economy that provide ample opportunity for officials to take advantage of their authority for personal gain. The current new constitution enlarges the role of the state in virtually every aspect of society, which has become a recipe for continued underdevelopment and corruption.


Ethnic, Religious and Racial Tension /4


Since 67% of its population lives under the poverty line a lot of racial and social tension exists. This is also related to the political aspect since it is believed that the “poor” are the ones that support the president and the “upper” class belongs to the opposition group, and so there’s a lot of tension between those two groups as well.





Venezuela’s risk of becoming unstable has added up to 60 points, which places it inside the “high risk” category. This is mainly due to the tense political transition it is experiencing with President Chavez.


BIBLIOGRAPHY


http//www.petroleumworld.com/EditJune06.htm


http//www.unhabitat.org/habrdd/conditions/southamerica/venez.htm


http//www.cato.org/dailys/1-14-.html


http//cesimo.ing.ula.ve/GAIA/CIA/factbook/descriptions/Venezuela__Economy.htm


http//undp.org/hdr00 /indicator/cty_f_VEN.html


http//latin-focus.com/spanish/countires/venezuela/venunemp.htm


http//wto.org/spanish/tratop_s/tpr_s/s108-1_s.doc


http//tendencias.infoamerica.cm/article_archive/00/00/00_economic_outlook.htm


http//www.revistaprobidad.info/00/art14.html





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