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Venezeula economy
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Venezuela Starting in the 1990’s economic turmoil began to spread throughout South America. Venezuela was not immune to these economic problems. The once-thriving country experienced high levels of inflation and poverty, the result of a number of factors. This paper intends to examine Venezuela’s economy and the effect that inflation has on Venezuela, the United States, and the world banking system. Economists differ in their views about whether the decision to lift the band restriction on the Bolivar will help ease inflation. I agree that by lifting the band restriction Venezuela can start to emerge from the current recession. The Venezuelan government must allow the Bolivar to set its own value in order to see how the Venezuelan economy is functioning. Venezuela has been struggling with high inflation for the past decade. It is important to see how Venezuela’s economic problems started and how the government’s recent actions will affect the Venezuelan economy. In order to see the effects of inflation on Venezuela, it is necessary to examine Venezuela’s economy. Unlike many other South American countries, Venezuela has a large quantity of natural resources. For a long time the economic success of Venezuela depended heavily upon these resources. In Georgie Anne Geyer’s article “Poor Rich Venezuela”, she interviews a number of important Venezuelan leaders. One such leader is Arturo Uslar Pietri, who is the country’s most highly respected scholar. Pietri says, 2 “Venezuela is the richest country in Latin America, by far” (Geyer 1). In order to see how such a wealthy nation could be faced with such high unemployment and poverty, we need to examine the foundation of Venezuela’s economy. Three major factors have a direct influence on the health of the Venezuelan economy. The first is the mining industry, which is by far the most important to the success of Venezuela’s economy. The second is the reliance on the United States for the majority of Venezuela’s imports. Finally, but extremely importantly, is the continuing political turmoil taking place in Venezuela. Of course other factors contribute to the economic situation in Venezuela, but these three factors influence both the inflation index and the economic growth of the country. As stated before, the mining industry has a direct influence on Venezuela’s economy. Statistics show that 76% of Venezuela’s exports are directly related to the mining industry (Business 9). Oil is the major export from Venezuela. The United States is responsible for the majority of these oil exports. Venezuela boasts one of the largest oil supplies outside of the Middle East. Because of the oil reserves Venezuela plays a major role in the Western Hemisphere as well as in world politics. Since Venezuela depends so heavily upon oil revenues, Venezuela’s economy rises and falls with the price of oil. Oil, traditionally being a highly volatile commodity, can cause drastic changes in the Venezuelan economy. During the 1990’s, when oil prices were low, Venezuela’s 3 financial status declined along with the price per barrel of oil. For years Venezuela’s governments depended heavily on oil revenues to drive the economy. This heavy dependence on oil leads to deterioration of other industries that could have held the economy stable during the oil recession. Adding to Venezuela’s dependence on the mining industry are the large quantities of iron ore deposits, and coal deposits (Business 10). Venezuela also is said to have 12% of the world’s gold supply deep in its mines. Because the Venezuelan government places such emphasis on mining, the manufacturing industries have almost become non-existent. The lack of a manufacturing base forces Venezuela to import a majority of everyday products from other countries. Juan Pablo Toro, in an article for The Oil Daily says, “ The fact that Venezuela imports 60% of its products from North America and 30% from Colombia leaves little trading room for other South American economies” (Toro 1). During the 1990’s, 40% of Venezuelan imports came directly from the United States (Business 164). With such a high dependence on the United States for these manufactured goods, the Venezuelan economy is closely tied to the growth or loss experienced in the U.S. In a graph found in Business Guide to Venezuela it shows the following breakdown of imports. One of the most frequently imported goods is equipment to run the countries oilfields (Business 165). These supplies include oilfield pumps and drilling and boring machines. The Venezuelan government, in its efforts to implement a nation-wide telephone system, is 4 forced to import a large quantity of transformers.
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