Venezuela history with world bank imf

Government spending was deeply pro-cyclical. Instead of saving at least some money for bad times during the good times — as Norway, Saudi Arabia and virtually all other oil exporters have done — the Venezuelan government ran double-digit fiscal deficits as the economy boomed. Government spending far outpaced income from taxes and other revenues.

The country also became increasingly reliant on the central bank printing money after gutting its independence, a dangerous monetary policy. A central bank printing money to finance government deficits is highly inflationary. It works as a tax on savings and wages via higher consumer prices, disproportionately affecting the poor. Government spending during the oil boom was extremely inefficient.

Subsidised gasoline in Venezuela was not just the cheapest in the world but often virtually free. Electricity subsidies were also vast, leading to losses and underinvestment in the sector. At the same time, the all-important oil industry was starved of investment funds and badly mismanaged as technical experts were replaced with political allies.

PDVSA , fell rapidly. These losses were masked by production gains in lower-quality fields operated by joint ventures with foreign oil companies. Presidents Chavez and Maduro also championed extremely destructive microeconomic policies. Their governments asserted heavy-handed control over the economy and were overtly hostile to private markets and private property.

Government intervention was meant to spread prosperity and lower living costs, but instead it crippled the domestic non-oil economy. From onwards, the government expropriated broad swathes of the economy, often without compensation and on national TV broadcasts, crushing business confidence and investment. Over a thousand firms and several million hectares of land were nationalised in the agriculture, banking, cement, iron, oil, manufacturing, retail and telecommunications sectors.

Venezuela history with world bank imf

In , Venezuela also imposed capital controls and a byzantine system for foreign currency purchases. There were one or more official exchange rates where the government subsidised dollar purchases and demand vastly outstripped supply, as well as a black market with its own free-floating exchange rate determined by market forces. The system was deeply distortionary.

An entire industry of non-productive ghost companies cropped up to lobby the government for subsidised dollars to resell them on the black market for an immediate profit. At the same time, legitimate value-adding businesses were unable to get reliable access to the foreign currency needed to operate. Many genuine businesses also specialised away from productive activities towards securing cheap dollars.

Worse yet, the government set prices for thousands of retail goods by decree: from rice and chicken to soap and toilet paper. Price caps were often too low, so producers could not cover their costs, leading to shortages, smuggling and bankruptcies. The government also capped profits in and enforced the caps with draconian inventory seizures and jail time for workers and executives.

Punitive labour regulations also made firing employees extremely risky, costly and time consuming. Taken together, this web of anti-market measures hamstrung domestic production, making the country extremely reliant on imports, even for products that Venezuela had previously exported, such as rice. Due to the aggressively pro-cyclical fiscal policy during the prior decade, the government was highly indebted and did not have meaningful savings.

As result, the shock was amplified rather than cushioned. Due to such measures and through redistributive policies the poverty rate was cut from 50 percent in to 30 percent in , based on state figures. Inequality, as measured by the Gini Index , was reduced. This has affected the ability of the economy to remain viable. Contents move to sidebar hide.

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