Venezuelan Economy and Problems - Case Study Example

Venezuelan Economy and Problems Venezuela as a is suffering from severe political, economic and social problems that affect its population. Economic problems are considered as some of the major issues affecting its growth and development. With respect to the latest article regarding the world politics review, a Latin American analyst from the Inter-American Dialogue, Paul Shortell mentioned that with the decreasing crude oil prices by 25% since June, and being at about $86 a barrel on Tuesday, Venezuela country appears to be losing the hook. The reduced prices are expected to put much stress on Venezuela’s oil-reliant economy. This is since Venezuela government is struggling a lot with the increasing macroeconomic inequity (Corrales, Javier, and Michael Becerra, 13). Oil accounts for more than 95% of Venezuela’s exports and about half of the government’s income. Venezuela’s problem is that the exchange rate guidelines implemented by Hugo Chavez are leading to big problems for plans in Venezuela. In September Clorox secured its dealings in Venezuela. American and Delta airlines have minimized their flights to Venezuela. Instead of addressing any of the basic issues the state’s government has majored on criticizing its critics (both literally and figuratively). Bottlenecks continue hamper trade, encumber business actions and additionally minimize government expenses. A lack of money should ensure Maduro sounding the alarm, as Venezuela state is expected to pay the debt of more than $28 billion over the coming two years (Corrales, Javier, and Michael Becerra, 17). The state’s liabilities continue to increase while the foreign reserves were at a ten year low by October. Venezuelas monetary flexibility score is about 36.3, creating its financial economy to 175th as per 2014 Index. Its score is basically unaltered from a year ago, with increases in exchange flexibility, financial opportunity, and the control of government using balance by decreases in flexibility from defilement, business flexibility, work opportunity, and monetary flexibility (Karl, Terry, 23). Venezuela is positioned 28th out of 29 nations in the South and Central America/Caribbean district, and its general score is far underneath the world and provincial midpoints. Over the past 20-year account of the financial Index, Venezuelas monetary flexibility has disintegrated by 23.5 focuses, the most exceedingly awful decrease of any nation. Noteworthy misfortunes have happened in eight of the 10 measured classifications, including property rights and the region of business sector openness, scores for which have dove 45 focuses or more. Administrative productivity, measured through business opportunity and fiscal steadiness, has lessened significantly as state impedance in the economy has developed (Karl, Terry, 25). With an economy evaluated as "subdued" since 2004, Venezuelans have persisted through financial stagnation and decaying living conditions. Oil costs have driven late solid financial development; however monetary improvement remains seriously obliged by institutional deficiencies. The principle of law, undermined by a frail legal subject to political impedance, is delicate the nation over. According to information acquired some months ago from the Standard and Poor’s analysts, Venezuela has a 50% probability of defaulting at some point in the coming two years (Karl, Terry, 27). In an op-ed published on 16th October Harvard, economists Carmen Reinhart and Kenneth Rogoff said that Venezuela is a great oil exporting state that is so acutely mismanaged that the real inflation adjusted per capita GDP today is below 2%. And this value is lower than that one of 1970, in spite of the ten-fold upgrade in oil costs (Nichols, 19). Reinhart and Rogoff consider Venezuela’s present problems to be caused mainly by the political effects of the current president Nicolas Maduro and his predecessor Hugo Chavez. Venezuela has $3.5 billion of unpaid bills for the pharmaceutical imports, payment debts of more than $2 billion for consumable, and about $4 billion payable to airline companies (Elizabeth, 29). Oil manufacturing has reduced to more than half since 1997, in no small sections because the country-owned oil firm has regularly defaulted on joint venture partners and suppliers. The devaluations and reduction of Venezuela currency has greatly impacted on most companies. For instance, Coca-Cola was forced to retract its $247 million in losses because of the reducing value of Venezuela currency. Another company to be affected by the devaluating value of Venezuela’s currency is the DirectTV which also encountered losses. A statement from Rogoff to Boomberg, stated that Venezuela had widespread domestic defaults and an economy that was imploding. He further mentioned that the only way to improve the economy of Venezuela was to get the political house in order. From his statement it is clear that most of the failures of the State of Venezuela were caused by the poor political systems imposed by the present president Nicolas Maduro and his predecessor Hugo Chavez. Apart from that, Maduro has also criticized the reporting agency Reuters for printing articles relating to Venezuela’s economic problems (Kimberly, 31). However, the fact still remains that Venezuela’s economy is struggling and if nothing is done soon enough; the state will be at a financial crisis. Information indicates that the president, Nicolas Maduro exacerbated issues inherited from the predecessor and mentors Hugo Chavez and is held key responsible for the increasing number of protests throughout the State (Nichols, 35). This is as mentioned by the former United States ambassador to Bolivarian Republic Patrick Duddy. He further states that, all problems lead to the weak economic capability, including a paradox of the combination of currency and price controls. Data from statistics for the past 9 months further show an increasing level of inflation. Previous year the inflation was at 25% while in the present year it is at 56%. As the norm, the Scarcity Index (SI) is known to be beyond 20% and food prices have since then increase to values higher than usual. Before the legislative elections in December, the government of Venezuela not only criticized the high prices of consumer goods and private sector, but also ensured the public that the costs of goods and services would be reduced to affordable rates. This enabled all the stores that did not have stocks by that time to be emptied effectively (Nichols, 39). But how was the government going to replace the used stocks while these goods were not produced in Venezuela. The government’s restricted access to dollars also contributed to the reduction of economy and led to increase in inflation levels. The economic problems have grown worse and worse and the government are getting more defensive. Since the year 2003, access to dollars has been minimized to persons, companies or organizations in state-run level and particular business sectors. The impact has been that bolivares have been valued at far less than the normal exchange rate (Kimberly, 37). Maduro added to the mayham, with his organization reporting in January that Venezuelans voyaging abroad could just get the foreign currency at a rate higher than the authority rate, controlled by a week after week currency closeout. Likewise, Maduro instituted the Fair Price Law, which set most extreme overall revenues at 30 percent for organizations and obliges them to acquire "reasonable value authentications" to get to dollars (Morrison, Marion, 9). The law conveys jail sentences for those sentenced storing or "destabilizing the economy." While changing cash on the underground market is a wrongdoing, it is not difficult to discover a merchant. The authority conversion scale is at present 6.30 bolivars to the dollar. On the underground market, the conversion scale is 10 times higher. Venezuelans ascertain their typical cost for basic items as indicated by the underground market trade rates and costs of property and utilized autos develop as per the bootleg market rate (Wardrope, William, 34). Examiners say the underground market makes bends in the economy and prompts a double economy. This implies that those Venezuelans who acquire in dollars or have simple access to dollars have a becoming purchasing force because of the bootleg market, on the grounds that their dollars purchase more bolivars consistently. At the flip side of the range there are Venezuelans whose pay rates lose purchasing force in light of the high expansion rate. While the legislature has raised least wages, this has been inadequate in paying for the lost time with swelling. Investigators likewise say the altered conversion scale is at fault for different issues the Venezuelan economy is encountering, for example, deficiencies (Wardrope, William, 36). Also, a year ago, the administration assumed control over a gadgets retailer blamed for overpricing its items. Maduro guaranteed the exertion would lessen shopper costs by 5 percent. Rather, costs climbed 4.8 percent. "Their endeavors at changing over what was a business arranged economy into a communist economy have killed much of what was a genuinely beneficial private division," said Duddy. While Maduros approaches have declined the economy in Venezuela, his failure to lead has additionally been an issue, as indicated by Duddy, who says his default reaction to clash is to occupy and fault (Morrison, Marion, 12). Amid the current dissents, Maduro has declined to recognize the grievances of the challenging open, and has rather taken to blaming the political resistance and the nonconformists of being "fascists" that try to destabilize the legislature (Wardrope, 39). Duddy calls the cases "ridiculous." "That is a piece of their push to attack their resistance and rally their own particular base," clarifies Duddy. "…it is a piece of a crusade to occupy consideration from the urgent circumstances inside the nation and which are an outcome of their own arrangements." Maduro has faulted the current dissents for the United States, saying that they helped arrange understudy dissenters keeping in mind the end goal to "make youth bunches that produce roughness." That charge has headed Maduro to toss out eight U.S. negotiators in the most recent year, including three bad habit diplomats, for leading standard strategic exercises, says Duddy. "This is a really straightforward endeavour to recommend that different nations, the United States specifically, are in charge of their issues," said Duddy. According to Duddy, this strategy is not an isolated occurrence. Last year, the president laid blames on US for giving cancer to the previous president Chavez. And in December the same year, he blamed the Caracas power outage on a conspiracy by the opposition (William, 34). Possibly the most egregious sample of the blame game is Maduro blaming the demice of six protesters on the fascist groups related with the opposition, rather than pro-Chavista militant sets that most people consider as the ones to blame. While Duddy mentions that it is far much early to guess whether the strikes could cause Maduro’s resignation or other elements of the Chavista government, he was sure that the future progress of the government will be dogged by its ability to stop running away from problems and start facing policy issues directly (William, 34). Considering the problems affecting Venezuela, it is appropriate to review some of the following valid facts: The background of Venezuela’s Problems The passing of Hugo Chávez in early 2013 prompted elections that was won by Chávezs hand-picked successor and previous outside priest Nicolas Maduro. Opposition frontrunner and state senator Henrique Capríles denounced the defective race, however without much of any result. After more than 14 years of "21st-century communism," financial and political flexibility is nonexistent. Nourishment is rare, swelling is taking off, debasement is wild, and the capital, Caracas, is one the worlds most perilous urban areas (Willis, Terri, 27). Maduro emulates Chávezs style yet without his charm. He has reinforced ties with China, Cuba, Russia, and Iran and abuses political foes and commentators. Confinements on media flexibility destabilise the oppositions. The Rule of Law If there was ever a state made up of actors who in a state-wise political system could be seen to have upgraded the system of 21st century corruption, it would be the State of Venezuela. Here is a country where government leaders or politicians act with total impunity. The complete formal economy presently works as a black market, and the external experts estimate that yearly inflation far exceeds normal estimates (Willis, Terri, 29). The judiciary is a dysfunctional and totally controlled by the executives. Limited Government The high personal income and corporate tax rates are at 34%. Additional taxes include the VAT (Value Added Tax). The total tax burden for the government amounts to about 12.5% of the total domestic economy. Government spending has gone to 40% of the GDO (Gross Domestic Output). The public debt levels continue to increase, reaching to about 60% of the GDP (Gross Domestic Product). These data are indicating how the government of Venezuela is under a crisis and all its financial inputs are at a minimal stage (Willis, Terri, 31). Regulatory Efficiency No base capital in Venezuela is obliged to make a business, yet the methodology takes 17 methods and in excess of 100 days. Finishing authorizing necessities costs about the level of normal yearly wage and takes more than 10 months. The work business remains state-controlled. The legislatures exceptionally broad monetary and money related arrangement, coupled with trade and value controls, has prompted a strongly exaggerated authority swapping scale (Willis, Terri, 33). Open Markets in Venezuela Venezuelas normal levy rate is 8.6 percent. Non-tax obstructions confine imports of autos and farming items. It may take a few weeks to import products. Prohibitive currency controls, seizure of private property, and other government measures dishearten outside speculation (Willis, Terri, 35). The money related part, ruled by banks, stays controlled by the state through steered credits and dangers of appropriation. Long haul money is rare. Conclusion In conclusion, therefore, it is clear from the unfolding events in Venezuela that the main causes of all the experienced problems are the political wrangles, poor mismanagement of funds, lack of a common well advised leader and several issues related to the reduction in number of productive companies (Willis, Terri, 37). Inflation has been reported as the result of all the financial problems and it’s on rise at a very high rate. Reference Corrales, Javier, and Michael Becerra. Dragon in the Tropics Hugo Chávez and the Political Economy of Revolution in Venezuela. Washington, D.C.: Brookings Institution, 2011. Print.Top of FormBottom of Form Karl, Terry Lynn. The Political Economy of Petrodollars: Oil and Democracy in Venezuela. 1982. Print.Top of FormBottom of Form Nichols, Elizabeth Gackstetter, and Kimberly J. Morse. Venezuela. Santa Barbara, Calif.: ABC-CLIO, 2010. Print.Top of FormBottom of FormTop of FormBottom of Form Wardrope, William. Venezuela. Milwaukee, Wis.: Gareth Stevens Pub., 2003. Print. Top of FormBottom of Form Willis, Terri. Venezuela. New York: Childrens, 2003. Print. Morrison, Marion. Venezuela. Philadelphia: Chelsea House, 1999. Print. Read More