Venezuelan Economy

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					            Venezuelan Economy




                 Carl Pickerell




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            Presentations goal
• Identify current economic problems
• Explain some reasons why they are
  experiencing problems.
• Obstacles which need to be faced
• Ways of dealing with Economic problems



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            Topics of Discussion
•   Basic history of Venezuela
•   Introduction to the Venezuelan economy
•   Recent political turmoil
•   Problems facing Venezuela
•   Future of Venezuela



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              Venezuela
• Details about this topic
• Supporting information and examples
• How it relates to your audience




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                Country Bio
• Located in South America west of
    Columbia
•   912,050 sq km (Roughly 2 times the size of
    California)
•   Population: 24,654,694 (July 2003 est.)
•   Half of the population lives on < $3
•   7th largest Latin American country

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                 History
• On of 3 countries which made up Gran
  Columbia
• Separated in 1830
• Ruled by violently Benevolent Dictators
• First democratic elections in 1958



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            Political Climate


• Federal Government centralize in Caracas
• Type of Government: Federal Republic
• Leader: Hugo Chávez Frías



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                  Cháves
• Colonel (ret.) Venezuelan army
• Attempted a coup against sitting president
  in 1992
• President since 1999
• Close ties to Castro
• Nationalist Party


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            Campaign Promises
• Ending Corruption
     *Clamed it drained 15% annual budget
• Halting privatization of state assets
• Reconcile the petroleum wealth




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                   Government
• $38.2 Billion in debt (2001)
• 30% Annual budget used to pay off debt
• 75%+ is spent on fixed assets
            * Debt services
            *Social security
            *Personnel(Government employees)


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             Problem president
• Heavily criticized by democratic party
• Forced to resign in 2002, but reacquired
    presidency shortly after
•   “..He has the ability, but lacks the talent and
    temperament…”
•   Has alienated business, labor, church, and military
•   Become increasingly dictatorial
•   Popularity only 30%

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                    Economy
• Extremely complex
• Japanese hires full time economist to try and
    understand
•   Exports: Oil, Aluminum, Steel, and Agricultural
    products
•   64% service, 23% industrial ↓
•   Unemployment 11% and ↑
•   Stock market has dropped 70% in last 3 years

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                  GDP
• GDP=$128.8 billion
• Growth rate
  *-11% (2003)
  *-7.2% (2002)
• Per capita = $8000



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                    Oil
•   5th largest exporter
•   80% of Exports
•   50% of government rev
•   1/3 GDP
•   Produces 2.67 million BPD



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                    Inflation
• Inflation Rate:
      *20% (2001)
  Wholesale rate = 48.9%
  Consumer rate =27.1%
• Government has been lax in enforcing
  pricing controls


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               Consequences
• Cost of living goes up
• Shortages on goods with government
  controlled price controls
• Consumer inflation will go up!
• Over-valued currency
     – Currency over-valued by 40-50%




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                Money supply
• $13billion spent to protect the value of the
  Bolivar
• $4.1 billion due shortly
• Currency devaluation expected shortly
• NO confidence in currency
     – Those who do invest, do so in foreign
       currencies


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                        Investment
• Investment capital is shrinking
• Reasons
     – Interest rates are high and rising
        • Makes long term investment expensive
        • Cars and houses are forced as collateral
        • Makes purchases cost 2-3 times the value to buy
     – Currency devaluation
        • When currency is devalued, foreign investors will loose more
            than half
     – Political turmoil
     – Land redistribution
        • Undermines free enterprise
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            What went wrong




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                    What went wrong
                     (Continued)
• Oil prices dropping in late 2000
• Lack of diversification
     – Rely to heavily on oil
• Lack of economic growth during High price
    period
            • Inventories
            • Hiring
            • Extra lines of products
• Protective trade barriers

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                Future
• Lower oil prices once non-OPEC markets
  open up
• Currency devaluation
• Higher inflation




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                What is needed
• Monetary reform, curb inflation
• Investment incentives
     – infrastructure already there
•   Diversify
•   Employment
•   Trade barriers removed
•   Stable political climate

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         “If it(Venezuela) fails to
       diversity, It dooms itself to a
         seesaw economic future”




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