Economic adjustment and liberalization began late in the evolution of the
Venezuelan democracy. In 1958, the current democratic structure was
instated in a country rich in oil and other natural resources. The
endowment of oil, aluminum and other metals encouraged a political and
economic system that relied on rent seeking and clientelism due to the
abundant wealth that the industries produced.
As a way of introducing the political situation of the Venezuelan economy
and government since 1975, one can examine the political capacity of the
state to enact changes. Using the criteria established by Lewis Snider,
Venezuela has a weak level of political capacity. National exports are
produced primarily by the petroleum industry, property rights are weak and
often determined by bribes or influence, and domestic revenue comes
primarily from taxes on oil (50 percent), inflation, and trade taxes.
Monetary policies also illustrate a weak state: negative real interest
rates, inward oriented economy based on import substitution
industrialization, and significant levels of protectionism in trade.
Venezuela is the prototypical case of a weak state that will have minimal
political capacity and because of this, rely heavily on clientelism and
patrimony in order to continue societal, financial, and governmental
functioning.
Sectors of Economic Activity
The largest sector of the Venezuelan economy is petroleum and petroleum
products, which accounted for 82 percent of all exports in 1996 . The
extraction of oil began in Venezuela under the control of foreign
companies, after the First World War. The revenue that was generated from
the extraction, a part of which was shared by the Venezuelan State, began
to transform the economy. The traditional economy, which relied on
agricultural, and to a lesser degree, industrial exports, became
unprofitable. Rural landlords began to divert their resources into real
estate, commerce, and finance. Movement from an export base of agriculture
and export industry to services produced a heavy reliance on imports and
the government for foreign exchange and subsidies. In addition to this
transfer of resources, economic modernization, funded by petrodollars, and
based on a policy of import substitution was pursued during the 1940's.
Modernization employed protectionistic policies and government subsidized
industries in order to stimulate industrial growth.
An important qualifier about the industrial development and growth that
was seen between 1940 and 1980 is that it was funded and made possible
primarily through government subsidy. "The existence of oil rent and the
need to distribute it created a widespread rent-seeking mentality rather
than an entrepreneurial orientation toward production." Industry
developed only as far as was profitable under the present economic and
political institutions. Because there were no stipulations on government
subsidies and because firms were protected from foreign imports through the
use of policy regulations, firms were not forced or even encouraged to be
efficient or growth oriented.
The petroleum industry, therefore, created an environment where there was
no perceived need to increase economic efficiency or develop export
diversification. The pattern of protectionism and subsidy served Venezuela
during periods of stability or boom in oil prices, but it was devastating
when the prices of oil fell and petrodollars could no longer sustain the
economy.
Before the devastation of the Venezuelan economy in the early 1980's, a
period of extreme prosperity was experienced throughout all of Venezuela.
After the oil shocks of 1972-74, the government privatized the oil industry
and enjoyed extreme profits. Between 1974 and 1976, the government
established large public enterprises and secured control of oil, iron, ore,
steel, petrochemical, aluminum, and electricity industries. This expansion
of the government deepened the pattern of the government as a welfare state
and encouraged further rent seeking and patrimony. After only two years,
the oil rent was insufficient to cover all of the commitments the
government had made, commitments such as subsidizing import substitution
and agriculture for internal use, and building a social and physical
infrastructure. In fact, by the late 1970's the domestic market had become
saturated by import substituting industries; illustrated by the fall in the
non-oil GDP growth, from 7.8 percent to 2.5 percent in 1978 and the fact
that it remained negative until 1985.
Since the late 1970's, fiscal policies, political strategies, and economic
restructuring have all been implemented to improve the economic position of
Venezuela but little has changed in the structure of the main sectors of
the economy. In 1998, petroleum remains the largest export and little
export diversification has occurred. Other significant exports include
chemicals, iron and steel, and non-ferrous metals, all of which are
produced or mined by state owned industries. Privatization has slowly been
occurring but some of the industries, such as the aluminum industry are so
debt ridden that they are difficult to sell.
Revenues that are produced by the oil industry are filtered through the
state and then distributed to society. To the detriment of export
diversification and economic growth private sector energy has been focused
on seeking new ways to share in oil profits. Once the money is secured,
the elite often place their newly acquired capital in international
markets, apart from the Venezuelan economy based on fluctuating oil prices.
In other words, the elite of Venezuelan society have been able to take
advantage of the rent-seeking atmosphere of the economy without investing a
significant amount in the domestic economy. The reoccurring pattern of
capital flight allowed in the political and economic system has left the
economy extremely vulnerable to the ebbs and flows of international demand
and market prices.
Venezuelan import activity has often been correlated to the financial
situation and monetary policies of the country. The Central Bank has
typically used the process of currency devaluation to cover large fiscal
deficits (1983, 1989, 1994, and pending in 1999), and because of this, the
importation of foreign goods increases significantly before an expected
devaluation. Imports also increase when oil revenues are at a high level.
The increased level of imports is not only due to available capital and
additional demand, but also because the bolivar, the local currency, has
traditionally been overvalued making imports cheaper.
Before the "aperatura" (opening) in 1989, heavy tariffs on imports were
levied in order to protect import-substituting industries. These tariffs
and a consistently high level of petroleum exports has made a trade deficit
very rare during the past thirty years. Recently, over the past three
years, the main imports have been food, of which cereal was 50 percent,
chemicals, and machinery and transport equipment, mainly road vehicles.
Venezuela's trading partners can be identified on two different levels.
If traditional and non-tradition exports are included in the equation,
Venezuela exports the majority of its goods and services to the United
States. If traditional exports are excluded, principally petroleum
products, Colombia and the United States become about equal. Venezuela's
major import trading partners are also these same two countries (65 percent
of total imports).
An interesting trade development has been the progressive centralization of
trade within the North and South American region. Imports from countries
within this region have increased from 75 percent to 81 percent of all
Venezuelan imports. A similar increase, from 91 percent to 95 percent, was
seen in the shipment of Venezuelan exports to countries within North and
South America. This increase was facilitated by Venezuela's membership in
different regional trade agreements, including the Andean Pact, the Group
of Three, and a bilateral agreement with Colombia. The trend of increasing
regional concentration follows the predicted pattern given by Stallings in
Global Change, Regional Response. International globalization has brought
about a regional integration of trade within the Venezuelan economy.
Investment
Venezuela has become increasingly open to foreign investment through
liberalization policies that were implemented in 1989, although evaluating
the ratio of Foreign Direct Investment to Gross Domestic Product would not
lead to this conclusion. Foreign direct investment was only 1.2 percent of
GDP in 1995. This number is not an effective indicator of economic
"openness" due to the unstable nature of the economy, and the financial
sector in particular, following the banking crisis of 1994. While the
government of Venezuela is open to foreign investment, there are factors
present within the financial sector that deter it. The policies being
pursued to encourage foreign investment include trade barriers and removing
of domestic investment opportunities for foreigners, but the problems that
hinder investment are low Institutional Investor credit rating, persistent
capital flight, and the lack of an autonomous Central Bank all deter the
presence of investment.
Political Structure
Structural Overview
A general overview of the Venezuelan political structure must ultimately
include the corruptive and patrimonial nature of the Venezuelan system. It
has been estimated that "the nation has lost at least $100 billion to
corruption over the last 20 years." A system of patronage has existed in
Venezuela since the beginning of its democratic heritage in 1958, but the
oil boom in the early 1970's and the tremendous profits that resulted
enabled political parties to solidify a pattern of clientelism and power.
Between 1958 and 1973, political parties were relatively open to new
members and leaders, and the parties attempted to represent the
population's interests. After 1973 (the year of the first oil shock), two
political parties emerged as the dominant leaders of the political scene,
Democratic Action (AD) and the Social Christian Party (COPEI). Over the
ensuing years, these parties became increasingly similar as doctrinal
issues lost significance and electoral appeals gained importance.
Haggard and Kaufman describe Venezuela as "a typical two party system"
where elite consensus on economic strategy allows for a coalescence of
power between the two parties. This arrangement permits parties to become
"little more than elite dominated machines." Labor is present and
observable in smaller political parties such as La Causa R, but minor in
the overall political system. It is important to note, that the power of
leftist parties, which have typically represented the interests of the
populace, have been gaining importance in the last five years, due to
general distrust of the traditional parties caused by excessive corruption.
In the current political situation, a large part of legislative decisions
are made not in Congress but in permanent and ad hoc committees, where the
different chairman have considerable power. This structure enhances the
elite and clientelistic nature of the government, allowing few people to
decide the direction of the country's future. Further, when legislative
issues are put before Congress for a vote, it is usually the case that a
party stance has previously been determined along party lines before the
congressional hearings took place. Swaying from a party stance will
typically result in expulsion from the party. The existence of such
practices illustrates the incredible power that parties, or more
specifically, the power that party leaders hold.
In Venezuela, the traditional two party system has been losing power and
influence as the economic situation has become increasingly more desperate
for the poorest half of the nation. Corruption that was accepted and
perhaps admired in the early 1970's has become intolerable. To the general
populace, the clientelism of the 1990's illustrates that the elite are
living off the poverty of the nation. An additional factor that has caused
the parties to lose credibility has been their inability to "perform the
only function expected of them: delivering the goods." The price controls
and other subsidies that were available to the general public have been
removed with economic liberalization and yet no real improvements have been
made in living standards, in fact, living standards have continued to
decline. Despite these factors and the decreasing hegemony they have
caused in the political system, the elite still wield considerable power.
Domestic Private Sector
The domestic private sector has been a class virtually created by the oil
rents. The government identified industries where they wanted growth to
occur and then offered subsidized credits and other incentives to encourage
their development. Individuals were able to take advantage of such
governmental policy and create domestic industries at a reduced cost. A
pattern of "state-sanctioned oligopolies" emerged as a result of state
planning and private profit seeking. These oligopolies were "immune from
competitive pressures, social responsibility, and democratic
accountability." Conditions of protection and exemption from
accountability allowed the private business sector to increase their wealth
rapidly. Also, monetary policies, which allowed for the overvaluation of
the bolivar and negative interest rates, encouraged the exportation of
capital rather than its investment within the economy, again encouraging
the accumulating wealth of the private sector.
The Federation of Chambers of Commerce and Industry (FEDECAMARAS), an
organization that groups together 300 heterogeneous business associations
and organizations, represents Venezuelan employers. FEDECAMARAS wields some
political power but internal division within the organization has, at
times, hindered its effectiveness. Its political influence has also been
reduced by the fact that key industry leaders will go above the
organization and create their own agreements based on client networks with
powerful party leaders.
Within FEDECAMARAS, there is a division between progressive and
traditional factions. The progressive camp would like to see the
liberalization of trade, the cutting of subsidies and transfer payments,
reducing of public expenditures and state intervention in the market, and
an exchange rate based on non-oil economy. Those who align with this
position are most likely newcomers to the industrial sector and without
powerful patronage connections or those wealthy businessmen who used the
system to get rich and would now like to use to international markets to
increase their wealth due to the unreliability of the state during periods
of crisis. It was from this section of FEDECAMARAS that individuals were
chosen to draft the liberalization policies that were implemented in 1989.
The opposing camp, those who would argue on traditional lines, desire
continued protection against external competition, high levels of state
expenditures on infrastructure, and an import-biased exchange rate.
Traditionalist individuals are those with the most to lose if the structure
is to change. In this group would probably be found the elite that have
dominated Venezuelan society for the past twenty-five years.
For the economic future of Venezuela, it appears that the program
advocated by the "progressively" minded businessmen will increasingly be
implemented to stimulate economic changes. This type of program garners
additional support from World Bank concessional requirements and basic
international investment pressures. Despite this situation of new ideas
and procedures, the traditional elite must not be overlooked. They still
control enough power to stall effective and all-encompassing change. This
ability has been demonstrated on many different occasions since the initial
economic liberalization in 1989, and the pattern does not appear to be
abating.
Labor
Labor enjoys some control, albeit limited, over the Venezuelan political
system. Like the private business sector, labor is organized beneath a
representative institution to better present its demands to the state. The
largest and most influential labor organization is the Venezuelan
Confederation of Worker (CTV). This federation, with 1.5 million members,
has been controlled in part by the political party, AD, since the 1940's.
Typically, the demands of labor have been satisfied by the government and
private firms without much disagreement due to price controls on basic food
items and high minimum wages. Only recently have union leaders had to
separate from their political connections in order to represent their
constituency. This separation and the weakening political influence over
the labor organizations has arisen from the declining labor force's
declining quality of life. Union leaders could no longer afford to ally
with party leaders in substitution for the needs of the workers if they
wished to retain their positions in the union.
The power of the labor force is not overt in the Venezuelan political and
social system but evidence exists to support the idea that labor does have
influence. Such evidence includes the populace revolt that occurred in
February 1989 in response to the rise in bus fares, two unsuccessful coup
attempts in 1992 that were waged as a statement against the corruption, and
the reshaping of the supreme court after the expression of large public
discontent. None of these things would have happened if the public felt
that they had a legitimate voice in the public affairs of the country.
After the looting and rioting of the 1989 revolt, politicians were forced
to reevaluate the "paquete", as the neo-liberal reforms were called, and
eventually social reforms were put in place to try and ease the burden of
the reforms. The coup attempt also forced the government to reinstitute
some of its traditional policies. The power of labor is in no way equal
or superior to that of private firms or political elite, but it is a force
that must be reckoned with, more so in the late 1990's than ever before.
The Venezuelan political system, in a general sense, has common
characteristics with the "Japanese" model described by Stallings. The
state bureaucracy plays a central role in government, using markets in the
service of national economic and political objectives. Also, markets are
firmly embedded in social and political institutions and relations. An
area where the Venezuelan reality diverges from this model is in the high
level of legitimacy that the model allocates to the state and authority in
general. The Venezuelan State and political system are not seen as
legitimate from a domestic or international standpoint. The state's
political power is secured through oil revenues and by the firm control
that political actors hold over their parties, not by the respect of labor
and admiration of foreign investors.
Financial Sector
The Venezuelan financial sector is largely dominated by Commercial Banks.
A stock market does exist but it has never been widely used. The banking
sector, on the surface, does not appear to be highly concentrated, in 1993
the HHI was .07, but concentration is an influencing factor on the
structure of the banking system due to the existence of financial groups.
Commercial banks are the focal point of the financial groups but they are
also composed of a mortgage bank, a savings and loan corporation, an
investment bank, and numerous other smaller entities. In reality, these
financial groups allow for a larger rent-seeking network, a larger area of
influence, and increased liquidity. It is common practice for financial
groups to pool their money together for a client and make a loan from
combined assets. The foundation of this process is in the overall lack of
liquidity in the banking sector due to all of the domestic money that is
sent abroad.
Commercial Banks
Most of the banking sector is privately owned, with five state banks having
been nationalized in the past eight years. Despite this trend, as recently
as the banking crisis in1994, sixteen banks were nationalized in order to
keep them from crashing, which totaled nearly half of the assets in the
banking system. These banks have slowly been returned to the original
owners or to foreign investors.
The banking crisis of 1994 was grounded in political events that occurred
years earlier. In 1989, President Perez deregulated the banking industry,
while at the same time eleven of the nation's banks were on the edge of
bankruptcy, and laws to improve regulations did not pass Congress. The
situation was further exacerbated by negative real interest rates that were
sustained by the government. Speculation took over the loan market and low
interest rates sent depository capital into the international market.
This combination, accentuated by the lack of financial regulation, led to a
liquidity crisis that paralyzed the banking system. Bank insolvency was
also caused by tradition commercial bank lending practices based on a model
of clientelism. A consumer's credibility has been based on relationships
and past experiences, not on one's ability to pay back a loan, per se.
The combination of speculative and uncompetitive lending and the external
flow of capital provided the foundation of the banking crisis and is
representative of the system in general.
In an attempt to reform the banking sector, nationalized banks have begun
to be sold to international banking firms which have introduced an element
of competition that did not exist before. This new international
perspective should strengthen the banking sector but little actual reform
has been made. It is still the same people who were in control of the
banks when they crashed, that are in control now, and little new regulation
has been implemented.
Lending within the banking system is highly selective, leaving many firms
without the capital they need. In response to the inaccessiblity of
capital in the formal sector, an informal lending sector has developed.
Venezuelan informal lending can stem from economic groups that lend money
to firms within the industry they represent or from informal moneylenders.
The following table illustrates the distribution of national lending
practices.
Venezuelan Manufacturing Firms
Financial Sectors Small Medium Large
National Capital
Informal 55 26 39
Formal 27 45 33
International Capital 18 29 26
Total 100 100 100
Espineira, Sheldon, and Associates (1990)
from the informal sector, large firms do also. This data highlights the
distrust and weakness of the formal financial sector.
Government involvement in the commercial banking sector is important,
despite the fact that the banks are owned by the private sector. In a
country that relies heavily on patronage and clientelism, those that hold
political power also have power in the financial sector. An in-depth
literature study did not disclose the exact link between finance and the
government, but the connection is unavoidable within a narrow class of
elite. Government interference in the financial sector is also highly
noticeable in the monetary policy of the country. Consistent negative
interests rates have directly subsidized businesses and bankers who have
taken advantage of the rates to loan money to their own industrial firms .
This subsidy was at the expense of the government and was afforded by oil
rents.
Stock Market
The Venezuelan stock market is underdeveloped and underused. The gains
that the market made through financial liberalization were lost in the '94
bank crisis. In the crisis, the stock market sustained a deafening blow;
market capitalization dropped from 17.2 percent to 4.9 percent of GDP
between 1990 and 1995. Foreign Investors that traded on the market before
the crisis were much less willing to risk their investments after. Lack of
foreign and domestic involvement has minimized the significance of the
markets as part of the financial sector. The low level of investor and
firm involvement in the market can be explained by the following factors:
the legal system does not guarantee property rights, it is easy to
manipulate prices, the high concentration of wealth, the need for the
seller to disclose account information, and state subsidies offer a more
convenient way to receive financing.
Central Bank
The Venezuelan Central Bank has the description of being autonomous, but
once again, the description does not meet with reality. The President of
Venezuela appoints the president of the central bank and, by law, also has
the right to intervene in Central Bank policies "if the need arises." The
impingement on the autonomy of the Central Bank arose as a response to the
banking crisis of 1994. The Nation's president and the Council of
Ministers were given the ability to impose exchange controls and fix
exchange rates. A vivid illustration of the lack of autonomy of the
Central Bank is the fact that the current governor, whose term expired more
than two years ago has still not resigned. The absence of autonomy is
seen by foreign investors as a risk; if the Bank's policies are not
consistent and durable, the investors do not have reassurance about the
safety of their investment.
Analysis of Financial Sector
The domestic financial institutions of Venezuela are based on a model that
that is credit based and falls between one in which the government
administers prices and one where a banker's oligopoly is present. Taking
the structure of these models from Zysman, the government-controlled model
is demonstrated in the Venezuelan system through fixed prices and the use
of monetary policy to subsidize lending and import substituting industries.
The banker's oligopoly is present in the small number of bankers who hold
control over lending practices.
The banking system is moving toward a more "German" based system as the
bankers are gaining more power and the government is losing power. The
power of the bankers is increasing because of the reduction of state power
through liberalization and the limited capital that is available in the
financial system due to low oil rents and high external debt. The situation
is progessing toward a time when the banker will "have the upper-hand" in
discussions with government, especially if a populace president is elected
in December.
The system of cooperation between banking and politics that was fluid in
the past is becoming more difficult. Financial liberalization has allowed
for the entrance of foreign bankers and less government intervention into
monetary policies (e.g., removal of fixed prices and fixed exchange rates).
These changes have and will cause some alterations in the financial sector
but the changes are likely to be minor unless banking regulations are
highly improved and a competitive market base is established; two
alterations that would not be welcomed from those who have traditionally
benefited from a position of privilege.
Despite reforms to reduce public involvement in the banking sector and
improve foreign access to financial capital, financial liberalization has
not change the banking situation to a large extent. Key indicators of
financial orthodoxy are absent from the financial system despite
liberalization almost ten years ago. Credit to the private sector has
actually decreased between 1980 and 1995, from 48.2% of GDP to only 12.2 %
and the Central Bank is not an autonomous entity, although that was the
intent of policies created to reduce government intervention in monetary
policies. There was one change that improved orthodoxy, the privatizing of
many publicly owned banks. This action, which in theory would improve the
objectivity of the banking system, did not actually alter the financial
system to a large degree due to the concentrated power of the financial
sector outside of state relations. Concentration of assets and authority
minimized the effect of privatization, as well as financial liberalization
in a general sense. The ineffectiveness witnessed was predictable because
the threat of capital flight, a common tool of liberalization to induce
transparency and reform, has not been an appropriate incentive for the
Venezuelan banking system. As Mahon suggests, those who control the
majority of the nation's assets are able to benefit more from the present
situation than from a transparent one and therefore maintain the status
quo. In an effort to attract foreign capital, the implementation of
actual reforms may take place in the near future, but only if those
currently in power see it in their best interest, although the weakening of
the Venezuelan welfare state may speed up the process.
Politics of Liberalization
Since the oil boom of 1972, Venezuelan debt has been an issue of
consideration for the domestic government, as well as foreign lenders.
Virtually no borrowing restrictions were placed on state institutions
during the 1970's which led to excessive short-term. The result was a
short-term debt of $15,550 million by 1980 or 22 percent of GNP. When
this short-term debt matured in 1983, the government was forced to
restructure its debts, devalue the bolivar and deal with banks that had
crashed due to significant capital flight and basic insolvency.
During the next four years, President Jaime Lusinchi (1983-1987) undid
minor liberalization efforts instituted by the previous president, Luis
Herrera Campins, such as partial deregulation of the economy, reduction of
tariff duties and public investments. Lusinchi put in place new price
controls and maintained multiple exchange rates that served as subsidies
for private industry interests. Despite these statist type policies, the
government cut expenditures and devalued the bolivar, which led to a
positive balance of payments, less private income, and thus a slump in
economic growth. By 1986, the 1988 elections entered the political
discussion and a public investment program, based on deficit spending, was
implemented to increase domestic demand and improve the sentiments of the
population. The program worked and the populace truly "liked" this
administration, unfortunately the economic situation was unsustainable. In
1989, with a growth rate of -10% and an external debt that was 77.5 percent
of GNP, President Carlos Andrés Perez (1989-1993) assembled a cabinet of
industry leaders, rather than party elite, and began a economic and
financial liberalization process. The process was made possible by the
weakening of the state through large external debt, which empowered the
private sector to gain some of the state's lost control. Using methods
prescribed by the Washington Consensus, they eliminated price controls,
established a floating exchange rate, reduced import tariffs, reduced
fiscal deficits by increasing prices of public goods, and liberalized
interest rates, as well as establishing Central Bank autonomy and eventual
privatization of the banking sector. IMF credit was sought and received
for the first time during this period.
Neither the masses nor the elite received positively the encompassing
reform, while perfect in terms of financial orthodoxy and liberalization.
The state immediately attempted to transform itself from a welfare state
into a "lean and mean" state with no provisions for the already
impoverished lower class. The protectionism that was typical for
Venezuelan industries was also removed leaving domestic industries
unprotected and unable to compete with international competition. These
alterations led to popular revolt and congressional stalemate on further
reforms. The national elite did not want to see their current situation
change because any shift of power would jeopardize their traditional
stronghold. The reforms did in fact weaken their political position, but
they were still able to deter or at least postpone further liberalization.
The criticisms offered by the Venezuelan people are important indicators of
the internal opinion toward reform. On an international scale, Japan's
Principal Aid agency's (Overseas Economic Cooperation Fund) criticism of
the "market-friendly" approach to economic transformation can be applied to
the Venezuelan situation. The critique implied that "simply introducing
market mechanisms and eliminating restrictions on the private sector would
not necessarily lead to increased investment" and that relying on
inefficient and underdeveloped domestic private financial institutions to
allocate capital efficiently is misguided assumption. Both of these
critiques proved to be true. While international investment marginally
increased from 1989 to 1994, the increase was not overpowering and domestic
capital continued to abstain from investing in Venezuelan industries. The
banking issue is much more obvious. After liberalization, speculation
occurred in the industry and the Banking Crisis and millions of dollars
lost was the result. It appears that in Venezuela, strict and immediate
financial and economic liberalization caused more detriment to the economic
system than good. This is not to say that liberalization, transparency,
and international competition can not improve on the economic situation in
Venezuela, only that a more socially oriented reform would have allowed for
a progressional evolution of the welfare state into an autonomous and
embedded state entity.
Since 1989, liberalization has been progressing on a start and stop basis
as political agendas and the traditional clientelistic processes still must
be encountered and dealt with. The banking crisis of 1994 resulted in an
instantaneously revert back to statist type policies with controlled
exchange rates and price controls. This quick abandonment of autonomous
fiscal policies led international investors to question the sincerity of
governmental reforms. When relative stability was established in the
Venezuelan economy, liberalization processes were again resumed but this
break in reforms caused a loss of international and domestic capital and
legitimacy for the Venezuelan state and the liberalization process.
Without a return of capital investment, it will be very difficult for
growth to occur, especially if oil prices remain low.
In the liberalization process, reforms have been difficult to maintain
because of a lack of majority opinion. There are competing interests
between the growing private and banking sectors and the political elite.
The former view international markets and capital as a way to improve the
economic viability of personal and national interests. The latter would
like to continue manipulating the rentier welfare state to gain incredible
profits. International and economic pressures are pressing Venezuela for
further economic liberalization, strengthening the probability of continued
economic and financial reform.
The oil industry and its tremendous potential for instantaneous profits
complicate the stability and significance of change in Venezuela. Unless
reforms are implemented to monitor and distribute increased revenues from
oil booms effectively, the clientelism, which is ever present but currently
not as influential, may become the dominant indicator of economic success
once again.
Colombia and Venezuela, Compared
Venezuela and Colombia are two countries with similar political and
economic histories. I would like to explore the different evolutions that
took place in the economic development of the two countries. Both
countries entered the 1950's with one main export crop and yet they entered
the 1980's completely different. Colombia was able to diversify their
economy while Venezuela did not. The countries political structures and
the economic interests of those with control can provide foundational
reasons for the differing evolutions. Colombia, with a broader base of
powerful individuals who had vested interests in conglomerate firms, was
willing to diversify their economy early on in the globalization movement.
Venezuela, on the other hand, with a small elite base that did not hold
diversified economic interests who would not have gained from liberal trade
policies and open financial liberalization, only succumbed to
globalizational pressures when they could see no other alternative.
Taking into account these differences, the eventual financial
liberalization of the two countries appears to be very similar. I will try
to identify elements which led to a similar outcome of flexible exchange
rates, positive real interest rates, foreign bank investment, etc., despite
divergent processes of liberalization.
As a side note, I will investigate the influences of powerful business
associations in Colombia and an active labor force in Venezuela as
variables in the liberalization process.
Works Cited
Cohen, Aarón and Jaime Sabal. "Capitulo 4." In Las Empresas Venezolanas:
Su Gerencia. ed. Moisés Naím. Caracas: Ediciones IESA, 1988.
Colitt, Raymond. "Warning on Venezuelan Economic Crisis," Financial Times
(USA edition), 28 August 1998, 4.
Durand, Franciso and Rosemary Thorp. "Colombia, Peru, and Venezuela
Compared." In Business and the State in Developing Countries, ed. Sylvia
Maxfield and Ben Ross Schneider, 216-236. Ithaca: Cornell Press
University, 1997.
Economist Intelligence Unit. "Venezuela," Economist Intelligence Country
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