Ever since the finding of oil in the early 19th century, Venezuela has been primarily reliant on the production and export of oil to the rest of the world. This last decade, during the reign of President Hugo Chavez, has seen Venezuela’s economy, politics, and social reforms as outcomes of oil production. Hugo Chavez’s involvement with government regulated oil production leaves Venezuela with an unstable economy centered on the ever-fluctuating oil prices and social reforms due to Venezuela’s dependence on oil.
Since the beginning of his election, Hugo Chavez has increased government control and power over oil production. Because of Venezuela’s rich resources of oil, many political leaders have exploited these regions for the benefit of the government. However, since Chavez has been in office, the Venezuelan economy has been centered predominately on oil production. “In 2006, Chavez announced a nationalization of oil fields managed by foreign companies, which resulted in an increase of the government’s shares in these projects from 40 percent to 60 percent” (Alvarez). The PDVSA (Petróleos de Venezuela, S.A.) has become Venezuela’s state owned company which has been manipulated under Chavez. Rafael Ramirez, head of the PDVSA, has said that, “Chavez plans to use the oil company to transform Venezuela from an oil sultanate to a productive society within a socialist framework” (Alvarez). Chavez perceives the reliance on oil as a way to control the country as for governmental propaganda. Daniel Kerner of the Eurasia Group reiterates this by saying, "Chavez's main motivation is likely to have more direct and arbitrary control over oil revenue ahead of the 2012 presidential elections" (Parraga and Wallis). By controlling most aspects of the dominating oil production in Venezuela, he has eliminated any competing and opposing private sectors of oil manufacturing.
By just having oil production as the predominate source of economic growth, Venezuelan economy can easily fluctuate from stable to unstable. “Oil generates about 80 percent of the country’s total export revenue, contributes about half of the central government’s income, and is responsible for about one-third of the country’s gross domestic product” (Alvarez). These statistics show how much Venezuela heavily relies on oil production for the well being of its people. Venezuela virtually has no diversification in its economy, which can be advantageous and disadvantageous as well. Currently, the turmoil in the Arab countries, the economic recovery, and the international need, especially the United States, for oil can be advantageous for the exclusive oil economy, creating stability. As of April 2011, Venezuela’s inflation was 22.9 percent, 4 percent lower than March, which is an encouraging sign for the country (Associated Press). However, no diversification means solely depending on oil production and an international interest in it. This is most damaging to Venezuelan economy, society, and politics. The country is always contingent on oil prices and the market for them. Diversity would bring more exported products “which would permit lower dependence on price fluctuations" (Venezuela: BOP Continues Showing Dependence on Oil in 2010"). The economy is unstable when prices fluctuates, inflation rises, and other countries can get resources elsewhere.
Hugo Chavez’s dominant role of oil production in Venezuela has led to seemingly positive social reforms. Under the control of Chavez, the PDVSA spends at least “10 percent of its annual investment budget on social programs” (Alvarez). Free health care clinics and subsidized food are part of the many social reforms that Chavez has implemented from the funds of oil production. These reforms have even “reduced the poverty rate from 70 to 23 percent over the past 14 years” (Erlich). Thanks to the large oil production, the society of Venezuela is able to advance.
Oil dependence has caused many economic, political, and social effects on Venezuela. Political leaders, such as Chavez, have seen oil production as a way to exert power and control by increasing government ownership of oil companies. The large scale production of oil prohibits Venezuela from having a diversified economy, resulting in a fluctuating economy solely dependent on oil prices. However, a constructive effect of oil was the implementation of social reforms. These effects from oil will continue in Venezuela unless a transformation is made politically and economically. Alvarez, Cesar J. "Venezuela's Oil-Based Economy." Council on Foreign Relations. 9 Feb. 2009. Web. 05 May 2011. <http://www.cfr.org/economics/venezuelas-oil-based-economy/p12089>
"Venezuela: BOP Continues Showing Dependence on Oil in 2010." ISI Emerging Markets Blog. Latin America CEIC Database Team, 14 Mar. 2011. Web. 05 May 2011. <http://blog.securities.com/2011/03/venezuela-bop-continues-showing-dependence-oil-2010/>
The Associated Press. "Venezuela's Inflation Slips to 22.9 Percent - BusinessWeek." Businessweek - Business News, Stock Market & Financial Advice. 3 May 2011. Web. 05 May 2011. <http://www.businessweek.com/ap/financialnews/D9N07ROG2.htm>
Parraga, Marianna, and Daniel Wallis. "Venezuela Oil Tax to Net Billions before Chavez Vote | Reuters." Business & Financial News, Breaking US & International News | Reuters.com. 26 Apr. 2011. Web. 05 May 2011. <http://www.reuters.com/article/2011/04/26/us-venezuela-oil-idUSTRE73P6Z920110426>
Erlich, Reese. "Venezuela's Social Reforms Help Poor, but Contribute to Inflation, Critics Say."Home | Deutsche Welle. 24 June 2010. Web. 05 May 2011. <http://www.dw-world.de/dw/article/0,,5724103,00.html>.
Anasha Green
ReplyDeleteEconomics and politics are dependent on one another for a country to thrive. Many times, a political leader is elected based on his or her ability to bring a country to economic prosperity. Should a political leader fail to bring a country the success it desires, pandemonium may occur not only economically, but politically.
Hugo Chavez has had a major role in Venezuela’s reliance on oil exportation. Chavez has moved the Venezuelan economy away from reliance on agricultural and other goods, and towards the sale of oil. The change from a minor reliance on oil to a major one under Chavez’ term as president shows just how much politics can influence the economy. This relationship is reciprocal and economic circumstances influence the turnout of the political sphere.
The success or failure of the oil business can either make or break Chavez’ chance for reelection. Being that he introduced such radical reforms to Venezuela, for them to fail would imply that Hugo Chavez was a failure in his political career as the Venezuelan president. Should his reforms fail and the economy spiral downward, there is no doubt that the people would not reelect him. As a result the reforms set in place by Chavez such as the multiple government-owned businesses would fail. Failure of these businesses and other reforms would send the country into chaos as a result of lack of leadership, loss of jobs, and loss of resources.
Amanda Chivil
ReplyDeleteWith oil being the most highly valued resource in Venezuela, Chavez nationalized the resource in order to politically promote himself. By taking control, he can manipulate it in anyway that he sees benficial to his political prestige. Agreeing with your statement, he is definitely trying to build up support for the 2012 elections.
In addition, Venezuela's lack of diversity in its economy is definitely another issue. It is increasingly vulnerable to the fluctuation of prices of the international market of the tumultuous global economy. With all focus on one sector of the economy, other sectors, such as manufacturing, become increasingly weak. Thus, Venezuela's industrialization and modernization have been hindered.
While Chavez has used the income from the oil for social reforms, which are said to be slowly reducing poverty, the Venezuelan government has become "disillusioned" with the amount of money it actually has to spend. The Venezuelan government is overly confident with the wealth it is obtaining through oil production. Thus, government spending is increasing the national debt. Again, with its sole dependence on this resource, Venezuela will continue to fall due to its lack of other industries and production.
Anasha:
ReplyDeleteWe have to remember that even before Chavez's election, Venezuela has been dependent on oil. This is nothing new to them. However, the problem with Chavez is his manipulation of the private companies, causing them to give into the government. Chavez is the reason why politics and economics are tied together.
The people of Venezuela need to begin to argue for private sectors, and even better diverse exports to sustain their economy.
The best thing for Venezuela and its economy is to not re-elect Chavez. They must realize all the social reforms of Chavez are just tools for re-election, and some, like diminishing unemployment, are improbable. The fluctation of the economy can definitely effect job losses or gains.
Amanda Chivil:
The 2012 election can either help or hinder Venezuela. Helping would not be re-electing Chavez and growing in the expansion of diverse exports. Hindering would be the re-relection of Chavez and his ever-growing control of the oil production.
It is probable that the Venezuelan government are disillusioned with the money they are spending on social issues. Money could change at any point in time since it is dependent on the price and need for oil from other countries. Venezuela basically has little industrial growth, as you mentioned. The government's focus is on one aspect only: oil. Until the that is changed, Venezuela will have a difficult time reaching modernity.
Shereen Noormohamed
ReplyDeleteAs stated, a political and economic transformation is highly necessary in order to prevent such devastating effects of oil to continue in Venezuela.
The view that Chavez is using the profit from the oil industry as a means of political propaganda, is both an interesting and valid point. He is definitely instituting the various social reforms in order to please the people so he can safeguard his position as the leader of Venezuela. However, if the oil industry fails him, his control over the people will most definitely weaken. The people will view him as a weak leader and will strive to take him out of power.
In order to prevent these disastrous effects from occurring, it is quite obvious that the economy of Venezuela must be diversified, and this must be done soon. If the economy fails, every other aspect also fails. So if the economy is stable, Venezuela itself will be a stable nation.
Shereen:
ReplyDeleteIt seems as if all actions done by Chavez is for political control and for re-election. Yes, his control will weaken if the need for oil diminishes, but the people don't really have the skill or ability to do anything else. Venezuela is constantly focusing on oil and if it fails, they will try to find a way to strengthen it up, for that is primarily all they know.
Two things need to happen to help Venezuela: one, no re-election of Chavez, and two, diversification of the economy. If the economy and government become stable, then Venezuelan society will benefit as well.