Venezuela – Oil Economy on Slippery Ground

Rusty oildrums, by Gabe/flickr
Oildrums, courtesy of Gabe/flickr

Will Venezuela be next to stumble into a debt crisis – ironically, a country well endowed with the world’s most sought after resource? In its most recent issue, The Economist raises this question, as rumors swirl that the Bolivarian Republic might not be able to repay its international obligations between 2012 and 2015. The possible default of one of the world’s foremost oil producers should give the international community pause although any crisis is unlikely to materialize immediately. However, as soon as oil prices fall considerably below $100 per barrel, the Venezuelan economy will be deprived of its main foreign income, and a debt crisis might not be far behind – possibly threatening  President Hugo Chavez’ long rule.

L’état, c’est Hugo

Despite high oil prices, Venezuelan GDP has been contracting for the last three years and inflation has been over 20 percent since 2007. Exports have been falling steadily and because power and water infrastructure falls short of much needed investment, Venezuelans are often forced to take cold showers. Even productivity in the state-owned oil company PDVSA has decreased by a third since Chavez took power in 1999. Chavez is infamous for his erratic behavior and his dislike of the private sector. During his 12-year rule, he has nationalized hundreds of domestic and foreign companies, closely regulated the economy and eliminated market mechanisms. In this way Chavez has paved the way for widespread corruption and inefficiency. Moreover, he has been governing by decree since December 2010, which grants him almost unlimited power to push through policies without parliamentary control. In Venezuela l’état, c’est Hugo. In this atmosphere of impunity many Venezuelan entrepreneurs have given up their businesses, and foreigners are increasingly reluctant to invest. In a recent country risk assessment Venezuela ranked 93 out of 100 – with civil-war plagued neighbor Colombia ranking a much higher 51.

The Achilles heel

As the government has successfully dismantled the private economy, Venezuela’s dependence on revenues from oil exports has increased, and imports have risen as many goods are no longer produced in Venezuela. Oil production makes up about a third of GDP and generates the lion’s share of the government’s revenue. Fluctuating oil prices are thus the Achilles heel of the whole economy. As soon as oil prices fall, Chavez might find it difficult to keep up public spending and to repay international obligations (net public debt was 29 percent of GDP in 2010). This might not only lead to a debt crisis and hamper economic growth but also to a decline in Chavez’ popularity. With plans to run again for president in 2012, he is in dire need of oil money to subsidize basic goods such as food. Otherwise the poorest will be hit even harder by rising food and living costs, with their incomes eaten up by staggering inflation – perhaps just like Chavez’ personal political future.

* For more information, please see our extensive resources on Venezuelan Energy, Economics, Politics and Security.

New ISN Partner: Chronic Poverty Research Centre (CPRC)

We, the ISN family, gladly announce and welcome the Chronic Poverty Research Centre as a new partner.

The Chronic Poverty Research Centre (CPRC) is an international partnership of universities, research institutes and NGOs that exists to focus attention on chronic poverty. It was established in 2000 with initial funding from the UK’s Department for International Development and is based in Manchester, UK. It aims to stimulate national and international debate; deepen understanding of the causes of chronic poverty; and provide research, analysis and policy guidance that will contribute to its reduction.

CPRC expects its research and analysis to result in policy relevant findings which will be useful to all those working to combat poverty. This includes people in community level organizations, government and official agencies, NGOs, political parties, other researchers, the media, trade unions and the private sector.

The people who should ultimately benefit from CPRC’s research are those whose deprivation is sustained over many years and who are least likely to benefit from current national and international development efforts.

CPRC research themes aim to deepen our understanding of poverty dynamics and, in particular, our consideration of the nature, causes and remedies of chronic poverty, including:

  • Conceptualization of poverty dynamics and persistent poverty;
  • Empirical approaches to the study of poverty dynamics and economic mobility;
  • Empirical approaches to the study of the inter-generational transmission of poverty;
  • Insecurity, risk and vulnerability;
  • Assetlessness, low returns and inequality;
  • Adverse incorporation and social exclusion; and
  • Gender.

In the past, CPRC research has considered:

  • how chronic poverty can best be understood – through measurement,  “participatory” research, or other approaches
  • the characteristics of chronic poverty – in relation to other concepts such as the “ultrapoor”, inter-generational poverty, relative poverty, and durable poverty
  • the causes of chronic poverty, including: culture, social relations, agency and identity.

We are very happy to have the Chronic Poverty Research Centre as part of the International Relations and Security Network and look forward to a fruitful and mutually enriching cooperation.

Begging for Food

What’s for Dinner? photo: oceandesetoiles/flickr

Officials from five aid agencies who have just returned from a trip to the Democratic People’s Republic of Korea (DPRK, or North Korea) say they saw evidence of looming food shortages and alarming malnutrition, including people picking wild grasses to eat. The experts visited North Korea at the request of the DPRK government and were given unprecedented access to assess the country’s food situation. Their report now shows a nation on the verge of disaster. They are therefore appealing for quick assistance to feed the isolated country’s most vulnerable people. There are hurdles, however, to resuming aid to North Korea.

The charity workers – from Christian Friends of Korea, Global Resource Services, Mercy Corps, Samaritan’s Purse and World Vision – spent a week in North Korea earlier this month. In their report, they say they visited hospitals, orphanages and homes as well as farms and warehouses. And they paint a very bleak picture. Last summer, heavy rains and flooding reduced vegetable crops by more than 50 percent, and a bitter winter has now frozen up to 50 percent of wheat and barley. Both the NGOs and the North Korean authorities estimate that food stocks will be exhausted before June.

North Korea has been suffering from food shortages due to economic mismanagement and natural disasters intermittently for the past two decades, when China and the former Soviet Union implemented hard currency payment systems that sharply reduced North Korea’s ability to import goods. The years of mismanagement thus resulted in famines during the 1990s which, according to some estimates, killed over a million people. In past years, therefore, South Korea and the US have been the primary external sources of food, either through direct food assistance or deliveries of fertilizer. But this year, with rising impatience and anger toward the North Korean regime, these reinforcements are in doubt.