Venezuela and Chavez: A General Picture of the Times

VENEZUELA AND CHAVEZ: A GENERAL PICTURE OF THE TIMES

The Venezuelan Economy

The Venezuelan economy is regarded as among the strongest in its region, Latin America, mostly attributable to is Ð'ÐŽÐ'§very solid democratic system of government and a dynamic market representing a truly guarantee for national and foreign investmentsÐ'ÐŽÐ'Ё (Venezuelan Embassy, n.d.). The strength of the economy is largely based on the wide participation of various players and the structure of goods and services.

The structure of the Venezuelan economy is based on two concepts. First, it is a mixed economy with extensive public and private participation. Second, it is divided into two main components: the oil economy, oriented towards exporting, and the internal economy, where most of the countryÐ'ÐŽÐ'¦s goods and services are produced and consumed. Non-oil economic activity will be concentrated in agriculture and industry, which are the two sectors most seriously affected by import competition (Venezuelan Embassy, n.d.)

Predominantly, the Venezuelan Economy is largely dependent on its oil industry. Fittingly, www.sourcewatch.org asserts that the VenezuelaÐ'ÐŽÐ'¦s oil industry is Ð'ÐŽÐ'§the uncontested fuel of VenezuelaÐ'ÐŽÐ'¦s economic engine.Ð'ÐŽÐ'Ё Venezuela does not merely rely on its oil industry to boost its Gross Domestic Product (GDP); the industry is also the main contributor to the revenues of the government. The World Fact Book of the Central Intelligence Agency asserts that industry Ð'ÐŽÐ'§accounts for roughly 90% of export earnings, more than 50% of the federal budget revenues and around 30% of GDP.Ð'ÐŽÐ'Ё

The Seat of Presidency

Venezuela follows the Presidential form of government with the president being elected as both the head of state and the head of government. The executive power of the state lies in the Office of the President. The Venezuelan President has the authority not only to appoint persons who would form part of the cabinet, but at the same time to decide on its composition and size nonetheless. Interestingly, the President also has the responsibility to appoint the Vice President.

The scope of power of the President is not solely restricted to the executive branch; the President also has some legislative powers. Interestingly, the Constitution enables four groups to initiate legislations, and the office of the President is one of them.

Chavez: His Beliefs, Dispositions, and Policies

Hugo Chavez believes that his administration is governed by closely adhering to Bolivarianism, a philosophy which he and his colleague developed way back in their college years at Simon Bolivar University. Bolivarianism is usually associated to the leftist thinking and the radical reform to unify and to dethrone Ð'ÐŽÐ'§foreign dominanceÐ'ÐŽÐ'Ё of any sort. Interestingly, Bolivarianism became synonymously associated with the rule of Chavez as he was believed to be the strongest and the most prominent individual who have lived and acted out this principle. This explained some of the policies that he had enacted and created during the first stretch of his administration in Venezuela like the regulation of foreign exchange entry and controls as manifested by the establishment of the Comision de Administracion de Divisas (CADIVI). He even resorted to the suspension of the sale of dollars for quite some time.

The different policies of the Chavez Administration gave the government its tough times in continuously willing the support of the people. Ð'ÐŽÐ'§Cars honking, protesters banging their pots and pans, and vendors hawking their goods, since the imposition of a new set of economic policies by President Hugo Chavez in 2002, such sights and sounds had become a fixture of city life.Ð'ÐŽÐ'Ё As such, the Chavez Administration is continuously faced with the challenge not only in enforcing its policies but at the same time in continuously ensuring its legitimacy and control in governance amidst the Ð'ÐŽÐ'§repeated recalls, resignations, coups, and reappointmentsÐ'ÐŽÐ'Ё that characterized the rule of Chavez in Venezuela.

IDENTIFICATION OF THE PROBLEM

The case of the Venezuelan Bolivar Black Market presented different problems and situations. Apparently there has been the devaluation of the Bolivar against the dollars. The Bolivar has been on a downward spiral with the implementation of capital control. By February 9, 2004, the Bolivar was devalued 17%, falling in official value from Bs 1600/$ to Bs1920/$. The fall of the exchange values and the continuous political turmoil that continues to prevail in Venezuela led to the soaring of the inflation rates. Ð'ÐŽÐ'§As market collapsed and exchange values fell, the Venezuelan inflation rate soared to more than 30% per annum.Ð'ÐŽÐ'Ё

Furthermore the implementation of the capital control led to the decrease in the supply of dollars in the market. With the government restraining the entry of dollars and regulating its distribution, mostly allocated to pro-Chavez supporters by the CADIVI. Too much control and regulation in foreign currencies christened the Gray Market and the Black Market. These mechanisms became active and apparent as they became the most plausible means of obtaining the hard currency, United States Dollars.

Therefore, most of the problems that were experienced by Venezuela were born out of the different policies of the Chavez Administration. The implementation of the Capital Controls by Chavez that was meant to improve the Venezuelan economy through devaluation was now favoring exporters at the expense of importers and has now led to surplus in the balance of payments.

IMPACT OF THE PROBLEM

Impact of the Problem to the Economy and Businesses

The implementation of Capital Controls of the Chavez Administration is believed to be consistent with the Bolivarianism concept of self-sustainability. Such principle is encapsulated isolationist economic and financial practices, the most pronounced of which is the 2003 Exchange Deregulation Decree. The said decree mandates:

1. The government to fix exchange rates, pegged at bid = Bs 1596/$ and ask = Bs 1600/$

2. The establishment of the CADIVI or the Comision de Administracion de Divisas) to control