Crisis in Venezuela

3 Key excerpts on "Crisis in Venezuela"

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  eBook - ePub

  China And Latin America: Economic And Trade Cooperation In The Next Ten Years

  Economic and Trade Cooperation in the Next 10 Years

  • Hongling Zhao, Zhenxing Su(Authors)
  • 2017(Publication Date)
  • WSPC

    (Publisher)

  Severe food shortages led to a high inflation. Most grocery stores and Mercal discount food stores were unable to supply enough beef, corn oil, milk, chicken, eggs, and other foods; they could only be bought on the black markets. The food shortage was mainly due to the price control, the rapid growth of economy and consumption and the accumulation of goods. If the problem was sustained or became worse, it would become a political issue. Once the food shortage had caused serious economic and political repercussions, the government could only solve the problem of shortage through imports, leading to to a higher level of inflation rate.

  (2) The Overvalued Exchange Rate

  The most serious economic imbalance in Venezuela is the exchange rate. In February 2003, the government implemented the foreign exchange control; the exchange rate of bolivar against the US dollar was fixed to 1,600:1, but due to the inflation, the actual devaluation of the currency was 3,182:1. After the rapid devaluation of bolivar in 2007, the exchange rate reached 6,000:1. In 2009, the bolivar was pegged to the US dollar by the ratio of 2,150:1. The currency was significantly overestimated. If Venezuela was to seek a long-term diversified development strategy that would no longer rely solely on oil, it was necessary to adjust the exchange rate. The overvalued currency not only inhibited the development of the non-oil sectors, especially the manufacturing sector, but also led to cheaper imports and higher export prices in the international market. Therefore, the commodities of Venezuela had lost competitiveness in the international and the domestic market. This was a serious long-term development problem, reflecting the distortion and ineffectiveness of the foreign exchange management system.

  (3) Lack of Investment Table 7.13

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  Party-System Collapse

  The Roots of Crisis in Peru and Venezuela

  • Jason Seawright(Author)
  • 2012(Publication Date)
  • Stanford University Press

    (Publisher)

  Do party systems collapse because of bad economic performance? This chapter considers the extent to which party-system collapse might have been predictable given the general economic conditions of Peru and Venezuela during the 1980s and 1990s. The analysis shows that economic crisis does not satisfactorily explain party-system collapse; traditional parties in Peru and Venezuela suffered more electoral decline than would be statistically predicted on the basis of those countries’ (very poor) economic performance before collapse. Nonetheless, this chapter suggests two ways in which persistent poor economic performance sets the stage for collapse. In the first place, as the cross-national analysis unambiguously indicates, economic decline tends to weaken governing parties even though it does not guarantee their disappearance. Nevertheless, it stands to reason that weakened parties make easier prey for anti-party-system outsiders than do full-strength parties. Second, as the last section of this chapter shows through a multi-level analysis of survey and economic data, economic crisis systematically increases individuals’ anxiety about the society and the future. Anxiety augments citizens’ attentiveness to politics and their search for credible alternatives to the government, potentially helping to make party-system collapse a possibility. For these two reasons, economic crisis may be regarded as a partial causal enabler of party-system collapse.

  Peru and Venezuela both experienced deep economic crises during the 1980s and 1990s. In Peru, crisis conditions included hyperinflation, negative economic growth rates, and rising poverty levels. Venezuela’s challenges included negative economic growth rates and some inflation. How unusual are these problems in Latin America? Did other countries suffer from similar sets of problems during this period, without experiencing party-system collapse? To what extent can these problems statistically account for the party-system collapses in Peru in 1990, and in Venezuela in 1998?

  This chapter shows that, while Peru and Venezuela undoubtedly went through serious difficulties, some other Latin American countries experienced similar problems without party-system collapse—in particular, Argentina and Nicaragua. A statistical analysis formalizes these conclusions, showing that the economic variables considered here cannot adequately account for the extreme electoral changes involved in party-system collapse. In other words, party-system collapse emerges as a phenomenon that is distinct from other Latin American episodes of party-system change.

  3.1 PERU’S ECONOMIC CRISIS

  What, then, were the contours and the chronology of the economic crisis in Peru?1 The Peruvian economic crisis hit its worst point shortly before the party-system collapse in 1990. At about that time, Peru had suffered from a few years of extremely negative economic growth, as well as massive hyperinflation.

  Peru’s economic difficulties during the 1980s may be seen as starting with the legacy of the military government led by General Alvaro Velasco from 1968 until 1975. This government pursued economically nationalistic goals of reducing the power of foreign capital in the Peruvian economy, as well as reformist objectives oriented toward the political strengthening of the urban and rural poor at the expense of traditional social and economic elites (Lowenthal 1975; McClintock and Lowenthal 1983). In the process, the government dramatically increased state investment, introduced economic protectionist policies that created an immense trade deficit, overvalued the currency, and relied extensively on foreign credit markets to cover shortfalls (Thorp 1991: 67–82), thereby increasing external public debt from $945 million in U.S. dollars in 1970 to $3.066 billion in 1975 (Banco Central de Reserva del Peru 1993 : 107).2

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  Currency Politics

  The Political Economy of Exchange Rate Policy

  • Jeffry Frieden(Author)
  • 2014(Publication Date)
  • Princeton University Press

    (Publisher)

  The ultimate fall of the currency has a series of follow-on effects. It causes great distress among foreign-currency debtors, many of whom are bankrupted. This puts strain on the financial system, which is heavily exposed to now-insolvent debtors. The currency crisis may become a banking crisis as well (a “twin crisis” in the phrase of the literature), with compounded effects. The government is also caught in this debt trap, given that its frantic short-term borrowing in the currency defense leaves it with a large foreign-currency debt, now increased by the depreciation. The government is forced to print money, cut spending, or raise taxes—or all three.

  The economic, political, and social effects of these crises can be enormous. The debt crises that swept Latin American in the early 1980s, many of which were closely tied to currency crises, led to arguably the most serious economic and political upheavals in the region’s modern history. The 1994 currency crisis in Mexico and the 1999–2002 currency crisis in Argentina were among the most traumatic economic and political events in recent Latin American memory. More generally, the costs of currency crises have been estimated to be extremely large. A currency crisis itself in a country is, on average, associated with a decline in output growth of between 5 and 8 percent over a two- to four-year period. When a currency crisis is linked to a banking crisis—which is the case in most instances—the combined output loss is between 13 and 18 percent of output.6 These are large numbers, especially for developing countries. This makes it all the more important to try to understand the sources of the crises.

  Tales of Two Crises: Mexico, 1994–95, and Brazil and Argentina, 1997–2002

  Although currency and banking crises have been common in Latin America since the early nineteenth century, more recent experience with them goes back to the debt crisis of the early 1980s. This episode was most often a problem of sovereign indebtedness, and sometimes the currency was not implicated—as in Brazil, whose government had made no explicit exchange rate commitments. The Mexican and Venezuelan crises of 1982 were related to substantial real appreciations of their respective national currencies, and resulted in large depreciations. In Chile and Argentina, there were particularly strong links between debt and currency crises. Both countries began to lag their exchange rates behind inflation in 1978 in an attempt to reduce inflation. In February 1979, the Chilean government even fixed the peso against the dollar. The result was real appreciations of well over 25 percent in both countries, followed by spectacular currency collapses that exacerbated the debt problems. The crises of the early 1980s often had currency components, but the exchange rate appeared less significant than the underlying difficulties that Latin America had managing its large sovereign debt.

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