Venezuela
- Top end South America
- (officially called the Bolivarian Republic of Venezuela (Do *not confuse with Bolivia)
- Colonised by Spain 1500s
- First to declare independence (1811 ... secured 1821)
- One of the most urbanised countries of Latin America
- ... world's largest oil reserves and [has] been one of the world's leading exporters of oil.
- Previously an underdeveloped exporter of agricultural commodities such as coffee and cocoa, oil quickly came to dominate exports and government revenues.
- 1980s oil glut = external debt crisis + long-running economic crisis
- (inflation peak @ 100% 1996)
[Source - Wikipedia - here]
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Noticed high inflation in Venezuela, and having discovered 'hyperinflation' in the little tutorial, thought I'd check out Venezuela.
So their economy ... is what? Either a depressed economy or a war economy, judging by tutorial?
Background:
President Hugo Chavez (Socialist) died 2013.
Venezuela is described as a 'South American oil giant' and the article indicates this isn't the worst economic period it's experienced.
IMF makes an appearance. Inflation 'running rampant', according to IMF. Low economy growth. Economy shrinkage.
... devaluation of the currency in the case of Venezuela represents a reallocation of resources from the private to the public sector, which is practically the only exporter thanks to oil giant PDVSA.
If IMF has something to say, then there's most likely an IMF debt involved.
Moving onto the 2010 Article -
Economist - 'Towards State Socialism' - here:
Article's dated, but it seemed to have good information.
GDP 'contracting' (less production); 'currency supply problem' mentioned.
Possible 'deepening' of recession mentioned.
So, Venezuela's is a depressed economy.
Article indicates: Decline in oil shipments associated with decline in oil export. There's also a decline in oil prices.
[Don't understand how you can sit on oil but have a decline.]
The Economist
Chavez the socialist president (1999-2013) had progressively been nationalising everything:
... seizing everything from steel companies and bottle makers to housing schemes. When workers have protested, he has deployed the national guard against them. The government has justified the confiscations by saying that it was breaking up monopolies or stopping breaches of labour or environmental rules. But the aim appears to be to move decisively against what Mr Chávez calls “the oligarchy”...
2007/2008 Chavez government took over the private oil sector (and more) -- or what there was of it.
Economist reports that:
any bank which declined to “co-operate with national development” by assigning credit according to government priorities would also be taken over.
[Don't suppose they attract much investment, then? Wouldn't most businesses shut shop?]
Country appears partly 'nationalised' (ie national/state property vs private property) - some industry in govt hands and rest private hands.
Govt portion GDP did nothing since the late 1990s .
Oil boom 2004-2008.
Nationalised companies are producing less than when they were in private hands.
To gain 'food sovereignty', most of the food industry has been nationalised, but (the Economist reports) there's been a steep increase in imports.
Couple of exceptions: milk company and telecommunications company ... have done well.
What tends to happen:
... once companies are in state hands their staffing levels rise, prices fall and they become dependent on government subsidies.
Construction industry damaged by slump in materials production since nationalisation.
'Housing schemes' slowed or stopped.
Govt won't allow developers to ask for prices in line with inflation rises (as at 2010 article @ 30% -- now over 60%).
Govt took over what was already largely govt controlled oil industry: production of crude and refined products dropped.
Article closes:
Polls suggest that most Venezuelans disapprove of the nationalisations
and firmly support private property. But Mr Chávez seems to be following
the advice of Alan Woods, a Welsh Trotskyist who has become an informal
adviser. Mr Woods, who is better known in Caracas than Cardiff,
publicly urged the president to respond to his electoral setback by
“accelerating the revolutionary process”, expropriating land, banks and
the main industries. Venezuelans had better brace themselves for more
nationalisation, scarcity and economic decline.
So what is driving the the inflation rate?
I'd like to apply the inflation lesson, but I'm not sure I've got it.
Cost of production has risen - more employees; less efficiency; government subsidy of industry; so it's like bleeding out money and it costs more to produce the goods because bleeding out the money eats into the profits? Also, less goods are being produced. *NB also money going out on *imports*.
Checking out what the go is with the oil not moving, came across this article - Bloomberg Feb 2014 - here.
Bloomberg says:
Venezuela’s plummeting oil sales to the U.S., its biggest export market, are exacerbating a collapse in the nation’s debt securities.
Bonds released by Venezuela 'sank'. Sank doesn't sound too good. Don't know enough about bonds to judge why they 'sank'. No idea what this is about.
Article goes on:
The tumble in oil exports, Venezuela’s biggest source of dollars, comes as President Nicolas Maduro
faces a shortage of U.S. currency that’s caused consumer prices to soar
56 percent and foreign reserves to plunge to a decade-low of $21
billion. Petroleos de Venezuela SA, the state-run oil producer known as PDVSA, is sending hundreds of thousands of barrels a day to China to repay loans totaling more than $40 billion since 2008, at a time when its production is shrinking.
When they're not producing as much oil, they're sending it to China to repay a debt and they're losing out on US trade they otherwise would have had (?) -- and on US currency (or is that just income, as opposed to a specific currency?) because of lost sales of oil to the US, which is driving the inflation.
Think I might need to do a bit more reading on Venezuela and on bonds, foreign reserves etc. because have no idea. LOL.
So far, it's been fun trying to figure it out.
