Oil Scarcity In Venezuela Research Paper
Food Scarcity in Venezuela. Venezuela (Bolivarian Republic of) is a small country located in South America. Since its independence from Spain in 1811, this country has actively played an important role as a hub for international commerce, in the beginning producing agricultural products such as coffee, sugar, rice, cocoa among many others. A hundred years later, in 1912 the first oil well was drilled.
The Royal Dutch Shell and then Rockefeller’s Standard Oil became major producers of oil in Venezuela. Within a few years, by 1929, Venezuela was the world’s second largest oil producer, after the U.S., and the world’s largest oil exporter. Between 1920 and 1935 oil’s share of exports went from 1.9% to 91.2%. This had an immediate and positive impact on Venezuela’s economy and its system.
Throughout the entire 20th century, Venezuela’s economic system shifted from an agricultural-wise-diversified-economy to an entirely …show more content…
oil-based economy where its revenues account for roughly 94% per cent of export earnings.
Since President Hugo Chavez sworn into office in 1999 until his death in 2013, the price of crude oil increased by 660%, leading to a significant increase in earnings, but failed to diversify the economy making Venezuela’s dependence on crude oil highly fragile due to prices fluctuations. Unfavorable treaties signed by Venezuela in order to subsidize barrels of oil to small countries on the Caribbean and central America, coupled with a decreased in the productions of crude oil (3.12 million barrels/per day in 1999, 2.9 in 2007) led Venezuela’s economy to a total collapse.
What’s the reason behind Venezuela’s current food scarcity?
According to data from Venezuela’s Central Bank, the scarcity index rose to 21 % in April, mainly due to tight economic controls on foreign currency (in 2003, the Executive power established by decree a foreign currency restrictions), inadequate domestic production of food and dependence on imports. When it comes to food production, the government has set (by executive decree) -without any consideration or even meeting with domestic producers – fixed prices, and they are so low that companies and producers are not able to make a profit, therefore, farmers grow less food, manufacturers are forced to cut back production of goods and retailers stock less inventory. Some shortages are in industries like dairy, coffee, sugar, oil, where the government has expropriated (the term ‘‘confiscated’’ is more accurate and suitable, since the government have not paid this expropriations) and is currently running, and still haven’t been able to produce and supply the market with basic staples. It is very common to go grocery shopping and not find staples like milk, butter, meat, sugar, toothpaste, diapers and even toilet paper.
The price controls also mean that products missing from store shelves usually show up on the black market at much higher prices.
For example, until 2009, Venezuela was a major coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in the domestic production. Prices are being set below market-clearing price.
Why Venezuela has one of the highest inflation rates in the world today?
Venezuela is not only the country with the largest oil reserves in the world, it’s also one of the countries with highest inflation rate on earth. According to the Central Bank of Venezuela, the inflation rate was recorded at 29.4% in April of 2013, a number that may be even higher if we take into consideration the fact that the directors of the Central Bank are appointed and exclusively ratified by the Executive Power. Venezuela has registered a string of staggering inflation figures in recent years, with the number standing above 20% for six consecutive years since
2008.
The inflow of foreign currency unexpectedly altered the fiscal policy of the country and later led to serious economic imbalance. As a result, annual core inflation jumped from 26.1% in February to 28.0% in March. According to the 2013 budget, the Venezuelan government expects inflation to end the year around 16.0%, which frankly is wishful thinking taking into account factors such as high public spending, price caps and controls on exchange rates that will definitely lead to an even higher inflation and another devaluation of the national currency (Bolivares).
Is it possible to reactive the private sector and attract foreign investors?
Investment from abroad gradually increased when Chavez first came to power, receiving roughly 4 Billion dollars in foreign investment. During these years, Venezuelan oil was the main attraction. But Chavez’s decision to nationalize several industries eventually hampered these initial investment ventures and from 2002 and on, Venezuela attracted less than 1 Billion dollars from abroad. It is very clear that in order to attract investors, as a government, you have to have some sort of trust, which the Venezuelan government has miserably failed to so, while other countries have opened their markets to foreign money, Venezuela has removed itself from the international market in a series of significant steps.
Venezuela’s biggest trading partner is the United States, despite political tensions, in 2011, bilateral trade topped U.S. $55.6 billion. Venezuelan exports to the United States were U.S. $43.3 billion (accounting for at least 42% of total Venezuelan exports), and U.S. exports to Venezuela were $12.4 billion (or 24.2% of total Venezuelan imports). The United States is the single most important customer for Venezuelan oil.
However, Venezuela is a rich country if seen from an oil-stand point of view, and just with a few simple incentives directed towards an open market economy and things could get easier for Venezuelans, especially for the poorest citizens. But the government must work side by with the private sector in order to reactive the economy and start producing once again.
Thank you very much for reading this paper.
Bibliography http://www.bbc.co.uk/news/business-20795781 http://www.americasquarterly.org/node/2436 http://www.guardian.co.uk/world/2007/nov/14/venezuela.international http://en.wikipedia.org/wiki/Economic_policy_of_the_Hugo_Chávez_government http://tyglobalist.org/in-the-magazine/theme/the-sorry-state-of-foreign-investment-in-venezuela/ http://www.milkeninstitute.org/publications/publications.taf?function=detail&ID=38801401&cat=resrep http://www.tradingeconomics.com/venezuela/inflation-cpi http://www.focus-economics.com/en/economy/news/Venezuela-Inflation-Inflation_continues_to_mount_in_March-2013-04-15
http://globaledge.msu.edu/countries/venezuela/economy
The Royal Dutch Shell and then Rockefeller’s Standard Oil became major producers of oil in Venezuela. Within a few years, by 1929, Venezuela was the world’s second largest oil producer, after the U.S., and the world’s largest oil exporter. Between 1920 and 1935 oil’s share of exports went from 1.9% to 91.2%. This had an immediate and positive impact on Venezuela’s economy and its system.
Throughout the entire 20th century, Venezuela’s economic system shifted from an agricultural-wise-diversified-economy to an entirely …show more content…
oil-based economy where its revenues account for roughly 94% per cent of export earnings.
Since President Hugo Chavez sworn into office in 1999 until his death in 2013, the price of crude oil increased by 660%, leading to a significant increase in earnings, but failed to diversify the economy making Venezuela’s dependence on crude oil highly fragile due to prices fluctuations. Unfavorable treaties signed by Venezuela in order to subsidize barrels of oil to small countries on the Caribbean and central America, coupled with a decreased in the productions of crude oil (3.12 million barrels/per day in 1999, 2.9 in 2007) led Venezuela’s economy to a total collapse.
What’s the reason behind Venezuela’s current food scarcity?
According to data from Venezuela’s Central Bank, the scarcity index rose to 21 % in April, mainly due to tight economic controls on foreign currency (in 2003, the Executive power established by decree a foreign currency restrictions), inadequate domestic production of food and dependence on imports. When it comes to food production, the government has set (by executive decree) -without any consideration or even meeting with domestic producers – fixed prices, and they are so low that companies and producers are not able to make a profit, therefore, farmers grow less food, manufacturers are forced to cut back production of goods and retailers stock less inventory. Some shortages are in industries like dairy, coffee, sugar, oil, where the government has expropriated (the term ‘‘confiscated’’ is more accurate and suitable, since the government have not paid this expropriations) and is currently running, and still haven’t been able to produce and supply the market with basic staples. It is very common to go grocery shopping and not find staples like milk, butter, meat, sugar, toothpaste, diapers and even toilet paper.
The price controls also mean that products missing from store shelves usually show up on the black market at much higher prices.
For example, until 2009, Venezuela was a major coffee exporter, but it began importing large amounts of it three years ago to make up for a decline in the domestic production. Prices are being set below market-clearing price.
Why Venezuela has one of the highest inflation rates in the world today?
Venezuela is not only the country with the largest oil reserves in the world, it’s also one of the countries with highest inflation rate on earth. According to the Central Bank of Venezuela, the inflation rate was recorded at 29.4% in April of 2013, a number that may be even higher if we take into consideration the fact that the directors of the Central Bank are appointed and exclusively ratified by the Executive Power. Venezuela has registered a string of staggering inflation figures in recent years, with the number standing above 20% for six consecutive years since
2008.
The inflow of foreign currency unexpectedly altered the fiscal policy of the country and later led to serious economic imbalance. As a result, annual core inflation jumped from 26.1% in February to 28.0% in March. According to the 2013 budget, the Venezuelan government expects inflation to end the year around 16.0%, which frankly is wishful thinking taking into account factors such as high public spending, price caps and controls on exchange rates that will definitely lead to an even higher inflation and another devaluation of the national currency (Bolivares).
Is it possible to reactive the private sector and attract foreign investors?
Investment from abroad gradually increased when Chavez first came to power, receiving roughly 4 Billion dollars in foreign investment. During these years, Venezuelan oil was the main attraction. But Chavez’s decision to nationalize several industries eventually hampered these initial investment ventures and from 2002 and on, Venezuela attracted less than 1 Billion dollars from abroad. It is very clear that in order to attract investors, as a government, you have to have some sort of trust, which the Venezuelan government has miserably failed to so, while other countries have opened their markets to foreign money, Venezuela has removed itself from the international market in a series of significant steps.
Venezuela’s biggest trading partner is the United States, despite political tensions, in 2011, bilateral trade topped U.S. $55.6 billion. Venezuelan exports to the United States were U.S. $43.3 billion (accounting for at least 42% of total Venezuelan exports), and U.S. exports to Venezuela were $12.4 billion (or 24.2% of total Venezuelan imports). The United States is the single most important customer for Venezuelan oil.
However, Venezuela is a rich country if seen from an oil-stand point of view, and just with a few simple incentives directed towards an open market economy and things could get easier for Venezuelans, especially for the poorest citizens. But the government must work side by with the private sector in order to reactive the economy and start producing once again.
Thank you very much for reading this paper.
Bibliography http://www.bbc.co.uk/news/business-20795781 http://www.americasquarterly.org/node/2436 http://www.guardian.co.uk/world/2007/nov/14/venezuela.international http://en.wikipedia.org/wiki/Economic_policy_of_the_Hugo_Chávez_government http://tyglobalist.org/in-the-magazine/theme/the-sorry-state-of-foreign-investment-in-venezuela/ http://www.milkeninstitute.org/publications/publications.taf?function=detail&ID=38801401&cat=resrep http://www.tradingeconomics.com/venezuela/inflation-cpi http://www.focus-economics.com/en/economy/news/Venezuela-Inflation-Inflation_continues_to_mount_in_March-2013-04-15
http://globaledge.msu.edu/countries/venezuela/economy