Venezuela - Politics, government, and taxation

Under its present constitution, approved in 1999, Venezuela is a federal republic with 1 federal district, 2 federal territories, 23 states, and 72 federal (island) dependencies. The president is elected to a 6-year term and can be reelected. The president selects a cabinet that is called the Council of Ministers. Legislative power is vested in a National Assembly of 165 members elected to 5-year terms. Upon receiving nominations from various civilian groups, the legislature selects the 18 judges of the Supreme Justice Tribunal for 12-year terms. The Supreme Justice Tribunal is the highest court in Venezuela; its 18 judges appoint lower-court judges and magistrates. Local government officials are chosen in local elections.

The political history and the economic history of Venezuela are inseparably intertwined. This is because since 1936, the government has pursued a policy of "sowing the oil," or using the government revenues from the tax on the sale of oil to promote the economic growth of the country. That policy has been pursued in earnest since the time of Venezuela's first democratically elected president, Rómulo Betancourt, in 1958. From the time of its independence from Spain in 1811 until 1958, Venezuela was ruled by a series of military dictators. From 1936 to 1958, although some public projects were constructed by the government, much of the government's oil revenues ended up in the pockets of the dictators and various government officials. From 1958 until the present, Venezuela has enjoyed uninterrupted democratic rule.

Two political parties dominated Venezuelan politics from 1958 to 1993: the liberal Democratic Action or Acción Democrática (AD) party, and the conservative Partido Social Cristiano, known as COPEI. The policies of these 2 parties did not differ from one another because of an agreement called the Pact of Punto Fijo signed by party political leaders in 1958. Under that pact, political leaders decided on a policy agenda before the election and agreed to divide cabinet and other government offices among the major parties after the election regardless of which candidate won in the vote count. The agreement ultimately broke down because political appointments were increasingly being made on the basis of patronage and because neither political party had succeeded in controlling excessive government spending. Dissatisfaction with the policies of the major political parties manifested itself in riots in 1989 that left hundreds dead, and in 2 unsuccessful military coups in 1992. In 1993, Rafael Caldera won the presidency under a 19-party alliance called the Convergencia Nacional (CN). It was the first time since 1958 that the presidency was held by a candidate from a party other than the AD or the COPEI.

Caldera faced a banking crisis in 1994, a fall in world oil prices (with decreasing government revenues) in 1997, and was ultimately forced to adopt unpopular budget cuts. His successor, Hugo Chávez Frias, elected in 1998, had been one of the military officers involved in the attempted coups of 1992. He campaigned on promises of changing the constitution to fight corruption and patronage, and also promised to move the economy away from its dependence on oil. A new constitution was adopted in 1999, and Chávez was reelected president. His party, the Movimiento Quinta República (MVR) has formed a governing alliance with the socialist party, the Movimiento al Socialismo (MAS).

Moving the economy of Venezuela away from its dependence on oil will be a difficult task. This is because government spending based on oil revenues has been the engine of economic growth for so long. The increased tax revenues that resulted from the higher oil prices after 1973 were used by the government to nationalize the entire oil industry. The government also established hundreds of new state-owned industries, as in steel, mining, and hydroelectricity. The Chávez government has continued the effort of the Caldera government to privatize a number of these industries.

If Venezuela is to move away from its dependence on oil, its government will have to increase the tax revenues it gets from other sources. Venezuela has an income tax on all economic activity by individuals and businesses, but tax evasion by individuals remains a significant problem. In 1996, the government was taxing the profits of private oil companies at the very high rate of 67.7 percent. It is not clear that the taxing of other entities within Venezuela will provide sufficient revenues to the government.

Country Newspapers Radios TV Sets a Cable subscribers a Mobile Phones a Fax Machines a Personal Computers a Internet Hosts b Internet Users b
1996 1997 1998 1998 1998 1998 1998 1999 1999
Venezuela 206 468 185 25.8 87 3.0 43.0 3.98 525
United States 215 2,146 847 244.3 256 78.4 458.6 1,508.77 74,100
Brazil 40 444 316 16.3 47 3.1 30.1 18.45 3,500
Colombia 46 581 217 16.7 49 4.8 27.9 7.51 664
a Data are from International Telecommunication Union, World Telecommunication Development Report 1999 and are per 1,000 people.
b Data are from the Internet Software Consortium ( ) and are per 10,000 people.
SOURCE: World Bank. World Development Indicators 2000.
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