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Venezuela GROWTH AND STRUCTURE OF THE ECONOMY
Spanish expeditionaries arrived in what is present-day
Venezuela in 1498, but generally neglected the area
because of
its apparent lack of mineral wealth. The Spaniards who
remained
pursued rumored deposits of precious metals in the
wilderness,
raised cattle, or worked the pearl beds on the islands off
the
western end of the Península de Paria. Colonial
authorities
organized the local Indians into an
encomienda
system (see Glossary) to grow tobacco, cotton, indigo, and cocoa. The
Spanish
crown officially ended the encomienda system in
1687, and
enslaved Africans replaced most Indian labor. As a result,
Venezuela's colonial economic history, dominated by a
plantation
culture, often more closely resembled that of a Caribbean
island
than a South American territory
(see Spanish Colonial Life
, ch.
1).
Cocoa, coffee, and independence from Spain dominated
the
Venezuelan economy in the eighteenth and nineteenth
centuries.
Cocoa eclipsed tobacco as the most important crop in the
1700s;
coffee surpassed cocoa in the 1800s. Although the war of
independence devastated the economy in the early
nineteenth
century, a coffee boom in the 1830s made Venezuela the
world's
third largest exporter of coffee. Fluctuations in the
international coffee market, however, created wide swings
in the
economy throughout the 1800s.
The first commercial drilling of oil in 1917 and the
oil boom
of the 1920s brought to a close the coffee era and
eventually
transformed the nation from a relatively poor agrarian
society
into Latin America's wealthiest state. By 1928 Venezuela
was the
world's leading exporter of oil and its second in total
petroleum
production. Venezuela remained the world's leading oil
exporter
until 1970, the year of its peak oil production. As early
as the
1930s, oil represented over 90 percent of total exports,
and
national debate increasingly centered on better working
conditions for oil workers and increased taxation of the
scores
of multinational oil companies on the shores of Lago de
Maracaibo
(see
fig. 1). In 1936 the government embarked on its
now-famous
policy of sembrar el petróleo, or "sowing the oil."
This
policy entailed using oil revenues to stimulate
agriculture, and
later, industry. After years of negotiations, in 1943 the
government achieved a landmark 50 percent tax on the oil
profits
of the foreign oil companies. Although Venezuela reaped
greater
benefits from its generous oil endowment after 1943,
widespread
corruption and deceit by foreign companies and indifferent
military dictators still flourished to the detriment of
economic
development. Nevertheless, despite unenlightened policies,
economic growth in the 1950s was robust because of
unprecedented
world economic growth and a firm demand for oil. As a
result,
physical infrastructure, agriculture, and industry all
expanded
swiftly.
With the arrival of democracy in 1958, Venezuela's new
leaders concentrated on the oil industry as the main
source of
financing for their reformist economic and social policies
(see The Triumph of Democracy
, ch. 1). Using oil revenues, the
government intervened significantly in the economy. In
1958 the
new government founded a new noncabinet ministry, the
Central
Office of Coordination and Planning (Oficina Central de
Coordinación y Planificación--Cordiplan) in the Office of
the
President. Cordiplan issued multiyear plans with broad
economic
development objectives. The government in 1960 embarked on
a land
reform program in response to peasant land seizures. In
1960
policy makers also began to create regional development
corporations to encourage more decentralized planning in
industry. The first such regional organization was the
Venezuelan
Corporation of Guayana (Corporación Venezolana de
Guayana--CVG),
which eventually oversaw nearly all major mining ventures.
The
year 1960 also marked the country's entrance as a founding
member
into the Organization of Petroleum Exporting Countries
(OPEC),
which set the stage for the economy's rapid expansion in
the
1970s. Throughout the 1960s, the government addressed
general
social reform by spending large sums of money on
education,
health, electricity, potable water, and other basic
projects.
Rapid economic growth accompanied these reformist
policies, and
from 1960 to 1973 the country's real per capita output
increased
by 25 percent.
The quadrupling of crude oil prices in 1973 spawned an
oil
euphoria and a spree of public and private consumption
unprecedented in Venezuelan history. The government spent
more
money (in absolute terms) from 1974 to 1979 than in its
entire
independent history dating back to 1830. Increased public
outlays
manifested themselves most prominently in the expansion of
the
bureaucracy. During the 1970s, the government established
hundreds of new state-owned enterprises and decentralized
agencies as the public sector assumed the role of primary
engine
of economic growth. The Venezuelan Investment Fund (Fondo
de
Inversiones de Venezuela--FIV), responsible for allocating
huge
oil revenues to other government entities, served as the
hub of
these institutions. In addition to establishing new
enterprises
in such areas as mining, petrochemicals, and
hydroelectricity,
the government purchased previously private ones. In 1975
the
government nationalized the steel industry;
nationalization of
the oil industry followed in 1976. Many private citizens
also
reaped great wealth from the oil bonanza, and weekend
shopping
trips to Miami typified upper-middle-class life in this
period.
A growing acknowledgment of the unsustainable pace of
public
and private expansion became the focus of the 1978-79
electoral
campaign. Because of renewed surges in the price of oil
from 1978
to 1982, however, the government of Luis Herrera Campins
(president, 1979-84) scrapped plans to downgrade
government
activities, and the spiral of government spending resumed.
In
1983, however, the price of oil fell and soaring interest
rates
caused the national debt to multiply. Oil revenues could
no
longer support the array of government subsidies, price
controls,
exchange-rate losses, and the operations of more than 400
public
institutions. Widespread corruption and political
patronage only
exacerbated the situation.
The government of Jaime Lusinchi (president, 1984-89)
attempted to reverse the 1983 economic crisis through
devaluations of the currency, a multi-tier exchange-rate
system,
greater import protection, increased attention to
agriculture and
food self-sufficiency, and generous use of producer and
consumer
subsidies. These 1983 reforms stimulated a recovery from
the
negative growth rates of 1980-81 and the stagnation of
1982 with
sustained modest growth from 1985 to 1988. By 1989,
however, the
economy could no longer support the high rates of
subsidies and
the increasing foreign debt burden, particularly in light
of the
nearly 50 percent reduction of the price of oil during
1986.
In 1989 the second Pérez administration launched
profound
policy reforms with the support of structural adjustment
loans
from the International Monetary Fund
(
IMF--see Glossary) and the
World Bank (see Glossary). In February 1989, price
increases
directly related to these reforms sparked several days of
rioting
and looting that left hundreds dead in the country's worst
violence since its return to democracy in 1958
(see Threats to Internal Security
, ch. 5). Ironically, Pérez, who oversaw
much of
the government's expansion beginning in the 1970s,
spearheaded
the structural reforms of 1989 with the goal of reducing
the role
of government in the economy, orienting economic
activities
toward the free market, and stimulating foreign
investment. The
most fundamental of the 1989 adjustments, however, was the
massive devaluation of the bolívar (B; for value of the
bolívar--see Glossary) from its highly overvalued rate to a market
rate.
Other related policies sought to eliminate budget deficits
by
1991 through the sale of scores of state-owned
enterprises, to
restructure the financial sector and restore positive real
interest rates, to liberalize trade through tariff
reduction and
exchange-rate adjustment, and to abolish most subsidies
and price
controls. The government also aggressively pursued debt
reduction
schemes with its commercial creditors in an effort to
lower its
enervating foreign debt repayments.
Data as of December 1990
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