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Venezuela: Fall of A Petrostate

Venezuela is a Latin American petrostate to world’s largest oil reserves of more than” 30 thousand Crore of Barrels!” It is a state with extremely high biodiversity with roughly 354,000 square miles’ territory and 31.8 million people. The country is considered among one of the most highly urbanized. In the 20th century they discovered their oil reserves since than the country was one of the world’s leading oil exporters. With the spirit of oil reserves Venezuela has experienced a great rise and fall which could be a lesson for resource-rich countries.

Health of Economic Indicators:

Venezuela is the paradigm of a submerged petrostate, experts say. Because of the high reserves of oil Venezuela faced an extreme level of corruption and miss management and there often a tiny relationship between the government and its people. For more than a century oil was in a dominant position in the country’s economy. And the sudden fall of oil price from more than $100 per barrel to below $30 per barrel in early 2016 has sunken the Venezuela in a great economic and political crisis [See appendix].

Now the situation is “9 out of 10 living in poverty with an annual inflation of 80,000 percent.” GDP has been knocked off double digit for consecutive third year. Unemployment rate would be 40% by the this quarter and 47% end of this 12 months’ time and there is also a probability of becoming it 49% by 2020.

Trading Patterns:

Trading patterns of Venezuela is commonly export oriented. By exporting oil (96% of total exports) the country was doing great economically with a recording surplus since 1997 to before the fall down.

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Currently with 31.84% commercial bank loan interest rate the country’s major trading partners export destinations are USA (40% of exports and 26% of imports) and China (11% of exports and 15% of imports). Crude Petroleum, Refined Petroleum, Acyclic Alcohol, Iron reduction and Iron Ore are major exported whereas Corn, Wheat, Refined Petroleum, Ethers and Rice are the major imported items.

According to analysts and Trading Economics Global Macro Model- “By the end of this quarter the expected balance of trade of Venezuela would be -2950.00 USD million there is a probability that it may would stand at -3000.00 USD million in 12 months’ time.

Exchange Rate Condition:

The government of Venezuela has been criticized from long back for its hard currency management The Venezuela Boliver (VEF) is the official currency of Venezuela. The ruling government has set up the lowest exchange rate “artificially” by continuing auction system. Demand of dollars are more than the reserves of Central Bank. [SITME, SIMADI, SICAD, SICAD II, DIPRO, DICOM] have introduced as exchange rate mechanisms. If initiatives not taken to fill the gaps between “artificiality and reality” in the long ran the economic health will curb currency arbitrage and blackmarkets for goods and services. With devaluing its exchange rate more than 99% Central Bank has introduced its recent exchange rate platform DICOM. According to the report of Reuters that” the move represented a devaluation of 86.6% with respect to the previous DICOM rate and 99.6% from the subsidized rate of 10 bolivars per dollar, which had already been eliminated. “The exchange rate system of Venezuela was under control for over 15 years with periodic devaluation. The country has a multilayered complex exchange rate which offers different exchange rates. Depending on the purpose it offers different exchange rate to different people. Because of over valuation of domestic currency people tend to hold dollars instead of their own currency to get extra benefits when the domestic currency undergone devaluation. Ultimately this process pushes up inflation and inflation pushes up dollar rate with black market prices.

In bottom line we can say that dependency in one-dimension economy is one of the major reasons for the failure of Venezuela and the same could be happen for others if they are highly depending in a particular sector. Except this Venezuela could not create any other alternative industry to create opportunities even they failed to employ their resources at their highest point also. The country failed to diversify their potentiality as well as corruption, miss management of funds are similarly responsible for the ultimate crisis of the country. It is not the conclusion that the country doesn’t have any further opportunity to overcome its crisis but yes by taking some long term plan through diversifying the resources, balancing the political situations, crating opportunity for potential industries, restricting corruptions and mismanagement, developing morals and education system may assist the state to overcome its crisis.

References

TRADING ECONOMICS: Venezuela Balance of Trade. (2019). Retrieved October 6,2019 from exchange country guide: A Short History of Venezuela.(n.d).Retrieved October 10,2019 from O’Grady.The Washington Post. (2019). Venezuela’s crisis in 5 charts. Retrieved October 11,2019 from Gupta. REUTERS. (2017). Venezuela sets new exchange mechanism, as currency continues to slide. Retrieved October 11,2019 from Chen. Forex & Currencies Trading. (2019). Currency Arbitrage.

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Venezuela: Fall of A Petrostate. (2019, Nov 29). Retrieved from http://studymoose.com/venezuela-fall-of-a-petrostate-essay

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