Economic policy of the Hugo Chávez administration

Since his election in 1999, the administration of Venezuelan president Hugo Chávez has proposed and enacted a wide range of democratic socialist economic policies. One of the policy objectives has been to diversify the economy of Venezuela away from its heavy dependence on oil.

Domestically, this has involved a focus on redistribution of wealth, land reform, and democratization of economic activity via workplace self-management and creation of worker-owned cooperatives.

Internationally, the Chávez administration has attempted to increase autonomy from U.S. and European governments, increasing public control over domestic oil production, and promoting economic and political integration amongst Latin American nations.

Government policies

Petroleum and natural resources

See also: Energy policy of Venezuela

Venezuela is a major producer of oil products, which remains the keystone of the Venezuelan economy.

Venezuela's crude oil production was 3.12 million barrels a day when Chávez took office in 1999, and in 2007 was 2.949 million barrels a day, while oil prices increased 660% from 1998 to 2008, leading to a significant increase in earnings. The state income from oil revenue has "increas[ed] from 51% of total income in 2000 to 56% 2006"; oil exports "have grown from 77% in 1997 [...] to 89% in 2006"; and some economists view "this dependence on oil is one of the chief problems facing the Chávez government".

The economist Mark Weisbrot, in an analysis of the Chavez administration, said: "The current economic expansion began when the government got control over the national oil company in the first quarter of 2003. Since then, real (inflation adjusted) GDP has nearly doubled, growing by 94.7 percent in 5.25 years, or 13.5 percent annually." Additionally, real GDP measurements use "price deflators", which do not take into account the 660% increase in the price of oil from 1998 to 2008, and instead only take into account the quantity of oil produced, which has slightly decreased due to the administration's decision to cut production to increase earnings by raising prices.

In response to the low oil prices at the end of the 1990s, Chavez played a leading role within the Organization of the Petroleum Exporting Countries (OPEC) to reinvigorate that organisation and obtain members' adherence to lower production quotas designed to drive up the oil price. Venezuelan oil minister Alí Rodríguez Araque's announcement in 1999 that his country would respect OPEC production quotas marked "a historic turnaround from the nation's traditional pro-US oil policy."

On 13 November 2001, under the enabling law authorized by the National Assembly, President Chávez enacted the Hydrocarbons Law, which came into effect in January 2002. The new Hydrocarbons Law required that a minimum of 51% of PdVSA be owned by the Venezuelan government, and increased royalties paid by foreign corporations from 16.6% to 30% in an attempt to repatriate more petroleum funds to Venezuela.

Chávez has redirected the focus of PDVSA by bringing it more closely under the direction of the Ministry of Energy and Petroleum. In 2004, $1.5 billion of the $15 billion budget of PdVSA was directed to be used for funding social programs, and later this was raised to $4 billion per year.

Chávez has also explored the liquidation of some or all of the assets belonging to PDVSA's US-based subsidiary, Citgo, which has received criticism amongst the Venezuelan public due to corruption, and links to the U.S.

According to finance minister Nelson Merentes, the Venezuelan 2006 budget would get more income from taxation than from the petroleum industry, unlike formerly.

During the December 2002-February 2003 lock-out where managers and skilled highly-paid technicians of PDVSA locked out PDVSA and sabotaged the industry, petroleum production and refining by PDVSA almost ceased. This sabotage was politically motivated; at the same time, many business owners across Venezuela closed down their stores in order to create instability within Venezuela. Despite the lock-out, these activities eventually were substantially restarted when the rank-and-file oil workers restarted PDVSA without the managers. Out of a total of 45,000 PDVSA management and workers, 19,000 were subsequently dismissed, many of which were managers and highly paid technicians.

Cooperatives and economic democratization

Since Chávez was elected in 1998, over 100,000 worker-owned cooperatives—representing approximately 1.5 million people—have been formed with the assistance of government start-up credit, technical training, and by giving preferential treatment to cooperatives in state purchases of goods and equipment. As of 2005, approximately 16% of Venezuela's formally employed citizens were employed in a cooperative. However, a 2006 census showed that as many as 50% of the cooperatives were either functioning improperly, or were fraudulently created to gain access to public funds.

Additionally, several thousand "Communal Councils" (Consejos Communales) have been created. In these Communal councils, citizens form assemblies to determine what will be done with government funds in their local area. Groups are made up of 200 or more families in urban areas, and starting at around 20 families in rural areas, and their decisions are binding to local government officials. 16,000 of these groups were created in 2007. As of 2007, about 30% of state funds were controlled by communal councils, with a goal of giving direct control of 50% of state funding to citizen assemblies..

As of 2007, 300 communal banks had been established, and had received $70 million in government funding, to be used for local micro-loans. With these funds, the councils have implemented thousands of community projects, such as paving streets, creating sports fields, building medical centers, and constructing sewage and water systems. Some leaders have proposed that the councils replace city and state governments entirely, or work parallel to them. By 2008, there were more than 3,500 such banks, which received $140 million in funding in 2008, and were budgeted to receive $1.6 billion in 2009.

As of February 2010, the Venezuelan state had given technical and financial assistance to almost 200 worker-owned communes. A total of $23 million in government funding was provided to these communes. The communes have their own "productive gardens” that grow their own vegetables as a method of self-supply. A spokesperson from one of the Communal Councils, Morelbis Aguiar, explained that a commune, which is often made up of several communal councils, is local self-government “where we, the people, we are the ones who decide what our community wants and what the improvements are that we want to work on in our area. It’s not the state that comes and decides; it's us who decides which street we need, where to locate the university or high school… We decide what we’re going to do with the financing and resources that the revolutionary government gives us."

Poverty reduction programs and social spending

One of the primary ways that the Chávez administration is attempting to fix the problem of economic inequality is by wealth redistribution, primarily via land reform, and social programs.

The Chávez government has pursued a series of Bolivarian Missions aimed at providing public services (such as food, healthcare, and education) to improve economic, cultural, and social conditions.

In 2003, the Venezuelan government created Mission Mercal -- a chain of state-owned grocery stores, selling staple foods at 39% below market value, and which tries to buy 40% of all of its products from small or medium sized domestic producers. As of 2005, there were 13,392 Mercals and 102 warehouses, in addition to 31 recently built Supermercals, 12,500 Mercalitos (small Mercals), and several hundred cooperatives and other entities that work in conjunction with Mercal. Additionally, the government has created 6,000 mobile soup kitchens, which together with Mercal, comprise 22% of national food distribution.

The government has created an extensive micro-credit program, targeted towards the poor, with a goal of enabling them to start their own small businesses. Several micro-credit banks have been created, including Banco del Pueblo (People's Bank), Banco de la Mujer (Women's Bank), and the Fondo de Desarollo Microfinanciero (Fund for Micro-Finance Development, "Fondemi"). Additionally, banking laws passed in 2001 require that all banks set aside at least 3% of their capital for micro-loans.

As part of its "Miracle Mission" program, the Venezuela and Cuban governments have collaborated together to perform free eye care to over 1,139,798 people with an average of 5,000 operations occurring on a weekly basis in 74 medical centers around Venezuela, as of July 2010. Several thousand people from other Latin American nations—including Argentina, Bolivia, Brazil, Costa Rica, Chile, the Dominican Republic, Ecuador, Guatemala, Nicaragua, Paraguay, Peru, and Uruguay—have also been given free treatment under the program.

Since 2003, the Venezuelan government has set price controls on around 400 basic foods in an effort according to the Washington Post, to "counter inflation and protect the poor."

A 2010 OAS report indicated achievements in addressing illiteracy, healthcare and poverty, and economic and social advances.

Agriculture and land reform

A January 10, 2006 BBC article reported that since 2003, Chavez has been setting strict price controls on food, and that these price controls have caused shortages and hoarding.

A January 22, 2008 Associated Press article reported that Chavez had ordered the military to seize 750 tons of food that sellers were illegally trying to smuggle across the border to sell for higher prices than what was legal in Venezuela, and that Chavez had also threatened to seize the property of farmers who sold food at prices that exceeded the government's price controls.

On February 28, 2009 Chavez ordered the military to temporarily seize control of all the rice processing plants in the country and force them to produce at full capacity, which he claimed they had been avoiding in response to the price caps.

On March 4, 2009, the BBC reported that Chavez had set minimum production quotas for 12 basic foods that were subject to price controls, including white rice, cooking oil, coffee, sugar, powdered milk, cheese, and tomato sauce. Business leaders and food producers claimed that the government was forcing them to produce this food at a loss.

A June 20, 2009 article in the Washington Post reported on Chávez's policy of redistributing farmland. Chávez has seized many large farms from their owners. Although Chávez allows small farmers to work the land, he did not give them title to the land, and they are often required to work as part of a collective. Chávez said of the farmland, "The land is not private. It is the property of the state." Because of this collectivization, the income that a farmer receives does not correspond to the amount of work that he does. Some of the farmland that had been productive while under private ownership is now idle under collective ownership, and some of the farm equipment sits gathering dust. As a result, food production has fallen substantially. Nearly five years after the start of the land redistribution program, the country is now more dependent on food imports than ever before. Production of primary foods such as beef, rice, sugar cane, and milk have fallen. Carlos Machado, an agriculture expert at the Institute of Higher Administrative Studies in Caracas, stated, "If there is a word to describe all this, it is 'stagnant'... The government policy to increase the crop production in the country is a complete failure." Felicia Escobar, a lawyer and consultant on land issues who used to work for the Agriculture Ministry, said of this farm collectivization, "That is socialism... It did not work before, and it does not work now." One farmer, referring to the government officials overseeing the land redistribution, stated, "These people know nothing about agriculture."

Chávez has seized many supermarkets from their owners. Under government ownership, the shelves in these supermarkets are often empty.

The Chávez government has passed several laws designed to support food sovereignty by increasing domestic agricultural production in Venezuela and reducing agricultural imports, and to more equitably redistribute unused agricultural lands .

In 1997, the year before Chávez was elected as President, 75% of the agricultural land in Venezuela was owned by 5% of landowners, and the smallest 75% landowners controlled only 6% of the land. Much of the land held by large landholders, was held in extremely large "latifundios", and was idle and unproductive. The "Law of the Land" passed by the Chávez administration, declared such landholdings to be illegal, and mandated that it be given to families who needed land to grow food. As of January 2009, the Venezuelan government had redistributed nearly 2.7 million hectares of idle land (6.6 million acres—nearly 1/3 of the latifundio land existing prior to 1998) to 180,000 landless peasant families. Additionally, reforms to Venezuela's Penal Code de-criminalized the occupation of idle private lands by landless peasants, and has started an initiative known as Mision Zamora to assist small and medium scale producers gain title to land. Although the Venezuelan government allows small farmers to work the land, it does not always give them title to the land, and they are sometimes required to work as part of a collective.

Agricultural credit has also increased dramatically, from approximately $164 million in 1998 to nearly $7.6 billion in 2008, with many of the credit decisions being made by local communal councils, rather than government bureaucrats. Additionally, in 2008, several laws were passed to provide financial assistance to struggling small farmers, such as debt relief programs and crop-failure insurance.

The Venezuelan government, under the Chávez administration, also began offering free technical assistance and education to farmers, through its National Agriculture Research Institute (INIA), which performs agricultural research and projects with small farmers.

The government is also trying to introduce large-scale urban agriculture to the populace, to increase local self-reliance. In Caracas, the government has launched Organoponico Bolivar I, a pilot program to bring organopónicos to Venezuela. Urban agriculture has not been embraced in Caracas as it has in Cuba. Unlike Cuba, where organopónicos arose from the bottom-up out of necessity, the Venezuelan organopónicos are clearly a top-down initiative based on Cuba's success. Another problem for urban agriculture in Venezuelan is the high amounts of pollution in major Venezuelan urban areas. At the Organoponico Bolivar I, a technician comes every 15 days to take a reading from the small pollution meter in the middle of the garden.

Nationalizations

The Chávez government nationalised several industries in 2007 and 2008, as part of its policy of wealth redistribution and reducing the influence of multinational corporations.

A January 3, 2007 article in the International Herald Tribune reported that price controls were causing shortages of materials used in the construction industry. According to an April 4, 2008 article from CBS News, Chavez ordered the nationalization of the cement industry, in response to the fact that the industry was exporting its products in order to receive prices above those which it was allowed to obtain within the country.

Chavez has nationalized Venezuela's largest telephone companies and electric utilities. In 2008 he ordered the halting of the construction of a shopping mall, and said the land would be nationalized and turned into a hospital or university.

The nation's largest private electricity producer, 82-percent owned by US-based AES Corp, was obtained by paying $740 million to AES for its share – fair compensation according to financial analysts cited by Reuters.

In 2007 the main telephone company, CANTV, was nationalised by buying US-based Verizon Communications' 28.5 percent share for $572 million – again, fair compensation according to analysts cited by Reuters.

In 2008 the Venezuelan government nationalized the leading steel company, Argentine-controlled Sidor, following months of strikes and labour-management disputes.

In 2008, cement production was largely nationalised, with Venezuelan-located plants belonging to Mexico's Cemex, Switzerland's Holcim, and France's Lafarge being bought by the government. Compensations of $552 million for Holcim and $267 million for Lafarge were agreed upon, with both of those companies agreeing to stay on as minority partners and retaining 10 to 15 percent shares; the takeover from Cemex was less friendly and compensation had not been agreed on as of March 2009. According to Chávez, the cement plants were exporting cement that was needed in Venezuela, because they could obtain higher prices outside Venezuela.

In 2008 Chávez ordered the halting of the construction of a mega-shopping mall, in downtown Caracas by Sambil, saying that it was inappropriate development in an already overcrowded, over-trafficked area. He suggested the land would be nationalized and turned into a hospital or university.

A food plant owned by US giant Cargill was nationalised in early 2009.

On February 28, 2009 Chavez ordered the military to temporarily seize control of all the rice processing plants in the country and force them to produce at full capacity, which he claimed they had been avoiding in response to the price caps. The country's largest food processor, Empresas Polar, said that the regulated price of plain rice was well below the cost of production, and as a result 90% of its rice output was flavoured rice not subject to price controls. It also said that its plant was operating at 50% capacity due to raw material shortages; the government however claimed to have found 2 months' worth of raw rice in storage at the plant.

In mid-2009 the Venezuelan government took temporary control of Fama de America and Cafe Madrid coffee plants, accusing the manufacturers, which together have 70% of the Venezuelan market, of hoarding and of smuggling coffee to Colombia.

Taxation

The Venezuelan government has instituted several new taxes on non-priority and luxury goods, aiming to shift the nation's tax burden from the poor to the wealthy, and to control inflation.

From November 2007 until the end of 2007, all bank transactions between businesses had a 1.5% tax extracted, as a means of controlling inflation by soaking up excess liquidity.

As of February of 2009, the Venezuelan government had reduced sales tax on basic items from 14% to 9%, saying that the measure was a regressive tax on the poor, and expressed plans to ultimately remove them altogether.

In October of 2009, SENIAT, the Venezuelan tax collection agency announced that it would tax cigarettes and alcohol, in order to reduce their consumption.

International economic policies

Hugo Chávez, Evo Morales, Daniel Ortega, and Dmitry Medvedev meet to discuss the proposed regional economic bloc known as ALBA.

One of the Chávez administration's primary goals is to reduce the influence of foreign capitalists in Venezuela, as part of its overall push towards localized economic democratization. Towards this aim, it has strongly promoted various forms of Latin American economic and political integration—such as regional currencies (e.g. SUCRE, somewhat analogous to the Euro), regional credit/financial institutions such as Bancosur (to remove dependence on the IMF/World Bank), and trade pacts (such as ALBA, Petrosur, or bartering oil for doctors with Cuba).

Regional integration

Further information: [[:ALBA]] and [[:SUCRE]]

One of the Chávez administrations' key goals has been the creation of a regional trade/political bloc, the Bolivaran Alliance for the Americas (ALBA), which would act as an alternative to the Free Trade Agreement of the Americas (FTAA). The Venezuelan government claims that the FTAA's decision-making process is undemocratic, that it boosts the power of corporations at the expense of national sovereignty, and that privatization kills the poor.

Cuba, Nicaragua, Honduras, Bolivia, and the Dominican Republic have joined Venezuela as members of ALBA. For example, in exchange for discounted Venezuelan oil (which Cuba needs due to the U.S. embargo), Cuba (which has some of the best medical care in the world) has provided Venezuela with thousands of doctors and teachers, who provide healthcare and education to Venezuela's poor. Chávez describes ALBA as "a flexible model for the integration of Latin America that places social concerns in the forefront." and advocates "socially-oriented" forms of trade instead of those "strictly based on the logic of deregulated profit maximization".

The SUCRE is a proposed regional currency to be used in commercial exchanges between members of ALBA. The SUCRE is intended to replace the U.S. dollar as a reserve currency, in order to decrease U.S. control of Latin American economies and to increase stability of regional markets.

Eudomar Tovar, president of the Unified System of Regional Compensation (SUCRE) said:

The dollar is a reserve currency, but it has been losing relevancy. Through the cooperation and integration agreements between our countries, we are trying to avoid the effects of the problems generated by capitalist economies on our regional finances ... From that point on, our process of integration seeks to progressively decrease our dependence on the dollar, and diminish its regional domination as the principle currency. The United States is just one economy that emits huge quantities of dollars that actually have no real, solid support, and as a consequence, this has affected the interests of world economies"

Foreign debt

Chávez announced Venezuela's withdrawal from the International Monetary Fund and World Bank after paying back all his country's debts to both institutions; he charged them with being an imperial tool that aims to exploit poor countries, news sources reported. But as of March 2008, Venezuela is still a member of both institutions.

In 2005, the Venezuelan government partnered with Argentina, and Brazil to negotiate their foreign debt as a collective bloc. Chávez has also suggested that at least 10% of all Latin American foreign debt be paid into an "International Humanitarian Fund", that would be used to fund social programs without having neo-liberal structural adjustment requirements attached.

Currency and foreign reserves

In order to prevent capital flight, and maintain the stability of the bolivar (Venezuela's currency), the Chávez administration enacted strict currency controls in January 2003, making it more difficult for investors to exchange bolivars for dollars. The controls forced many Venezuelan investors to seek out domestic investment opportunities, rather than foreign investments. It also resulted in a large increase in foreign currency reserves, which had reached $35 billion by 2006, which is as high as Canada's (which has a slightly higher population), and on a per capita basis is much larger than Germany's ($55 billion)

In January 2008, Hugo Chávez stated that Latin American countries needed to begin their withdrawal of foreign currency reserves from United States-based banks.

Economic indicators

Economic Growth and Production

Since the government increased public control over the national oil company in the first quarter of 2003, real GDP has nearly doubled, growing by 94.7% in 5.25 years (average of 13.5% annually). GDP growth rates were 18% in 2004, 9% in 2005, and 9.6% in the first half of 2006, with the private sector growing at 10.3%. From 2004 to the first half of 2006, non-petroleum sectors of the economy showed growth rates greater than 10%.

Some economists argue that this subsidized growth could stop if oil prices decline, but the government argues its budget is dependent only on oil being above US$29 a barrel, whilst its 60 billion dollars in reserves can be deployed as a cushion against any sudden and sustained drop in oil revenues.

Income and Poverty

During the past decade under Chavez, the income poverty rate in Venezuela has dropped by more than half, from 54% of households below poverty level in the first half of 2003, down to 26% at the end of 2008. "Extreme poverty" has fallen even more - by 72%. Further, "these poverty rates measure only cash income, and doesn't take into account increased access to health care or education."

Datos reports real income grew by 137% between 2003 and Q1 2006. Official poverty figures dropped by 10%.. The World Bank calculated a 10% drop in poverty.

Some social scientists and economists claim that the government's reported income poverty figures have not fallen in proportion to the country's vast petroleum revenues in the last two years, much of which has been directed to social spending to decrease the cost of living.

Venezuela's infant mortality rate fell by 18.2% between 1998 and 2006.

Food and agriculture

By 2008, Venezuela was self-sufficient in its two most important grains, corn and rice, with production increases of 132% for corn and between 71-94% for rice since 1998. The country also achieved self-sufficiency in pork, representing an increase in production of nearly 77% since 1998. Furthermore, Venezuela is on its way to reaching self-sufficiency in a number of other important staple foods, including beef, chicken, and eggs, for which domestic production currently meets 70%, 85%, and 80% of national demand, respectively. Milk production has increased by 900% to 1.96 million tons, fulfilling 55 percent of national demand. Many other crops have seen significant increases over the past decade, including black beans (143%), root vegetables (115%), and sunflowers for cooking oil production (125 percent). This suggests a prioritization of culturally important crops and a focus on matching domestic agricultural production with national consumer demands.

Per capita food consumption in Venezuela grew from 370 pounds per year in 1998 to 415 pounds per year in 2009. The recommended amount of food that each person should consume per year is about 440 pounds per year. Average caloric intake has risen from 91.0% of the recommended levels in 1998 to 101.6% in 2007. Malnutrition related mortality fell by more than 50% -- from 4.9 to 2.3 deaths per 100,000 in population between 1998 and 2006.

Government spending

Most areas of social spending have increased dramatically since Chávez was first elected in 1998

Spending on education as a percentage of GDP (which has grown dramatically since 1998) stood at 5.1% in 2006, as opposed to 3.4% in the last year of the Caldera government. Spending on health has increased from 1.6% of GDP in 2000 to 7.71% in 2006. Spending on housing "receives low public support", increasing only "from 1% in GDP to 1.6% in 2006".

Teresa A. Meade, writes that Chávez's popularity "rests squarely on the lower classes who have benefited from these health initiatives and similar policies".

Venezuela's public debt, as a percentage of GDP, is "significantly lower" than that of the United States.

Employment

In June 2010 Mark Weisbrot wrote that jobs are much less scarce now than when Chávez took office, with unemployment at 8% in 2009 compared with 15% in 1999. He also stated that the number of front line doctors have increased 10 fold in the public sector and that enrolment in higher education has doubled, noting that these statistics are backed up by the UN and the World Bank.

According to government figures, unemployment has dropped by 7.7% since the start of Chávez's presidency. It dropped to 10% in February 2006, from the 20% high in 2003 during a two-month strike and business lockout that shut down the country's oil industry. According to the government, an unemployed person is a citizen above the age of 15 who has been seeking employment for more than one week.

Foreign Investment

In 2006, the business environment in Venzuela was listed as "risky and discouraged investment", by the opposition newspaper El Universal. As measured by prices on local stock exchanges, foreign investors were willing to pay on average 16.3 years worth of earnings to invest in Colombian companies, 15.9 in Chile, 11.1 in Mexico, and 10.7 in Brazil, but only 5.8 in Venezuela. The World Economic Forum ranked Venezuela as 82 out of 102 countries on a measure of how favorable investment was for financial institutions. In Venezuela, a foreign investor needed an average of 119 days and had to complete 14 different applications to organize a business, while the average in OECD countries was 30 days and six applications.

Consumer prices and inflation

According to the Banco Central de Venezuela, inflation dropped from 29.9% in 1998 to 14.4% in 2005. During 2005, imported goods were cheaper than commodities made in Venezuela; variability in the price of goods was linked to import performance and exchange stability. In the second quarter of 2006, gross fixed investment was the highest ever recorded by the Banco Central de Venezuela since it started tracking the statistic in 1997.

In June 2007, the Bank for International Settlements forecast an economic growth of 7% and a 18.9% inflation rate for Venezuela.

Human capital

Because of Chavez's criticsm and legal attacks against the productive members of his country, the country has been experienceing a substantial brain drain. Between 2000 and 2007, Venezuelan immigration to the U.S. has gone up more than 5,000%. Doctors, teachers, entrepreneurs, business owners, software developers, advertising account executives, scientists, classical musicians, and lawyers have been fleeing the country and heading to the U.S. Of this brain drain, an editorial in Investor's Business Daily declared, "Our gain is Venezuela's loss. These newcomers represent the human capital of Venezuela, something that Chavez, grounded in Marxist materialism, can't understand. He views these talented people as political pawns — traitors... Chavez talks a lot about Venezuela being a rich country, and extols its vast oil wealth. But the human capital he is throwing out is far more valuable... He's throwing away his country's biggest treasure."

See also

• Economy of Venezuela