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Venezuela - ECONOMY

Venezuela - The Economy


AN UPPER-MIDDLE INCOME, oil-producing country, Venezuela enjoyed the highest standard of living in Latin America. The country's gross domestic product ( GDP) in 1988 was approximately US$58 billion, or roughly US$3,100 per capita. Although the petroleum industry has dominated the Venezuelan economy since the 1920s, aluminum, steel, and petrochemicals diversified the economy's industrial base during the 1980s. Agriculture activity was relatively minor and shrinking, whereas services were expanding.

Venezuela possessed enormous natural resources. The country was the world's third largest exporter of oil, its ninth largest producer of oil, and accounted for more oil reserves than any other nation in the Western Hemisphere. The national petroleum company, Venezuelan Petroleum Corporation (Petróleos de Venezuela, S.A.--PDVSA), was also the third largest international oil conglomerate. Because of its immense mineral wealth, Venezuela in 1990 was also poised to become an international leader in the export of coal, iron, steel, and aluminum.

Despite bountiful natural resources and significant advances in some economic areas, Venezuela in 1990 continued to suffer from the debilitating effects of political patronage, corruption, and poor economic management. The country's political and economic structures often allowed a small elite to benefit at the expense of the masses. As a result, Venezuela's income distribution was uneven, and its social indicators were lower than the expected level for a country with Venezuela's level of per capita income. Many economic institutions were also weak relative to the country's international stature. The efforts of the administration of Carlos Andrés Pérez (president, 1974-79, 1989- ) to reform the economy, especially if coupled with political and institutional reforms, would likely determine whether the country would reach its extraordinary potential.





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 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.

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. 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. 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) and the World Bank. 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. 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 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.




Fiscal Policy

The government's fiscal accounts generally showed surpluses until the mid-1980s because of the immense oil income. In 1986, however, the drop in oil prices triggered a fiscal deficit of 4 percent; the deficit exceeded 6 percent in 1988.

The major actors in fiscal policy were Cordiplan, which was responsible for long-term economic planning, and the Budget Office of the Ministry of Finance, which oversaw expenditures and revenues for each fiscal year ( FY). Cordiplan also oversaw the fiscal status of the FIV, PDVSA, the social security system, regional and municipal governments, the foreign exchange authority, state-owned enterprises, and other autonomous agencies. But economic planning and budgeting suffered from a serious lack of interagency cooperation, and five-year plans and annual public-sector investments often lacked cohesiveness.

Total government spending reached about 23 percent of GDP in 1988. Current expenditures accounted for 70 percent of overall outlays, compared with 30 percent for capital expenditures. Capital investments, after a decline in the mid-1980s, expanded slowly during the late 1980s. Interest payments, two-thirds of which serviced foreign debt, represented 11 percent of total expenditures in 1988, a typical figure for most of the decade.

The revenue structure in the late 1980s remained excessively dependent on oil income. In 1988 petroleum revenues, both income taxes and royalties, provided 55 percent of total revenue. Although oil's contribution to total revenue had declined in the 1980s, most economists felt that it had not declined sufficiently. Overall, taxes contributed 80 percent of total revenue in 1988, with the remaining 20 percent derived from such nontax sources as royalties and administrative fees. Tax exemptions, deductions, allowances, and outright evasion greatly reduced the effectiveness of fiscal policy. Officials planned to inaugurate a value-added tax in 1990 as another means to widen the revenue base.

Monetary and Exchange Rate Policies

The Central Bank of Venezuela (Banco Central de Venezuela-- BCV) performed all typical central bank functions, such as managing the money supply, issuing bank notes, and allocating credit. As part of the country's overall financial sector reform, the BCV embarked in 1989 on numerous revisions of monetary policy aimed at improving the bank's control over the money supply. The most important policy change was the government's decision to allow the interest rate to fluctuate with market rates. Despite its initial inflationary effect, the policy created incentives for savings and investment, thereby attracting and retaining capital. Deposits swelled noticeably during 1989. In 1990, however, the Venezuelan Supreme Court declared that the BCV was legally responsible for setting interest rates. The BCV hoped to rescind the law in the early 1990s.

Venezuela traditionally enjoyed general price stability; inflation averaged a mere 3 percent from 1930 to 1970. Annual price increases did not exceed 25 percent until the mid-1980s. During the 1970s, many economists credited the FIV with successfully managing and investing overseas the country's oil windfalls in a way that prevented inordinate price instability. By the 1980s, however, financial deterioration, weakening BCV authority, numerous devaluations, and fiscal deficits had combined to push consumer prices and inflation up dramatically in the late 1980s. The average consumer price index rose by an unprecedented 85 percent in 1989. Some price increases were associated with the 1989 structural adjustment program, and thus represented what some economists refer to as "correctionary inflation," the trade-off for eliminating previous distortions in prices. By 1990 only a handful of price controls remained in effect.

The bolívar was traditionally a very stable currency, pegged to the United States dollar at a value of B4.29=US$1 from 1976 to 1983. The bolívar experienced several devaluations from 1983 to 1988, when monetary authorities implemented a complicated fourtier exchange-rate system that provided special subsidized rates for certain priority activities. The multiple exchange-rate system, however, proved to be only a stopgap measure, eventually giving way to a 150 percent devaluation at the market rate in 1989. The 1989 devaluation unified all rates from the official B14=US$1 rate to the new B36=US$1 rate, which was a floating rate subject to the supply and demand of the market. By late 1990, the value of the bolívar had crept down to B43=US$1.

In a related matter, the Differential Exchange System Office (Régimen de Cambio de Dinero--Recadi), the organization that oversaw the various exchange rates, became the focus of one of the largest scandals in the decade. Between 1983 and 1988, businessmen bribed Recadi officials in return for access to halfpriced United States dollars to funnel an alleged US$8 billion overseas. When the scandal broke in 1989, law enforcement agents investigated as many as 2,800 businesses, and more than 100 executives from leading multinational enterprises fled the country in fear of prosecution.


Venezuela - LABOR


Formal Sector

Venezuela's official labor force in 1989 stood at 6.7 million. The labor force constituted 57 percent of the economically active population (those over age fifteen) and 35 percent of the entire 19.7 million population. Many workers, particularly youth, women, and the elderly, were not recorded in official labor data, however. Some 6.12 million workers of the total labor force had jobs in 1989, resulting in an unemployment rate of 8.7 percent. Unemployment fluctuated based largely on the health of the oil industry. In 1978 as few as 4.3 percent of the official labor force was unemployed, compared with the peak level of 14.5 percent in 1984.

Services accounted for the greatest portion of the labor force in 1989 (26 percent), followed by commerce (20 percent), government (20 percent), manufacturing (17 percent), and agriculture (13 percent). Mining and petroleum, the source of most government revenue and nearly all exports, employed less than 1 percent of the labor force.

Female participation in the labor force was increasing, but represented only 31 percent of the official work force in 1987. A growing cadre of female technicians and laborers worked in heavy industries, but women still generally received lower salaries than men.

The typical rural employee earned 25 percent less than his or her urban counterpart, and white-collar workers averaged more than double the earnings of blue-collar workers. Income distribution was highly skewed, in that the wealthiest 20 percent of the population owned 45 percent of the country's wealth, while the poorest 20 percent held only 6 percent of the wealth.

The Venezuelan government passed a rather comprehensive labor law as early as 1936 in response to protracted disputes between workers and foreign oil companies. A new labor law in 1974 further expanded workers' rights, and the country debated a revised labor law in 1990. The nation's 1990 labor law incorporated provisions for organized labor, collective bargaining, generous fringe benefits, and retirement and disability pensions. Venezuela passed a national minimum wage in 1974. As throughout Latin America, however, the Ministry of Labor in Venezuela was generally incapable of adequately enforcing the country's labor code. Conversely, many employers complained of the difficulty of firing a worker after the first three months on the job.

Over one-quarter of all workers were organized, and labor unions played a visible role in society. The Confederation of Venezuelan Workers (Confederación de Trabajadores de Venezuela--CTV), affiliated with the Democratic Action (Acción Democrática--AD) party, represented the majority of organized labor. There were also three smaller labor federations and a handful of independent unions. The public sector and heavy industry employed the highest percentages of organized workers.

Unlike many Latin American countries, labor relations in Venezuela were consultative rather than confrontational, and the CTV had good working relations with the major business group, the Federation of Chambers and Associations of Commerce and Production (Federación de Cámaras y Asociaciones de Comercio y Producción--Fedecámaras). Strikes were rare, and the government typically did not intervene to resolve labor contract negotiations. Labor's relations with both management and the government soured somewhat after the 1986 fall in oil prices, however. Unprecedented inflation from 1986 to 1990 quickly eroded unionized salaries, further straining these alliances as the country sought to find new mechanisms to compensate for the effects of inflation. In May 1989, the CTV led a general strike to protest the February 1989 adjustment in the value of the bolívar and austerity policies, indicating a growing division between the CTV and its political affiliate, the AD.

Informal Sector

An estimated 2.3 million persons, or 38 percent of all workers, operated outside the formal economy in 1988. Although estimates varied, the informal sector accounted for between 32 and 40 percent of the labor force throughout the 1980s. This sector included nonprofessional self-employed workers, businesses employing five or fewer persons, and domestic workers. So-called informales drove taxis, offered door-to-door mechanical services, cleaned homes, sold clothing on downtown streets, and worked as day laborers. Youth, women, and Colombian indocumeutados (undocumented or illegal aliens) apparently constituted a disproportionate share of the informal sector. According to some analysts, the country's large underground economy stemmed from the government's excessive regulation of the formal economy and the private sector's inability to provide sufficient jobs for the country's burgeoning urban populace.




Agriculture played a smaller role in the Venezuelan economy than in virtually any other Latin American country in the 1980s. In 1988 the sector contributed only 5.9 percent of GDP, employed 13 percent of the labor force, and furnished barely 1 percent of total exports. Agricultural output was focused almost entirely on the domestic market.

The backbone of the national economy for centuries, agriculture entered a period of steady decline in the early twentieth century as the oil industry eclipsed all other sectors of the economy. As late as the 1930s, agriculture still provided 22 percent of GDP and occupied 60 percent of the labor force. The industrial development of the nation by the 1940s, however, seemed to have relegated agriculture to permanent secondary status.

Agriculture recorded its worst growth in years in the early 1980s, and the decade saw successive programs designed to revive agriculture in the face of a weakened economy. Government policies toward the sector often alternated between deregulation and extensive government intervention, with the latter being the more typical response. In 1984 the Lusinchi administration confronted rural stagnation with a multifaceted program of producer and consumer subsidies, import protection, and exchange rate preferences. The plan also reduced interests rates on agricultural loans through scores of government development finance institutions serving the sector. Government decrees also required commercial banks to hold at least 22.5 percent of their loan portfolios in agriculture. Farmers were exempt from income taxes. These measures paid off handsomely in the short run. During one five-year period of expansion, for example, annual growth rates in the agricultural sector reached 8 percent in 1984 and 1985. The government's program to resuscitate the rural economy, however, was extremely costly because it entailed high levels of subsidization.

The Ministry of Agriculture and Livestock (Ministerio de Agricultura y Cría--MAC) designed and implemented the nation's agriculture policy. The most drastic changes in farm policy in 1990 occurred through the devaluation of the bolívar, which automatically eliminated previous preferential rates for certain agricultural inputs. Likewise, the Pérez government's policy of price deregulation affected many basic agricultural commodities, and ensuing price rises were a factor in the February 1989 riots. As a result of government cutbacks in subsidies and price supports, agriculture registered a 5 percent decline in 1989.

Land Policies

Despite agrarian reform efforts beginning in 1960, Venezuela's land tenure patterns in 1990 still portrayed the typical Latin American dichotomy between latifundios and minifundios (small holdings). For example, data on land tenancy from agricultural censuses from 1937 through 1971 pointed to a pattern of land concentration. More recent estimates mirrored data from these earlier censuses. One estimate in the late 1980s, for example, held that the smallest 42.9 percent of all farms covered only 1 percent of the arable land, while the largest 3 percent accounted for as much as 77 percent of arable land.

The country's major land reform program began with an initial decree in 1958 after the fall of the dictatorship of Marcos Pérez Jiménez. The Agrarian Reform Law of 1960 created the National Agrarian Institute (Instituto Nacional Agrario--INA), which sought to provide land to those who worked it, initially by transferring public lands and later by expropriating private holdings of arable land not under cultivation. Although the government invested substantial resources in an effort to integrate its rural development strategy through the provision of roads, markets, schools, and clinics, new agricultural colonies rarely had the conveniences of earlier farming towns. Accordingly, the land reform experienced a dropout rate as high as one-third. Moreover, few of the peasants who stayed in the settlements actually obtained legal title to their land, which remained in the hands of the state.

Land reform had made only modest adjustments in Venezuelan land tenure through 1990. By the 1980s, over 200,000 families had benefited from the state's distribution of nearly 10 percent of the country's total land area. The average size of the country's 400,000 farming units stood at eighty hectares in 1989, considerably higher than earlier decades. Improved access to land helped expand the country's total land under cultivation and accelerated the country's attainment of self-sufficiency in certain crops and livestock. On the negative side, however, the benefits of land reform were seriously tainted by the programs' high failure rate and the fact that as many as 90 percent of participants never gained title to their land. Without land titles, farmers lacked collateral to obtain financing for needed agricultural inputs. These factors, combined with the fact that immense private tracts of land remained intact, demonstrated the relatively minor impact of land reform.

Land Use

Only some 4 percent of Venezuela's total area, or about 3.8 million hectares, was considered readily arable or already under cultivation in the late 1980s. Some estimates claimed that as much as one-third of the country's total land area was suitable for agriculture. In general, however, Venezuela's vast expanse was better suited to forest or pasture than to crops, and much otherwise arable land had been relatively neglected because of adverse weather conditions or lack of access to markets.

<>Farming Technology
<>Fishing and Forestry


Venezuela - Crops


Food Crops

Despite gains in the production of some grains and cereals, urbanization and changing dietary patterns increased Venezuela's dependence on imports of basic foods during the 1980s. The migration of farmers to urban areas reduced the output of traditional food crops such as yucca (cassava), potatoes, and other inexpensive tubers; higher wheat imports compensated for this decline. The growing popularity of wheat products in Venezuela drove imports steadily higher because the country's warm climate was not conducive to the cultivation of wheat.

Corn was the country's major domestic food crop. Most of Venezuela's corn crop came from the central plains, particularly the states of Portuguesa, Barinas, and Guárico. A traditional staple, corn surpassed coffee as the nation's leading crop in the 1960s; by 1988 farmers cultivated corn on some 642,000 hectares. Total production was 1.28 million tons in that year. After declining in the 1970s, corn production flourished in the 1980s, largely because of the agricultural policies of the mid-1980s that provided import protection and stimulated greater food selfsufficiency . Despite the gains of corn producers, however, the costs of corn production remained relatively high, which indicated that domestic production would be vulnerable to the effects of external competition under the market-oriented reforms initiated by the government in the early 1990s.

Sorghum became a major grain in the mid-1970s. A droughtresistant crop, it was introduced to Venezuela because it could tolerate the country's unpredictable precipitation pattern. Sorghum, like corn, was grown nationwide and sorghum production enjoyed rapid growth during the 1980s. In 1988 sorghum covered some 392,000 hectares, which yielded approximately 820,000 tons of grain. The popularity of sorghum in the 1980s was closely linked with the quick expansion of the national pork and poultry industries, which used sorghum as their major feed grain. Although domestic production increased, however, it could not keep pace with demand. Consequently, imports of sorghum also climbed throughout the decade.

Rice was another major grain. Rice production doubled during the 1970s, mainly because of the increased use of irrigation. In the 1980s, however, rice production fell rapidly. Weather variations accounted for some fluctuations in production, but the central cause of the decline was poor technical expertise in both cultivation and irrigation techniques. Rice paddies covered some 116,500 hectares of land and yielded 383 tons of rice in 1988; at its peak in 1981, rice grew on some 243,000 hectares and yielded 681,000 tons. Frustrated by the inadequacy of available technology, many rice farmers had switched to other crops by the late 1980s. Many of these producers had complained about the inadequate levels of credit available from the government, as well as the low prices the government paid for their crops.

Farmers grew rice throughout the country, with the exceptions of the extreme west and south. Farmers who cultivated irrigated rice, especially those in Portuguesa and Guárico, yielded as many as 2.5 crops a year, whereas dry rice farmers brought in only one crop, during the rainy season (May-November).

Farmers also cultivated a wide variety of tubers, legumes, vegetables, fruits, and spices. Principal tuber crops consisted of yucca, potatoes, sweet potatoes, and yautia. In some areas, peasants milled cassava for use as a flour. Legumes included yellow, black, and white beans, as well as a local pulse called quinchoncho. Vegetables included tomatoes, lettuce, cabbage, carrots, cauliflower, eggplant, cucumber, beets, and peas. The more moderate regions of Venezuela were also suitable for a wide variety of fruits. Depending on the seasonal crop, the country exported small amounts of tropical fruits.

Cash Crops

Cocoa and coffee provided most of Venezuela's export revenues before they entered a period of prolonged decline in the 1900s. Jesuits introduced coffee in the 1740s, and by the 1800s Venezuela was the world's third largest coffee producer. By the 1980s, however, the coffee industry was in a decline. In 1988 coffee trees occupied 273,200 hectares and produced only 71,000 tons of coffee, one of the lowest yields in the world. The value of coffee exports, mainly to the United States and Europe, was about US$24 million in 1988. Coffee was primarily a peasant crop, grown largely on farms of under twenty hectares in mountainous areas. Low profits prevented most farmers from taking steps, such as the planting of newer coffee bushes, that could improve yields. Worse still, Venezuelan coffee in the 1990s faced the impending introduction of plant diseases from the neighboring coffee crops of Colombia and Brazil.

Cocoa was also characterized by extremely low yields, in part as a result of aged trees and general deterioration in the crop. Once Venezuela's leading cash crop, by 1988 cacao plants covered only about 59,000 hectares and yielded a mere 13,500 tons of cocoa beans. As with coffee, most farmers sold their cocoa through government marketing boards for use domestically and internationally. Exports of cocoa beans and products exceeded US$17 million in 1988, ranking it as the third leading agricultural export (after coffee and tobacco), mainly to Belgium, the United States, and Japan.

Tobacco appeared to be one of the country's few dynamic cash crops in the late 1980s. Although tobacco generally stagnated in the 1970s and early 1980s, output expanded notably in the late 1980s as the industry turned to export markets in the Caribbean. In 1988 farmers in the west-central plains planted about 9,100 hectares of both dark and light tobacco, producing about 15,300 tons of leaf. In 1988 the cigarette industry exported upwards of US$20 million of cigarettes to the Caribbean, ranking tobacco as the second largest export crop.

Other leading cash crops included sugarcane, oilseeds, and cotton. Once a net exporter of sugar, Venezuela by the mid-1970s became a net importer, and in 1988 the country was only 71 percent self-sufficient in sugar. Sugarcane grew on 117,000 hectares in 1988 and produced 8.33 million tons of raw sugar, but annual output fluctuated according to weather conditions, management practices, price changes, and currency devaluations. Many farmers plowed under their cane fields in the 1980s in order to plant more lucrative crops, and the nation's sixteen sugar mills faced ongoing technical obstacles.

Oilseeds, such as sesame, sunflower, coconut, peanut, and cotton, faced a fate similar to other cash crops, and in 1988 the nation was only 21 percent self-sufficient in edible oils. Although Venezuela was once one of the world's leading producers of sesame oil, the industry declined as a result of a deterioration of the genetic content of the country's sesame plants and low market prices. Sesame plants, however, still extended over 148,700 hectares and yielded 68,300 tons in 1988. By the 1980s, Venezuela imported large amounts of soybean oil.


Venezuela - Livestock


The country's livestock industries accounted for nearly a third of all output in the agricultural sector and met the nation's basic meat consumption needs. The pork and poultry industries fared well during the 1980s, while the beef and dairy industries struggled. The cattle industry, a mainstay of Venezuela's central plains for centuries, failed to modernize along with the pork and poultry industries during the 1970s and 1980s. The low prices paid by the government, combined with producer export taxes, hurt cattle ranchers, who did not export for several years during the 1980s. Both cattle ranchers and dairy farmers were unable to maximize production. The government sought to intervene in the case of the dairy industry, providing various levels of subsidies, especially for consumers. These policies proved unsuccessful, however, and did more to promote corruption in milk distribution than efficiency in production. By 1990 the country was only 40 percent self-sufficient in milk. Many of the subsidies were likely targets of market-oriented reforms in the early 1990s.

The poultry and pork industries succeeded in bringing more modern production techniques to Venezuela beginning in the 1970s. Some 2.5 million pigs were slaughtered in 1988, up from 1.7 million in 1980. The poultry industry also increased production, from 156 million broilers in 1980 to 251 million in 1988. The country exported modest amounts of poultry in the mid-1980s. Both the pork and poultry industries, however, faced increased costs after 1989 as a result of the exchange rate liberalization that raised the cost of imported feeds.


Venezuela - Farming Technology


Venezuelan farmers' use of purchased inputs--such as fertilizers, tractors, and irrigation water--to increase their productivity, remained closely tied to government promotional policies. For example, Venezuelan farmers enjoyed generous subsidies for the purchase of domestically produced fertilizers after 1958. As a result, fertilizer use increased greatly. From 1980 to 1986, the application of fertilizers more than doubled, from 64 to 141 kilograms per hectare. In 1989 the Pérez administration reduced fertilizer subsidies from 90 percent to 30 percent. This action had little effect on agricultural production because fertilizer usage already exceeded optimum levels in many areas.

In 1989 MAC administered twenty-four irrigation projects that covered 261,600 hectares. Only 40 percent of this irrigated area, however, actually received water from irrigation projects. Poor management and inadequate maintenance of the irrigation systems prevented the remainder of the land from reaching its full potential. Nonetheless, irrigation projects enabled the country to improve its productivity and self-sufficiency in some crops, most notably rice.

Credit and agricultural extension services were two other tools employed by the government to improve farming practices. Successive governments, beginning in the 1960s, established scores of development finance institutions exclusively for agriculture. In the 1980s, dozens of such lenders provided finance for agriculture at widely varying rates depending on the loan, the product involved, and the type of institution from which it originated. Commercial banks also held extensive agricultural portfolios as government laws required that 22.5 percent of all credit be allocated to that sector. In addition, bankers and other government finance institutions lent to farmers and ranchers at a rate as low as one-third of the prevailing commercial rate. By contrast, government agricultural extension efforts were less aggressive. The country's extremely low yields in many crops and livestock were attributable, in part, to the inadequacy of extension services. MAC's National Agricultural and Livestock Research Fund (Fondo Nacional de Investigaciones Agropecuarios) performed research and provided some minimal extension services for farmers. Universities and institutes, such as the Simón Bolívar United World Agriculture Institute in Caracas, also contributed to agricultural and environmental research. More typically, farmers obtained technical assistance from producer associations to which they belonged.


Venezuela - Fishing and Forestry


The fishing subsector as a whole provided over one-tenth of the total output of the agricultural sector by the late 1980s. For a country with a 2,800-kilometer coastline, a shallow continental shelf of some 9,000 square kilometers, and a network of more than 1,000 rivers, Venezuela was slow to exploit its coastal and inland waterway resources. It was not until the mid1980s that a minor fishing boom took place. In 1975 the government established a National Fishing Enterprise to upgrade the traditionally undercapitalized fishing industry. During this period, the growth of domestic shipbuilding and a general industrial expansion benefited fishermen. From 1983 to 1988, the catch of the nation's anglers grew by 54 percent, reaching 354,185 tons. A 300 percent increase in the tuna catch ranked Venezuela as the world's fourth largest producer. Most tuna, however, was sold at sea and did not reach local markets, where meat was still the dietary preference. By contrast, river fishing remained underdeveloped.

Forests covered an estimated 34 percent of Venezuela's land area. During the 1980s, the timber industry modernized and consolidated; from a collection of small saw mills, it developed into several large integrated wood pulp and newsprint plants, especially in the Guayana region. Joint ventures with foreign companies sought to harvest several hardwood species for wood products and chemical derivatives. The government's forest protection service wielded little regulatory authority, prompting some concern over the pace of deforestation.


Venezuela - ENERGY



Petroleum dominated the economy throughout the twentieth century. In 1989 the petroleum industry provided almost 13 percent of the GDP, 51 percent of government revenues, and 81 percent of exports. Before the sharp drop in international oil prices in the 1980s, these ratios were considerably higher. From 1929 to 1970, the year of the country's peak production, Venezuela was the world's largest exporter of petroleum. In 1990 the country ranked as the third leading oil exporter, after Saudi Arabia and Iran, and contained at least 7 percent of proven world oil reserves.

The country's national petroleum company, the Venezuelan Petroleum Corporation (Petróleos de Venezuela, S.A.--PDVSA), the third largest international oil conglomerate, owned refineries and service stations in North America and Europe. Although Venezuela was only the third largest petroleum producer in the Western Hemisphere, behind the United States and Mexico, its proven reserves, at 58.5 billion barrels in 1989, exceeded those of both countries. Venezuela exported 54 percent of its petroleum to the United States in 1988, representing about 8 percent of American petroleum imports.

The first commercial drilling of petroleum in Venezuela took place in 1917. After World War I, British and American multinational oil companies rushed to Lago de Maracaibo to tap the country's huge petroleum reserves. Oil jumped from 31 percent of exports to 91 percent from 1924 to 1934. The industry proved extremely lucrative to the scores of foreign companies that drilled Venezuelan crude because of the country's low wages and nominal taxes, policies supported by corrupt relations between foreign oil companies and various military dictatorships.

In the forty-year period after the death of Juan Vicente Gómez in 1935, the government and foreign oil companies engaged in a tug-of-war over taxation, regulation, and, ultimately, ownership. Although Venezuela reaped substantially greater benefits from its generous oil endowment after 1943, corruption and deceit on the part of the foreign companies and avaricious caudillos such as Pérez Jiménez still limited the national benefits of the industry. By the early 1970s, the possible nationalization of the oil industry became the focus of debate among labor, businesses, professionals, government, and the public at large. Aware of the conflicts and subsequent difficulties of Mexico's sudden, dramatic nationalization of the entire oil industry in the 1930s, Venezuela pursued its acquisition of the petroleum sector cautiously and deliberately. In December 1974, a national commission created by President Pérez delivered a proposal for nationalization. This proposal formed the core of the 1975 law that nationalized the oil industry. The most controversial element of the new law was Article 5, which gave the government the authority to contract out to multinational firms for various technical services and marketing. Despite the controversy, Article 5 provided technical expertise that proved crucial to the industry's smooth transition to state control beginning on January 1, 1976.

In 1977 the government created a holding company, PDVSA, to serve as the umbrella organization for four major petroleum- producing affiliates. This process consolidated the holdings of fourteen foreign companies and one national company, the Venezuelan Petroleum Corporation (Corporación Venezolana de Petróleos--CVP), into four competing and largely autonomous subsidiaries. Industry analysts have credited the competitive structure of the subsidiaries with increasing overall efficiency to levels well above those of most nationalized companies. The largest subsidiary of PDVSA was Lagoven, which was composed mainly of the facilities previously operated by the United States oil company Exxon. Lagoven accounted for 40 percent of national output in 1976. From the holdings of British and Dutch Shell, PDVSA created a subsidiary called Maraven. Four smaller United States companies became Meneven. Finally, PDVSA consolidated six smaller foreign firms and the state oil company into Corpoven.

A slump in world oil prices beginning in 1981 rolled back the substantial revenues acquired, and largely squandered, during the 1970s. The symbolic end of PDVSA's prosperity came in 1982, when the Central Bank of Venezuela seized US$6 billion of the oil company's earnings to help offset the country's growing external debt problems. This action effectively eliminated PDVSA's autonomy. After oil prices dropped nearly 50 percent in 1986, the government accelerated industrial diversification programs in specialized petroleum refining, natural gas, petrochemicals, and mining, and also stepped up oil exploration efforts.

Exploration remained a major focus of PDVSA activities in the 1980s. At the time of nationalization in 1976, exploration efforts had come to a near standstill. Little exploratory activity took place during the 1960s and 1970s because the Venezuelan government did not grant any new oil concessions after 1958 and most foreign oil companies anticipated eventual nationalization. Although financial constraints slowed the pace of exploratory drilling in the 1980s, major new finds of light, medium, and heavy crude by 1986 nearly doubled proven reserves.

The country's 1989 oil reserves were expected to last for at least ninety-three years at prevailing rates of extraction. The Orinoco heavy oil belt accounted for 45 percent of proven reserves in 1989, followed by the Maracaibo region with 32 percent, the eastern Venezuelan basin with 22 percent, and 1 percent in other areas. Only a small fraction of the Orinoco's total heavy oil deposits, however, were routinely included in estimates of total proven reserves because of the cost and difficulty of extraction. Some estimates of total recoverable heavy crude reserves ran as high as 190 to 200 billion barrels.

PDVSA's early exploration strategy emphasized heavy crude, but by the 1980s the company's efforts shifted toward more valuable light and medium grades. This approach proved successful, as major new discoveries were made in the Lago de Maracaibo area, the Apure-Barinas Basin in southwest Venezuela near the Colombian border, and in the eastern Venezuelan basin in the El Furrial/Musipán area in the state of Monagas. Encouraged by its finds in the mid-1980s, PDVSA launched further drilling operations in the late 1980s, with the goal of adding 14.4 billion barrels of light and medium crude to its proven reserves by 1993. In addition to its land-based drilling, PDVSA established an increasing number of offshore rigs. The Venezuelans also explored off the coast of Aruba and had discussed with the governments of Guyana, Trinidad and Tobago, and Guatemala the prospects of exploratory drilling.

PDVSA not only extracted crude oil, but also refined and distributed a wide variety of petroleum products. In 1988 six active refineries in Venezuela boasted an installed refining capacity of approximately 1.2 million barrels of oil a day. These refineries produced a full range of oil products and specialty fuels, making Venezuela an international leader in petroleum refining. PDVSA increased the percentage of locally refined crude from 35 percent to 58 percent between 1979 and 1988. In 1988 the country for the first time exported more refined petroleum than crude. PDVSA diversified its production during the 1980s, increasing the share of petroleum products that fell outside OPEC quotas until the late 1980s, in an effort to enhance price stability and boost profits. Orinoco Asphalt (Bitúmenes del Orinoco), a PDVSA subsidiary, began preliminary shipments in the late 1980s of orimulsión, a uniquely Venezuelan synthetic fuel derived from Orinoco heavy crude, water, and chemical additives. PDVSA hoped to export increasing quantities of orimulsión, outside OPEC quotas, to Canada and Europe as a substitute for coal or fuel oils used by electric power stations.

From 1983 to 1989, PDVSA acquired overseas refining capacity from at least five multinational oil conglomerates, either through production contracts or outright purchases. For example, in 1983 PDVSA bought a 50 percent share of the West GermanApple LaserWriter Plus/IINT/IINTXAPLASPLU.PRSthe Swedish lubricant and asphalt producer, Nynas. Beginning in 1986, PDVSA entered the United States oil market by purchasing United States oil firms, refineries, and retail outlets previously held by Citgo, Champlin, and Unocal. PDVSA's overseas refining capacity exceeded 700,000 barrels per day by the close of the decade. By 1990, therefore, PDVSA had the capability to refine nearly all of its crude oil production, either at home or at Venezuelan-owned facilities overseas. Moreover, with PDVSA's purchase of Citgo in 1989, Venezuela became the first OPEC member to wholly own a major United States oil refinery.

The United States has consistently been Venezuela's leading oil export recipient. During the 1980s, however, PDVSA increased its exports to Central America and the Caribbean. In 1980 Venezuela and Mexico embarked on a joint program called the San José Accord, under which the two oil producers exported oil to many countries of the Caribbean Basin region at concessionary rates. The accord set up a system of compensatory finance and purchases of Venezuelan goods in exchange for crude that amounted to a 20 percent discount on the world market price.

<>Natural Gas and Petrochemicals


Venezuela - Natural Gas and Petrochemicals


Venezuela also possessed vast reserves of natural gas. Proven gas reserves reached an estimated 3 trillion cubic meters in 1989, the second greatest proven reserves in the Western Hemisphere after the United States. At current rates of extraction, proven gas reserves could meet domestic needs into the twenty-second century. In the late 1980s, the country produced roughly 22 billion cubic meters of gas a year, most of which was used to meet domestic energy needs.

The natural gas industry increased in importance during the 1980s as oil prices declined, as more households received piped gas, as gas-intensive heavy industries came on-stream, and as liberalization of foreign investment rapidly expanded the potential of the petrochemical industry. Natural gas effectively became the property of the state under the Hydrocarbons Reversion Law of 1971, at which time the state-owned CVP oversaw exploration. A major effort to expand consumer sales of gas in the late 1980s involved gas pipeline construction to provide gas to households. Gas also fueled some of the industries in the mining sector.

Venezuelan Petrochemicals (Petroquímicas de Venezuela-- Pequiven), a PDVSA subsidiary established in 1977, oversaw petrochemical development. Pequiven's forerunner institution, the Venezuelan Petrochemical Institute (Instituto Venezolano de Petroquímicas--IVP), was established in 1956. A source of corruption and political patronage, the IVP was reorganized in 1977 in a controversial decision to bring it within PDVSA's nascent structure. The new Pequiven proved successful under PDVSA's guidance, registering its first profit in 1983. Pequiven extended its profits as petrochemical production more than quadrupled from 1979 to 1988, from 540,000 to 2.3 million tons.

In 1990 Pequiven consisted of four major subsidiaries and sixteen associated companies. Numerous joint ventures with multinational firms, however, were slated to begin in the mid1990s . The three major petrochemical complexes in Venezuela were at El Tablazo in Zulia, Morón in Carabobo, and José in Anzoátegui. El Tablazo, traditionally the largest complex, produced ammonia, urea, polystyrene, ethylene, and propylene. The Morón plant, the site of the country's first commercial fertilizer production, also fabricated chlorine, caustic soda, and sulfuric acid, all used in heavy industry. The complex in Anzoátegui was scheduled to manufacture liquefied natural gas, methanol, and methyl-tertiary butyl ether (MTBE), primarily for export. Among the three complexes, the country also produced pesticides, insecticides, resins, explosives, aromatics, and ethane dichloride and other chemicals. As of 1990, a fourth petrochemical complex in Paraguana in the state of Falcón was also anticipated.


Venezuela - INDUSTRY



Venezuela entered the 1990s poised to become a leading international producer of coal, iron, steel, aluminum, gold, and other minerals. In the late 1980s, the industry employed less than 1 percent of the labor force, accounted for less than 1 percent of GDP, and contributed 13 percent of exports. These figures were likely to increase, however, as expanded capacity became operational in the 1990s.

The state historically played a prominent role in mineral policy and production. Beginning in the 1970s, the government obtained or established scores of mining enterprises in its pursuit of heavy industrial development. By the 1980s, however, the huge debts incurred by these ventures contributed to the government's decisions to reconsider restrictive foreign investment policies and to liberalize mining laws in an effort to expand private-sector participation in mining. The CVG, the country's most prominent regional development corporation and the major player in mining, increasingly entered into joint ventures with foreign companies by the 1990s, when for the first time the CVG agreed to accept a minority share in some ventures. In addition to its role as planner and coordinator of most of the country's mining, the CVG was one of Latin America's largest industrial groups, with 30 subsidiaries and 41,000 workers in 1989. According to government sources, the CVG and its affiliates accrued US$1.3 billion in profits from 1985 to 1989 and generated US$3.3 billion in foreign exchange.

The bauxite and aluminum industry, traditionally smaller in size than iron and steel, installed significant new capacity in both mining and processing during the 1980s. As a result, aluminum became the country's second leading foreign exchange earner. By 1990 Venezuela boasted the largest installed capacity in aluminum in all of Latin America. Moreover, the country was believed to be world's most economical producer of aluminum because of its vast high-quality bauxite reserves, its abundant and cheap energy, and its well-developed infrastructure. Proven bauxite reserves stood at 500 million tons in 1990, with probable reserves as high as 5 billion tons. Overall, the country's smelters, including as many as 1,500 small foundries, produced approximately 443,000 tons of primary aluminum in 1988. About 60 percent of production, or nearly US$1 billion by value, was exported.

Commercial bauxite production, begun in 1987, reached 1 million tons in 1988 and was expected to reach 4.5 million tons in 1991. Much of the bauxite of Bauxita de Venezuela (Bauxiven; wholly owned by CVG) was processed at the Interamericana de Alúmina (Interalumina) plant in Puerto Ordaz. Opened in 1983, Interalumina produced 1.3 million tons of aluminum in 1988 from its plant's annual capacity of 2 million tons. Jointly owned by the CVG and a Swiss company, Alusuisse, Interalumina also controlled 50 percent of the Belgian Aleurope Aluminum Company, 40 percent of the Costa Rican firm Alunasa, and 20 percent of the United States company Wells Aluminum, thus providing it with worldwide marketing outlets.

Alcasa, the country's first aluminum processing plant, contained plants in Ciudad Guayana and Guacara in Carabobo by the 1980s. Alcasa's installed capacity, on the rise throughout the 1980s, was intended primarily for specialized overseas aluminum markets. In 1990 Alcasa had a 120,000-ton annual capacity for manufacturing primary aluminum. Alcasa's expansion plans for the 1990s foresaw a more than doubling of that capacity to as much as 300,000 tons per annum.

The country's other major smelter, the Industria Venezolana de Aluminio C.A. (Venalum), was also undergoing rapid growth in capacity. Although the CVG enjoyed majority ownership of Venalum, a consortium of Japanese industrial interests held a considerable minority stake.

The iron and steel industries represented the core of the mining sector before aluminum's rapid growth in the 1980s. Large- scale commercial mining of iron ore in Venezuela began in the early 1950s, when the Pérez Jiménez regime granted iron ore concessions to two United States steel companies, Bethlehem Steel and the United States Steel Corporation. Huge iron reserves, located near exploitable hydroelectric resources, combined with a growing national demand for steel to set the stage for the creation of a steel mill in 1955 near the confluence of the Orinoco and Caroní rivers. With the creation of the CVG in 1960, the state gained a greater role in the country's only major steel plant, which at that time produced mainly seamless pipes for the oil industry. One of the landmarks of the government's expanding role in the economy during the 1970s was the nationalization of the Orinoco Steelworks (Siderúrgica del Orinoco--Sidor) steel mill on January 1, 1975. Funding from the Venezuelan Investment Fund (Fondo de Juversiones de Venezuela--FIV) made possible a smooth settlement with the American steel companies.

The nationalized steel industry set ambitious goals for itself, goals it ultimately failed to meet. Slower internal growth dampened local demand, and the proliferation of new steel mills in other developing nations by the late 1970s reduced international demand. As a result, plans to build two new steel complexes were postponed indefinitely by the late 1980s.

After years of delays, technical bottlenecks, and government mismanagement, Sidor's expansion made the country self-sufficient in steel by 1982. By 1985 steel exports exceeded steel imports five-fold. High initial capital investment, however, made the Venezuelan industry unprofitable, and Sidor accrued a huge debt estimated at US$5 billion to US$10 billion, a substantial portion of Venezuela's debt burden in the early 1980s. Not until 1986 did Sidor show its first profit, US$70 million, but this fell to US$26 million in 1987. In 1990 the government reportedly was considering privatizing Sidor.

Foreign competition for exports remained the major challenge to Venezuela's steel industry in the early 1990s, as steel production continued to increase, rising from 2.7 million tons in 1985 to 3.6 million tons in 1988, and internal demand remained static. Complaints about the dumping of subsidized Venezuelan steel at below-average prices impaired greater market penetration in the 1980s. The government provided subsidies to the Sidor plant, mainly through special foreign exchange rates that allowed the company to purchase imported inputs at a low rate and to pay off its debts at a high rate. In 1982 the United States Department of Commerce accused Sidor of selling its steel in the United States at a 40 percent discount. This complaint led to a 1985 Voluntary Restraint Agreement (VRA) with the United States, which set a maximum export limit of 183,000 tons of steel a year. The two governments reestablished the VRA in 1989 at 280,000 tons a year, two-thirds of which were finished steel products. Venezuela also signed a VRA with the European Economic Community in 1987 after similar dumping allegations were made.

Although the state dominated the industry, some private steel milling went on in 1990. Sivensa, the country's only private steel mill, was generally profitable. In addition, the CVG operated as a minority shareholder in a steel plant called Metalmeg, which manufactured carbon steel products for the petroleum industry. In the late 1980s, the Kobe Steel Company of Japan also converted its Minorca iron briquette plant into a direct reduction steel mill, further expanding steel production capacity.

The basis of the country's controversial steel industry was its enormous iron ore reserves. As of 1990, the government estimates of iron reserves for the state of Guayana were 2.8 billion tons of high-grade ore (80 percent iron). The CVG iron subsidiary, Ferrominera, controlled iron ore mining at numerous mines, most notably El Cerro Bolívar (southwest of Ciudad Guayana), El Pao (south of Ciudad Guayana), and San Isidro. Ferrominera's total installed annual capacity was 20 million tons in 1990. Iron production fell sharply after its peak year of 1974, but was on the rise again by the late 1980s. Iron ore production was 18.9 million tons in 1988. Ferrominera's completion of a floating transportation complex on the Orinoco in the late 1980s facilitated the industry's use of large shipping vessels, thus increasing exports and lowering costs. Exports of iron ore reached 11.7 million tons in 1987, with the United States, Europe, and Japan the leading purchasers.

Coal production also expanded rapidly during the 1980s. As with iron and bauxite, the country enjoyed large reserves of highly pure coal. The state of Zulia alone, for example, contained 900 million tons of proven coal deposits, with probable reserves as high as 2 billion tons. This made Zulia the largest underdeveloped coal field in the Americas. Besides Zulia's coal deposits, the country also possessed significant coking coal to fuel the newer steel mills, coal for thermal electricity generation, and various deposits of clean-burning "hard coal." Most coal deposits were found in the west near the border with Colombia or in the Orinoco Basin.

Three major coal mines accounted for most coal output in the late 1980s. Although not yet fully operational in 1990, the Carbones de Zulia (Carbozulia) mine was already the nation's largest. PDVSA owned roughly half of Carbozulia; a consortium of United States, Italian, and private Venezuelan companies accounted for the balance. The mine produced 822,000 tons of coal in 1988, and plans called for 6.5 million tons-per-year capacity by the mid-1990s. By contrast, the entire country produced only 62,000 tons in 1987. The United States, Italy, and Spain represented the major markets for Carbozulia's coal. The second major mine was the Minas Carbón at Lobatera in Táchira near the Colombian border, with reserves estimated at as much as 60 million tons. The third-leading producer, in Naricual in Anzoátegui, boasted reserves of approximately 50 million tons. In addition to these operational mines, Venezuela had several other key coal zones that remained untapped in the 1980s.

Gold, known to exist since colonial times, did not become a major commercial endeavor until the 1980s. Miners long ignored the country's gold wealth because of its oil. Furthermore, the gold deposits were found mainly in the remote border regions with Brazil and Guyana. The government, however, increasingly prized its gold reserves, which stood at 11.5 million troy ounces in 1990, or roughly 12 percent of world reserves. Gold existed in Venezuela as an ore with quartz and in alluvial deposits found naturally with diamonds. The government acquired the El Callao gold mine in the state of Bolívar in 1974 to better regulate gold prospecting and sales. The state succeeded in raising official gold production threefold from 1984 to 1989, pushing exports to over US$300 million a year. This made gold the second leading nontraditional export. Unofficial production, however, remained as high as 70 percent of total output.

After a decade of closely controlling private gold interests, the state opened up gold prospecting to foreign interests in the 1980s. In 1986 the CVG, in a joint partnership with a Bermuda- based company, formed Monarch Resources Limited to mine gold in the El Callao region. Private Venezuelan entrepreneurs also exploited the nation's gold reserves.

Venezuela also possessed varying amounts of other metals and minerals. For example, the country was a major producer of industrial diamonds, although diamond output fell steadily throughout the 1980s. The country also contained deposits of copper, nickel, zinc, lead, uranium, titanium, palladium, silicon, manganese, and chrome. Quarrying for industrial minerals such as feldspar, gypsum, hydrated lime, salt, nitrogen, phosphate rocks, gravel, barite, pyrophyllite, asbestos, bentonite, and magnesite was also common.



Venezuela - Manufacturing


Government-implemented industrialization policies begun in the late 1950s boosted the manufacturing sector. From the early 1970s to late 1980s, the state's ownership role in manufacturing increased from 4 percent to 42 percent. In 1988 the sector employed 18 percent of the labor force and accounted for 17.1 percent of GDP. Except for the export of processed petroleum and minerals, virtually all manufacturing was consumed locally. Manufacturing previously had been limited to oil refining, food processing, and small-scale enterprises. Domestic manufacturing blossomed somewhat during World War II as the country substituted local production for imports curtailed by the conflict. The expansion of manufacturing accelerated to its fastest pace in the 1950s as the world economy boomed, and the government embarked on the economic diversification and industrial development policies it referred to as "sowing the oil." By the mid-1970s, the nation's enormous oil wealth allowed the government to provide significant aid to industry, especially in the form of subsidized credit. Public-sector participation in industry expanded considerably with the nationalization of iron and steel in 1975 and petroleum in 1976. But after the country had exhausted its reserves from the two oil booms of the 1970s, it was forced to reexamine its industrial policies. Although Venezuela's level of industrialization was impressive by Latin American standards, industry was generally inefficient and productivity low. In 1990 Venezuelan industry faced the difficult task of moving beyond local markets and trying to compete in the international market.

By the end of the 1980s, the structure of manufacturing continued to be dominated by thousands of small firms in the private sector and a few hundred large, mainly public-sector, enterprises. In 1988 large firms employed 64 percent of the sector's workforce and supplied 78 percent of its output. Most smaller firms were family owned. Unlike many Latin American countries, capacity utilization among large, state firms was generally better than in the private sector. Caracas was the home of just under half of all industry, but it provided only 36 percent of its jobs and 26 percent of the country's manufactured goods. By contrast, the Guayana region, with only 3 percent of the country's industrial firms, produced 10 percent of all manufactured goods.

Four broad functional categories made up the manufacturing sector: traditional or basic industries, intermediate, capital goods and metals, and other. Basic industries included most traditional manufacturing, such as food processing, beverages, leather, footwear, and wood products. Traditional manufacturing constituted 54 percent of all firms; about three-quarters of these were considered small businesses. Intermediate products, such as paper, petrochemicals, rubber, plastics, and industrial minerals, represented 18 percent of the sector, but their share was growing. The share of the capital goods and basic metals subsector was 19 percent by 1988. These thriving heavier industries included iron, steel, aluminum, transport equipment, and machinery. Other miscellaneous manufacturing accounted for 9 percent of the sector's output.

The automobile industry was one of Venezuela's largest manufacturing activities outside of petroleum refining and mineral processing. The industry consisted of Venezuelan subsidiaries of various foreign-owned companies. United States automobile companies assembled 85 percent of the country's vehicles, and European and Japanese companies produced 10 percent and 5 percent, respectively. The two largest United States car companies, General Motors and Ford, controlled 70 percent of the Venezuelan automobile market, followed by Fiat, Toyota, Jeep, and Renault.

At the outset, the Venezuelan automobile industry was almost completely an assembly operation, importing most parts. Eventually, local factories supplied a greater percentage of parts to the assembly line, particularly tires, metal products, and motors. A government decree in 1985 required that all car engines be Venezuelan made by 1990.

Venezuela's automobile industry was first established with three vehicle assembly plants in the 1950s. By 1984 cumulative output had reached 1.7 million vehicles. The industry, protected by import tariffs as high as 300 percent, soon became virtually the only source of the country's transportation fleet. In the late 1980s, fifteen producers manufactured scores of models for domestic consumption, ranking Venezuela with Brazil as the largest per capita producers of cars in Latin America.

Venezuelans rushed to purchase vehicles in the 1970s, when generous government price controls on gasoline made driving economical. Production dropped during the less-affluent 1980s, however. As in the manufacturing sector at large, increased competition in the late 1980s forced many lay-offs at automobile factories.

Venezuelan factories manufactured a wide range of new products during the 1980s: specialized rubber goods, new paper products, ships, and aluminum, among others. A growing trend among producers of both new and traditional manufactured goods was overseas marketing. The country's traditional manufacturers began turning to export markets to enhance efficiency. The popular brewery, Polar, for example, turned to the international market after absorbing 85 percent of Venezuela's beer market. Following the success of other foreign beers in the United States, Polar began to export its brew successfully to North America in the late 1980s. Increased sales helped rank it among the world's fifteen largest breweries. The government-owned cement industry likewise expanded exports in the late 1980s, boosting its overall production in the process. Increased production allowed the industry to operate at more than 90 percent capacity, an unusually high rate of efficiency among Latin American industries. Although some manufacturers were expected to succeed in foreign markets, economists predicted that many others would close their doors during the 1990s as a result of reduced import protection.

Having reached a rather advanced stage of physical and human resource development by 1990, Venezuela hoped to turn toward high-technology areas for future manufacturing expansion. One of the country's largest import items, for example, was computer equipment. The Pérez administration promised to create incentives for investment in newer industries, such as information technology, telecommunications, and electronics. One obstacle to this goal, however, was the limited extent of research and development in the economy, particularly in the private sector. The country's expenditure on research and development in 1985 stood at only 0.41 percent of gross national product ( GNP), compared with 2.7 percent in the United States. During the 1990s, the country aspired to reach the level of 1 percent of GNP recommended by the United Nations Educational, Scientific, and Cultural Organization.


Venezuela - Banking


Venezuela's extensive financial infrastructure, distinguished by the specialized nature of its institutions, displayed rapid growth from the 1950s through the 1980s. In 1989 the financial services sector consisted of forty-one commercial banks, twentythree government development finance institutions, twenty-nine finance companies, sixteen mortgage banks, twenty savings and loan associations, and scores of other related entities, such as insurance companies, liquid asset funds, pension funds, brokerage houses, foreign exchange traders, and a stock exchange. The huge oil profits of the 1970s prompted the rapid expansion of financial institutions. During the less-prosperous 1980s, however, several institutions went bankrupt. These insolvencies greatly disrupted the financial system and led the government to intervene to resuscitate some companies and to force others to close down. The most celebrated of these interventions was the 1982 takeover of the Workers' Bank, which until that year was the country's fastest-growing financial institution.

The Central Bank of Venezuela (Banco Central de Venezuela-- BCV) and the Central Office of Coordination and Planning (Oficina Central de Coordinación y Planificación--Cordiplan), with assistance from the World Bank, sought to modernize, liberalize, and consolidate the private financial system in the early 1990s. One of the main aims of restructuring was to improve the weak supervisory authority of government regulatory bodies such as the Superintendency of Banks, the Superintendency of Insurance, the Deposit Insurance Corporation, and the National Securities Commission. The same policies sought to redefine and eliminate overlapping responsibilities. Financial authorities also attempted to liberalize the BCV's interest rate policies and strict credit allocation provisions, which restricted financial markets. In addition, policy makers contemplated increased participation from foreign banks, which had been limited to a 20 percent equity share since 1970, in order to make local financial institutions more competitive with international counterparts. Financial restructuring also aspired to create new government mechanisms for dealing with ailing financial institutions.

The country's forty-one commercial banks and their hundreds of branch offices represented the core of the private financial system. Commercial banks held about 70 percent of the total assets of the financial system in 1989. Bank lending policies were generally very conservative, favoring high liquidity ratios and emphasizing personal relationships. Banks financed mostly the short-term credit needs of the economy, reserving long-term financing for government development finance institutions. The banking industry was highly concentrated; six major banks, all affiliates of the six leading financial groups, dominated the industry with ownership of 63 percent of total bank deposits and 57 percent of total financial system assets. Banco Provincial, Banco de Venezuela, Banco Mercantil, and Banco Latino were the largest commercial banks in 1989. Fifteen medium-sized banks controlled 29 percent of bank deposits, whereas twenty small banks held only 8 percent of such deposits. Of the forty-one banks present in 1989, thirty were locally owned, private banks; two were privately owned with some foreign interests; and nine were government-owned banks. Many local banks balked at the prospect of outside competition from larger and better capitalized foreign banks.

The nine public-sector banks that operated as commercial entities were the Industrial Bank of Venezuela (Banco Industrial de Venezuela--BIV), the Agricultural and Livestock Development Bank (Banco de Desarrollo Agropecuario--Bandagro), four regional development banks associated with the BIV, and three subsidiaries of the BCV (Banco República, Banco Italo-Venezolano, and Banco Occidental de Descuento). The BIV, the oldest state-owned bank, served as the major lender to the public sector and to industry. Like its four affiliated regional development banks, the BIV held a great many nonperforming loans. Without continued capitalization from the central government, these five banks likely faced insolvency. Bandagro, also dependent on renewed government capital, faced large debts in 1990 despite several attempts to restructure the institution during the 1980s. Nevertheless, Bandagro remained a key lender for medium-sized agricultural enterprises. The BCV's three banking subsidiaries, also carrying weak loan portfolios, were slated for privatization in the early 1990s.

In addition to public-sector banks, the state also operated twenty-three development finance institutions. Development finance institutions typically funded large, long-term development projects in both the private and public sectors, generally projects that were unable to secure commercial bank loans. Successive governments also had established specialized institutions to propel the development of agriculture, industry, urban areas, <>tourism, and exports. The names and functions of these financial institutions, most of which were founded after the 1973 oil boom, often changed as successive administrations pursued different development objectives.

Finance companies, a common institution throughout Latin America, met the society's diverse credit needs, ranging from consumer finance to short- and medium-term loans for local industry and commerce. Some twenty-nine finance companies with almost 100 offices in 1989 held about 20 percent of the national assets, ranking them as the second largest type of financial institution in the private sector. In Venezuela these companies tended to be rather specialized, lending primarily to agriculture, industry, and commercial activities. Given the local banking industry's conservative reputation, finance companies often lent where banks did not. At the same time, many of the country's finance companies belonged to larger financial groups affiliated with commercial banks. In addition to finance companies, the major international credit cards did business in Venezuela, thereby supplying another source of consumer credit.

Sixteen mortgage banks served the country's longer-term credit needs with more than 100 offices nationwide. Mortgage banks, which lent for new construction, home improvements, and residential and commercial real estate, contained about 7 percent of the total financial system's assets. Like the commercial banks, mortgage banks faced a serious imbalance of liabilities over assets by the late 1980s, principally as the result of inconsistent interest rate policies on the part of the BCV. The mortgage bank industry was thrown into further disarray in 1989, when the Venezuelan Congress passed a politically motivated Protection Law for Mortgage Owners. As interest rates were liberalized and rose after early 1989, the Protection Law for Mortgage Owners established ceilings on the proportion of monthly salary that mortgage holders could pay, usually no more than 25 percent. This measure aided home owners in the short run, but threatened to squeeze mortgage bank credit for future housing.

Savings and loan associations held about 5 percent of the country's total financial assets in 1989 and were the key to mobilizing the nation's savings. Twenty savings and loans provided short- and long-term lending through nearly 300 branch offices. The weak portfolios of these institutions in the 1980s required substantial government intervention. The National Savings and Loan Bank (Banco Nacional de Ahorro y Préstamo-- Banap) intervened in the savings and loan industry on behalf of the government. Banap became the regulator, provider of capital, and guarantor of the industry. By 1990 some institutions owed as much as 40 percent of their overall liabilities to Banap, which itself faced growing financial constraints.

Capital markets constituted the other major component of the private financial system. Unlike other financial establishments, capital markets were slow to develop and remained quite weak in 1990. Among the explanations for the slow growth in capital markets was the traditional, family nature of businesses in Venezuela and the lopsided distribution of income, which limited the savings or capital accumulation of the lower classes. Furthermore, with subsidized interest rates, firms usually preferred debt financing or family borrowing over the mobilization of capital through the sale of equity shares. Investors were also skeptical of inadequate government regulation of publicly traded stocks and the state's history of intervention in industry.

The Caracas stock exchange, founded in the late 1940s, was the country's major capital market. The exchange operated under the nation's 1973 capital markets law, but regulatory changes expected in 1990 would allow foreigners to purchase shares on the Caracas exchange. In 1987, 110 companies were listed on the exchange.


Venezuela - Tourism


Tourism was a rather minor and undeveloped industry in Venezuela. In the 1970s, the government targeted domestic vacationers to some extent, but by the late 1980s promotion of tourism focused on the potential foreign exchange revenues of international visitors. The Venezuelan Tourism Corporation spurred tourist infrastructural development with concessionary financing and international promotional efforts.

Tourist arrivals fluctuated widely in the 1970s and 1980s, mainly in line with prevailing exchange rate policies. For example, as the bolívar appreciated vis-à-vis the United States dollar prior to the 1983 devaluations, tourist arrivals declined, but arrivals more than doubled from 1984 to 1986. In 1988 an estimated 336,541 tourists visited Venezuela, generating upwards of US$200 million in revenue. The 1989 riots, however, were expected to hurt arrivals in the short run. Approximately 99 percent of all foreign tourists came from the Western Hemisphere or Europe. United States citizens entered with only a tourist card, obtainable on the flight to Venezuela. Cruise ships also visited several ports. In the late 1980s, nearly 2,000 lodging facilities offered 60,000 guest rooms. The peak tourism months were July, August, December, and January.

<"http://accommodations-travelnow.com/latin-america/venezuela/">Venezuela Accommodations


CITATION: Federal Research Division of the Library of Congress. The Country Studies Series. Published 1988-1999.

Please note: This text comes from the Country Studies Program, formerly the Army Area Handbook Program. The Country Studies Series presents a description and analysis of the historical setting and the social, economic, political, and national security systems and institutions of countries throughout the world.

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