28 December 2018

Venezuela's Economy A Disaster. Why?

Venezuela's Economy is among the worst in the world, despite having been one of the strongest in Latin America until the early 1980s.

One of its problems was massive over dependence on oil revenues. It also hasn't dealt well with downturns, frequently seizing private property and imposing price controls, while letting hyperinflation get out of control, and ending free market currency exchanges with the outside world. Labor law reforms undermined workplaces. Outside investors upon whom its economy relied heavily were spooked and left en masse. Cut off from the trade that financed half of its GDP, the economy has collapsed resulting in immense misery in a country that was the most affluent in Latin America into the early 1980s.
The economy of Venezuela is largely based on the petroleum sector and manufacturing. In 2014, total trade amounted to 48.1% of the country's GDP. Exports accounted for 16.7% of GDP and petroleum products accounted for about 95% of those exports. Venezuela is the sixth largest member of OPEC by oil production. Since the 1920s, Venezuela has been a rentier state, offering oil as its main export.
From the 1950s to the early 1980s, the Venezuelan economy experienced a steady growth that attracted many immigrants, with the nation enjoying the highest standard of living in Latin America. 
During the collapse of oil prices in the 1980s, the economy contracted the monetary sign, commenced a progressive devaluation and inflation skyrocketed to reach peaks of 84% in 1989 and 99% in 1996, three years prior to Hugo Chávez taking office. The nation, however, has experienced hyperinflation since 2015 far exceeding the oil price collapse of the 1990s. . . . When world oil prices collapsed in the 1980s, the economy contracted and inflation levels (consumer price inflation) rose, remaining between 6 and 12% from 1982 to 1986 The inflation rate peaked in 1989 at 84%, the year the capital city of Caracas suffered from rioting during the Caracazo following the cut of government spending and the opening of markets by President Carlos Andrés Pérez. After Pérez initiated such liberal economic policies and made Venezuelan markets more free, Venezuela's GDP went from a -8.3% decline in 1989 to growing 4.4% in 1990 and 9.2% in 1991, though wages remained low and unemployment was high among Venezuelans.
Since the Bolivarian Revolution half-dismantled its PDVSA oil giant corporation in 2002 by firing most of its 20,000-strong dissident professional human capital and imposed stringent currency controls in 2003 in an attempt to prevent capital flight, there has been a steady decline in oil production and exports and a series of stern currency devaluations, disrupting the economy. Further yet, price controls, expropriation of numerous farmlands and various industries, among other disputable government policies including a near-total freeze on any access to foreign currency at reasonable "official" exchange rates, have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers. In 2015, Venezuela had over 100% inflation—the highest in the world and the highest in the country's history at that time. According to independent sources, the rate increased to 4,000% in 2017 with Venezuela spiraling into hyperinflation[ while the population poverty rate was between 76% and 87%.

At first, the economic decline was due to low oil prices, but it was fueled by the turmoil of the 2002 coup attempt and the 2002–2003 business strike. Other factors of the decline were an exodus of capital from the country and a reluctance of foreign investors. . . . The inflation rate as measured by consumer price index was 35.8% in 1998, falling to a low of 12.5% in 2001 and rising to 31.1% in 2003. Historically, the highest yearly inflation was 100% in 1996. In an attempt to support the bolivar, bolster the government's declining level of international reserves and mitigate the adverse impact from the oil industry work stoppage on the financial system, the Ministry of Finance and the central bank suspended foreign exchange trading on 23 January 2003. . . . The housing market in Venezuela shrunk significantly with developers avoiding Venezuela due to the massive number of companies who have had their property expropriated by the government. . . . Venezuela had the weakest property rights in the world . . . with expropriation without compensation being common. . . . 
According to the misery index in 2013, Venezuela ranked as the top spot globally with the highest misery index score. The International Finance Corporation ranked Venezuela one of the lowest countries for doing business with, ranking it 180 of 185 countries for its Doing Business 2013 report with protecting investors and taxes being its worst rankings. In early 2013, the bolívar fuerte was devalued due to growing shortages in Venezuela. The shortages included necessities such as toilet paper, milk and flour. Shortages also affected healthcare in Venezuela, with the University of Caracas Medical Hospital ceasing to perform surgeries due to the lack of supplies in 2014. The Bolivarian government's policies also made it difficult to import drugs and other medical supplies Due to such complications, many Venezuelans died avoidable deaths with medical professionals having to use limited resources using methods that were replaced decades ago. . . . 
The Economist said Venezuela was "[p]robably the world’s worst-managed economy". Citibank believed that "the economy has little prospect of improvement" and that the state of the Venezuelan economy was a "disaster". The Doing Business 2014 report by the International Finance Corporation and the World Bank ranked Venezuela one score lower than the previous year, then 181 out of 185. The Heritage Foundation ranked Venezuela 175th out of 178 countries in economic freedom for 2014, classifying it as a "repressed" economy according to the principles the foundation advocates. According to Foreign Policy, Venezuela was ranked last in the world on its Base Yield Index due to low returns that investors receive when investing in Venezuela. In a 2014 report titled Scariest Places on the Business Frontiers by Zurich Financial Services and reported by Bloomberg, Venezuela was ranked as the riskiest emerging market in the world. Many companies such as Toyota, Ford Motor Co., General Motors Company, Air Canada, Air Europa, American Airlines, Copa Airlines, TAME, TAP Airlines and United Airlines slowed or stopped operation due to the lack of hard currency in the country, with Venezuela owing such foreign companies billions of dollars. . . . 
President Nicolás Maduro reorganized his economic cabinet in 2016 with the group mainly consisting of leftist Venezuelan academics. . . . Maduro's new cabinet was expected to tighten currency and price controls in the country. . . . Analysts believed that the Venezuelan government has been manipulating economic statistics, especially since they did not report adequate data since late 2014. . . . the Central Bank of Venezuela delayed the release of statistics and lied about figures much like the Soviet Union did. . . .
By 2016, media outlets said that Venezuela was suffering an economic collapse[ with the IMF estimating a 500% inflation rate and 10% contraction in the GDP. In December 2016, monthly inflation exceeded 50 percent for the 30th consecutive day, meaning the Venezuelan economy was officially experiencing hyperinflation, making it the 57th country to be added to the Hanke-Krus World Hyperinflation Table. On 25 August 2017, it was reported that new United States sanctions against Venezuela did not ban trading of the country’s existing non-government bonds, with the sanctions instead including restrictions intended to block the government’s ability to fund itself. . . . the price increase for a cup of coffee to have increased by 718% in the 12 weeks before 18 January 2018, an annualized inflation rate of 448,000%. The finance commission of the National Assembly noted in July 2018 that prices were doubling every 28 days with an annualized inflation rate of 25,000%. 
The country was heading for a selective default in 2017. In early 2018, the country was in default, meaning it could not pay its lenders.. . .
In November 2010, workers spent a week protesting outside factories in Valera and Valencia following the expropriation of the American bottle-maker Owens-Illinois. . . . In recent years, a barrage of pro-worker decrees have been passed. The most significant could be the 2012 labor laws known as the LOTTT. These laws included the virtual ban on dismissal, shorter work week, improved holidays and enhanced maternity benefits. The LOTTT offers job security to most workers after the first month. Employers have reported an absenteeism rate of up to 40% which they blame on the leniency of these labor laws. As expected, employers have been less willing to recruit. On 17 November 2014, President Maduro issued a decree to increase the minimum salary for all workers by 15%. The decree became effective on 1 December 2014. As part of the May Day celebrations in honor of workers' day, President Maduro announced on 28 April 2015 that the minimum wage would increase 30%; 20% in May and 10% in July, with the newly announced minimum wage for Venezuelans being only about $30 per month at the widely used black market rate. In September 2017, the National Union of Workers (UNETE) announced that Venezuela had lost 3,345,000 jobs since the election of President Maduro. By December 2017, the number of lost jobs increased by 400,000 to over 3,850,000 lost jobs since the start of Maduro's tenure.
Via Wikipedia.

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