venezuela: the development of an oil-dependent country after the crisis ilona Švihlíková

Venezuela: the development of an oil-dependent country after the

crisis Ilona Švihlíková

Oil

• Discovered in 20´s – Venezuela the biggest world oil exporter

• Thanks to oil – economic and social structure differs from other Latin American countries

• 50-50 rule

• The founder of OPEC

• Hawk in OPEC

Top ten oil reserves (BP statistical review)

Country Share of total Country Share of total

Saudi Arabia 19,1% United Arab Emirates

7,1%

Venezuela 15,3% Russia 5,6%

Iran 9,9% Libya 3,4%

Iraq 8,3% Kazakhstan 2,9%

Kuwait 7,3% Nigeria 2,7%

Impacts

• Importance of state and oil company PDVSA

• Geopolitical risks

• Position in OPEC

• Dutch disease (exchange rate, inflation, impacts on trade flows)– Necessity to diversify the economy

The start of Bolivarian Revolution

• Hugo Chávez Frías (1998 – 56%)• Financing of social programmes: OIL • 1) reviving OPEC – oil diplomacy (not

using dollars!)• 2) getting control of PDVSA (a state within

a state)– Organized a coup d´etat against Chávez– Chávez returned within 48 hours– Gained control of PDVSA

Ten years of Chávez´ reforms (Socialism of the 21st century)

• Oil as a geopolitical tool: ALBA, Petrosur• State involvement in the economy• Social reforms (missions) • Workers self-management• Land reforms (food sovereignty)• Direct democracy (community councils)• Internationalism (integration) against US

imperialism

Venezuela: Real GDP development

Achievements and failures

• Growth of manufacturing sector (98,1%)• Declines in poverty and inequality• Social missions: Barrio adentro, Robinson,

Ribas missions – increase in HDI and Latinobarometro (positive evaluation)

• Budget surplus, decline in foreign debt (and helping Argentina)

• High inflation (30%) – low absorption and thus overvaluation of exchange rate

And then came the crisis

• Channel to Venezuela:not financial sector, but oil price - dramatic decline (the burst of the oil bubble)

• OPEC – severe cuts in quotas • GDP (2009) – 3,3% • Economic adjustment package: VAT

increase, cuts • Exchange rate devaluation, high inflation,

electricity black-outs (drought)

High oil price volatility

Impacts of the crisis

• The recession was longer and deeper than in other Latin American countries

Economic data (Eurostat 2011)

2007 2008 2009 2010

Real GDP growth

8,2% 4,8% - 3,3% -1,9%

Inflation rate

18,7% 30,4% 27,1% 28,2%

Current account balance (% GDP)

8,8% 12,0% 2,6% 4,9%

Current top oil producers (JODI – September 2011)

Country Mb/d Country Mb/d

Russia 10,3 Kuwait 2,9

Saudi Arabia 9,4 Venezuela 2,8

USA 5,8 Iraq 2,7

China 4,0 United Arab Emirates

2,5

Iran 3,6 Mexico 2,5

Where does Venezuelan oil go?

Despite diversification efforts…

• 80-90% of export revenues, 50% of government income, 30% of GDP = OIL

• PDVSA, third biggest oil company (Saudi Aramco, Exxon Mobile)

• 10% of PDVSA´s investment budget goes for social programmes

• Intensive cooperation with China • Petrocaribe initiative • Disputes in OPEC

International dimension of Bolivarian revolution

• Opposition towards US imperialism – Venezuela as a model for rest of Latin America?

• ALBA • UNASUR • Bank of South • Petrosur, Petrocaribe…• But: „the enemy of my enemy is my friend“

approach in foreign policy

Grassroot dimension

• Support by the liberation theology• Decentralisation of economic and political

power • Communal councils (30 000 until now) • Cooperatives (100 000) , workers

participation (Alcasa factory) • Community media network• Enormous political activity + indigenous

population rights.

Criticism

• From the right: authoritarian style (top – bottom), strong influence of the military.

• From the left: populism, emerging personality cult (With Chávez everything, without Chávez nothing), bureaucracy, Venezuela still a capitalist country (private sector 70%)

• High crime, patronage and clientelism, housing and electricity shortages remain serious problems

• Much of the process depends on Chávez: his illness?

Thank you for your attention