Venezuela - Overview of economy

Venezuela is very much a country built by oil. Among Latin American countries, it has the highest GDP and the fifth highest GDP per capita . Oil was first pumped from the bed of Lake Maracaibo, in upper northwest Venezuela, in 1917. Some 75 percent of Venezuela's oil continues to be pumped from the area in and around Lake Maracaibo. Before 1917, cocoa and coffee were

Venezuela's main exported products, but oil has been its chief export since 1926. In 1960, Venezuela was a founding member of the Oil Producing and Exporting Countries (OPEC), a cartel (a group of countries that work together to control the buying and selling price of a product) that has enormous influence in world oil prices. Until 1970, Venezuela was the world's largest exporter of oil; it has since fallen to third place.

The extent to which the country relies of oil production can be seen in the numbers: in 1999, oil production contributed 27.9 percent to the Venezuelan GDP, 60 percent of the government's revenues, and 78 percent of the country's export earnings. As a result of this dependence on oil production, when oil prices have gone up on the world's market, the country's economy benefits. After OPEC increased world oil prices by 400 percent in 1973 Venezuela enjoyed a large windfall; in the 5 years from 1974 to 1979, the government earned—and spent—more money than it had in the preceding 144 years put together. In 1999, the Venezuelan economy shrank as a result of falling oil prices. The economy then experienced a recession (a fall in GDP for 2 consecutive quarters) with GDP falling by 7.2 percent in comparison to the GDP of the previous year. With oil prices rising again in 2000, the economy rebounded with annual growth of 3.2 percent.

Despite these fluctuations, the average annual growth of the GDP from 1979 to 1999 was only 0.9 percent. During that time, the population grew by 2.5 percent every year, causing per capita income to fall. Consumer prices rose an average of 54 percent per year from 1995 through 1999, a period when 12 percent of the labor force was unemployed. Dependence on oil also means that the government must borrow money when oil revenues are not available. Venezuela's external debt in 1998 was onethird of that year's GDP, and one-third of the govern-ment's oil revenues had to be used to pay the interest on the debt. Dependence on oil means that the Venezuelan economy cannot devote the resources to produce the food that its people consume, as it was able to do before 1920. Since the 1980s, Venezuela has had to import even the most basic foodstuffs, such as sugar and potatoes.

Despite periods of dictatorship and official corruption and patronage over the years, the general economic and political trajectory for Venezuela in the 20th century has been a positive one, and, since 1958, it has devoted much of its public funds to building a physical and social infrastructure for its people. Since that time, the government has practiced more or less free-market policies, allowing others to participate in the economy as it has seen fit. For example, multinational corporations were forced to sell their rights to pump oil to the government in 1976, but they were allowed back into the country in 1996.