Venezuela

Venezuela Northern South America Bordering Caribbean Sea

and North Atlantic Between Columbia and

Guyana ~ twice the size of

California Population: 24,287,670

History Original inhabitants: Carib, Arawak, and Chibcha-

speaking In the late 1500’s, the Spanish arrived looking for gold

and other riches Venezuela became a land of plantations worked by slave

labor from Africa

Independence The creole population initiated the drive for freedom due

to dissatisfaction with local politics Independence is celebrated on July 5th – based on the

initial charge for freedom led by Simón Bolívar 1821 Simón Bolívar became leader of a Venezuela free of

Spanish rule 1823 the last Spaniard were forced out after their defeat at

Maracaibo May 6, 1830 Venezuela seceded from Gran Colombia

Independence & Chaos Next 100 years – caudillos and rule was held by various

dictators 1958 – first elected government 1999 – new Constitution and newly elected government Since 1999:

Natural disasters (floods and mud slides) Oil strikes

Government Federal Republic 22 States 1 Metropolitan District 11 Federally controlled islands 72 additional islands in the Caribbean (federal

dependencies)

Government Executive power at the state level

Elected to four year terms Local government

Mayor Municipal Council Parishes

Current Chief of State Hugo Chavez

Initially elected in 1998 Re-elected to a six year term in July, 2000

Government Chavez Administration

Called for fundamental restructuring New Constitution

Appointed National Constituent Assembly Guarantees freedom to create political parties Legislative power is a unicameral National Assembly

Represented by Deputies from each electoral district Creole population guaranteed three Deputies

Republican Moral Council – job is to “observe, prevent, investigate and penalize acts against the public ethic and administrative moral and oversee the legality of the use of public fund.”

Provides citizen empowerment Includes a People’s Defender, Public Prosecutor, and General Accountant

StatisticsIndustries: petroleum, iron ore mining, construction materials, food processing,

textiles, steel, aluminum, motor vehicle assembly

Export commodities: petroleum, bauxite and aluminum, steel, chemicals, agricultural products, basic manufactures

Import commodities: raw materials, machinery and equipment, transport equipment, construction materials 

Statistics Life expectancy at birth in 1995 was 72.2 years (69.3 for

men and 75.1 for women). Population growth: 1.52% (2002) The Venezuelan population is young:

12.6% are under 4 years of age 23.6% are between 5 and 14 years 55.5% are under 25 4.1% of the population is 65 or older.

This group is growing faster than that of the general population.

Environmental Initiatives Antarctic Treaty Biodiversity Climate Change Desertification Endangered Species Hazardous Wastes Marine Life Conservation Nuclear Test Ban Ozone Layer Protection Ship Pollution Tropical Timber 83 Tropical Timber 94 Wetlands

Environmental Issues Sewage pollution of Lago de Valencia Oil and urban pollution of Lago de Maracaibo Deforestation Soil degradation Urban and industrial pollution

Particularly along the Caribbean coast Rainforest Ecosystem

Threat from irresponsible mining operations

Environmental Issues Venezuela has a relatively good conservation record. 1976 the first Ministry of the Environment in Latin

America was established. Since then a complex legal framework for environmental

management has been established.

Extensive protected area systems Nearly half of national territory is under some kind of

protection.

Oil Background Oil exportation began in the early 1920s Oil income was not invested wisely, industry was mired

in corruption and waste Venezuela is an OPEC member Eighth largest oil producer Oil export is ~ 1/3 of GDP

80% of export earnings come from oil 50% of the government’s operating revenue stems from oil

Oil Background Mid-nineties oil price decline led to:

Recession and eventual reorganization of government Economy is slow to recover because of:

Weak non-oil sector Capital flight

Safety net created to avoid recurrence: Macroeconomic Stabilization Investment Fund

Deposits come from petroleum revenue

Oil Strike November 2001

Chavez enacted a new law that makes the government the majority partner in any new energy venture in Venezuela.

December 2, 2002 Purpose remove President Hugo Chavez from power. Chavez in turn is looking to eliminate state contracts with Venezuela’s

private sector (composed of opposition members). Chavez has repeatedly appointed political allies to key positions.

Affect on US Has imported up to 15% of oil from Venezuela. Has branded Venezuelan oil supplies as unreliable.

Venezuelan daily oil production has dropped to 440,000 compared to 3 million barrels.

Trade and FDI US Viewpoint (1999 statistics):

Venezuela is US’s 24th largest export market. Trade deficit with Venezuela was $5.9 billion. Exports to Venezuela (merchandise) was $5.4 billion. US imported $11.3 billion

Foreign Direct Investment (FDI): $5.7 billion from U.S. in 1998. Investments were predominantly in manufacturing, petroleum,

and wholesale sectors.

Trade Alliances Latin American Integration Association (ALADI) Free trade agreement with Chile Part of the “G3” (the Free Trade Agreement with Mexico) Agreement with the Caribbean Common Market

(CARICOM) Currently negotiating:

Free trade agreement with MERCOSUR

Investor Benefits Low tariffs and competitive tax rates. New legislation designed to draw in foreign investment. No capital repatriation limitation. No profit transfer limitation. No prior authorization requirement for investment.

Currency Information Early 2002 – exchange rate system changed from pegged

to free-floating. Caused the Bolivar to depreciate.

Since then, the Planning and Development Department have pegged the Bolivar to the US Dollar. Pegged at Bs. 1600.00 – 1596.00

Also under investigation, a crawling peg system, which would modify the exchange rate weekly.

Commercial History Venezuela has attracted the highest per capita U.S.

investment in South America. Its markets have absorbed up to $1 billion in U.S. exports

quarterly. In the 80’s, Venezuela was one of the “hottest” emerging

markets. Early 90’s, investor confidence plummeted because of

two coup attempts on President Perez.

Commercial History Continued

Early 1994 – a banking crisis led to capital flight, currency erosion, and worsened the fiscal crisis.

Emergency currency and price controls were enacted. Recovery was dependent on:

Revision of labor benefits. Elimination of subsidies. Government withdrawal from industry.

Eventually several hotels, banks, and some shares of the telephone company were sold.

Mid-1995 Landmark decision opened oil sector to foreign investment.

Eight international groups were selected to explore new oil fields. Expectation was that it would increase U.S. oil equipment imports by 15%

annually.

Commercial History Continued

1996 – Government initiated a fiscal, monetary, and foreign exchange plan. It was intended to:

Lower inflation. Balance the budget. Restructure and strengthen financial system. Establish a new social security program. Provide resources to most vulnerable sectors. Reform legal institutions.

In order to protect foreign investors, Venezuela is now a member of:

Overseas Private Investment Corporation (OPIC) – protects from political risk.

World Bank’s Multilateral Investment Guarantee Agreement (MIGA) – provides similar protection.

Financial Overview 2000

External debt was $34.5 billion Economic growth of 3.2% Current account balance was $13.365 billion International reserves totaled $21.647 billion Inflation 13.2%

2001 Economy contracted by 6.4% Inflation 12.3%

2002 Bonds rose by 17.7% until dropping after the strike was initiated. Expectation is that agencies will starting downgrading the country’s debt. Credit

ratings on debt is at junk levels. Foreign debt stock is 20% of $100 billion GDP. International reserves $12.43 billion. Inflation 31%

Education Originated in Catholic Church in the colonial period.

Roots can be traced to France. Reserved for the wealthy landowner class.

Concept of education for the privileged has continued into the modern period.

Education system at the university level has steered clear of technical and scientific fields.

Primary and secondary levels have “ignored the vocational needs of most of the population.”

Opened to general public after 1811 Free education became an integral part of the political landscape.

Education Continued In 1958 education began to expand both in quality and

quantity: Primary education became compulsory Alternative methods of educating hard-to-reach groups (farming

communities) were developed. Universities were opened

Education geared primarily toward those seeking professional or academic careers. In 1969, the government attempted to address this issue by

facilitating the entry of students of various backgrounds.

Education Continued Secondary schooling was not compulsory until 1980. Existence of a social split:

Public schools are better funded than private. Private schools more prestigious because of the traditional

curriculum and the historical association. Due to social advantages given by the association with a private

school, some teachers choose to work in both. Since 1958, international organizations have promoted

natural sciences. Development work in the U.S. has had a strong influence

on the social sciences.

Education Continued Population growth has affected education.

Number of universities between 1958 to 1984 tripled. Overall number of places of higher education grew tenfold (to

more than 70). Literacy rate in Venezuela is one of the highest in Latin

America (nearly 90%) among those fifteen and older. Government strongly influences this by giving away training

materials to encourage dissemination of literacy by the literate. Current educational system requires nine years of

schooling. Six years of primary and three years of secondary.

Education Continued Higher Education

Can attend two years of senior high school. Can follow that with a variety of colleges, universities or

technical schools. Labor Force

Until the 80’s, skilled workers were a premium. Due to economic downturn, the large number of skilled workers

are no longer needed. Technical education has become less important.

Education Today Chavez administration has created the National Education

Project (PEN). Intended to fix some of the things still considered wrong with

the educational system: Failure of nearly 10% to complete primary school. Failure of nearly 20% to complete secondary school. Illiteracy still nearly 7% among males and 7.6% among females 15 and older.

Plan also “rails…against the evils of globalisation and privatisation” and is led by former revolutionaries.

Teacher’s groups and the church leaders claim it is a “Cuban-style indoctrination of youth.”

Educational Data Annual census in all public and private educational

institutions. Investigating ways to improve data collection in order to

break data down into smaller geographical units. Evaluating causes of class repetition and causes of

dropouts.

Summary All available information points at a country that could go

either way. Oil resources give Venezuela both benefits and problems of an

easy source of revenue. Actions have been taken to counteract the cyclical revenue

streams. Alternatives to oil revenue carry with them their own burden.

Difficult to see past the problems of leadership to determine where fate will carry the country next.