FREE ESSAY ON VENEZUELA'S ECONOMY AS A WHOLE

VENEZUELA'S ECONOMY AS A WHOLE

VENEZUELA'S ECONOMY AS A WHOLE
ECONOMY
Venezuela is rich in oil and other mineral resources. Its per capita income is about
average for Latin America. The country's public external debt (excluding the obligations
of the central bank and PDVSA, the parastatal oil company) stood at approximately $26.5
billion in 1996. The economy grew by 4.5% in real terms in 1997. Consumer prices rose
only 37.6% in 1997 compared to the record 103% of 1996. The government is hoping for
inflation of 24% during 1998.
The Venezuelan economy is making a comeback under the Agenda Venezuela, propelled
primarily by the opening of the petroleum sector to foreign investment (the apertura), a
far-reaching privatization program, and plans to reform public sector operations. Oil
prices have shown a continual decline since 1996, which is serving to erode the budgetary
surplus from 4.5% in 1996 to an estimated 1.5% in 1997.
In July 1996, the Venezuelan Government and the IMF formally announced a $1.4 billion
stand-by loan. The World Bank and Inter-American Development Bank are also contributing
to efforts to promote fundamental structural reforms--in the judiciary, electoral system,
and social security/severance pay programs.
Petroleum and Other Resources
Venezuela's economy is dominated by petroleum, and the country is a founding member of
the
Organization of Petroleum Exporting Countries (OPEC). In 1997, this sector accounted for
more than one-quarter of GDP, almost three-quarters of export earnings, and almost half
of central government's revenues. Most of Venezuela's energy exports consist of crude
oil, but the country is also the United States' leading foreign source of refined
petroleum products.
The Government of Venezuela has opened up much of the hydrocarbon sector to foreign
investment, promoting the establishment of massive new petrochemical joint ventures and
reactivation of inactive fields. The Venezuelan petroleum corporation and foreign oil
companies signed eight contracts for exploration and production joint ventures in July
1996. These contracts are expected to generate over $15 billion in foreign investment.
A range of other natural resources, including iron ore, diamonds, coal, bauxite,
hydroelectric power, gold, and nickel are in various stages of development. In 1996, CVG,
the state-owned mining firm, announced its first joint venture with a foreign company to
develop the Las Cristinas gold mine.
Congress is also considering legislation which would update Venezuela's 1945 mining law
in an effort to encourage greater private sector participation in mineral extraction.
Manufacturing, Agriculture, and Trade
Manufacturing contributed 15.6% of GDP in 1997. The manufacturing sector grew slightly
(2.2%) in direct contrast with the contraction in 1996. Venezuela manufactures and
exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It also produces
cement, tires, paper, and fertilizers, and assembles cars for both the domestic and
export market. The Agenda Venezuela envisions the privatization of a range of state-owned
enterprises, including banks.
Agriculture accounts for 4% of GDP, 12% of the labor force, and 24% of Venezuela's land
area.
Venezuela exports beef, rice, coffee, and cocoa. However, the country is not
self-sufficient in most areas of agricultural production and imports about 60% of food
consumed. In 1996, U.S. firms exported approximately $475 million of agricultural
products including wheat, soybeans, corn, soymeal, and cotton to Venezuela, our
third-largest agricultural export market in Latin America. The U.S. usually accounts for
slightly more than a third of Venezuela's food imports.
Thanks to petroleum exports, Venezuela usually posts a trade surplus. In recent years,
non-traditional (i.e. non-petroleum) exports have been growing rapidly but still
constitute only about one-fourth of total exports. The United States is Venezuela's
leading trade partner. During the first 10 months of 1997, the United States registered
$3.0 billion in exports (about 38% of Venezuela's total) and purchased $12.9 billion in
imports (about 55% of Venezuela's total). Venezuela's trade with other Andean Pact
members, particularly Colombia, is growing in importance.
Labor and Infrastructure
Venezuela's labor force of about 8.8 million is growing faster than total employment. At
the end of 1997, official unemployment was 12.8%, but unofficial estimates are higher.
The public sector employs 14% of the work force, while less than 1% work in the
capital-intensive oil industry. About 25% of the labor force is unionized. Unions are
particularly strong in the public sector.
Venezuela has an extensive road system. With the exception of air service, transportation
and
communications have failed to keep pace with the country's needs. Much of the
infrastructure
suffers from inadequate maintenance. Caracas has a modern subway, but only one
functioning rail line serves the rest of the country.
Economical indicators
GDP (1997 est.): $72.1 billion.
Growth rate (1997): 4.5%.
GDP per capita: $3,164.
Natural resources: Petroleum, natural gas, coal, iron ore, gold, other minerals,
hydroelectric power, bauxite.
Agriculture (4.7% of GDP): Products--rice; coffee; corn; sugar; bananas; dairy, meat, and
poultry products.
Petroleum industry (27.6% of GDP): Oil refining, petrochemicals.
Manufacturing (15.6% of GDP): Types--iron and steel, paper products, aluminum, textiles,
transport equipment, consumer products, and petroleum refining.
Trade (1997 est.): Exports--$23.7 billion: petroleum ($18.3 billion), iron ore, coffee,
steel,
aluminum, cocoa. Major markets--U.S. (Jan.-Oct.1997, 55%), Japan, Germany, Colombia,
Netherlands, Brazil, Italy. Imports--$10.6 billion: machinery and transport equipment,
manufactured goods, chemicals, foodstuffs. Major suppliers--U.S. (Jan.-Oct. 1997, 38%),
Japan, Germany, France, Canada, Italy, Colombia, Brazil.
Exchange rate (Dec. 1997): 504.25 bolivars=U.S.$1.