Venezeula - Economic analysis of government's policies, investment climate and political risk.

THE

McKEEVER INSTITUTE

OF

ECONOMIC POLICY

ANALYSIS

VENEZUELA: Economic Policy Analysis

This site presents an analysis of the Venezuelan government's economic policies compared to a list of 33 economic policies as prepared by student Mr. Oswaldo Diaz with the McKeever Institute of Economic Policy Analysis (MIEPA). It was written in the late Fall of 1997. To read the analysis scroll through this site. To learn more about the background policies, click here

  • Introduction and Policy Recommendations
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    Several foreign born students living in California have completed a study of their home country governments' economic policies as compared to the MIEPA list of policies as outlined above. The study on Venezuela is shown below. The ratings herein are based on the following rating scale:


    RATING SCALE

    5.0 Perfect Facilitation of Wealth Creation
    4.0 Midway between Perfect and Neutral
    3.0 Neutral Effect on Wealth Creation
    2.0 Midway between Neutral and Obstructionist
    1.0 Perfectly Obstructionist to Wealth Creation
    [Rating scale copyright Mike P. McKeever, 1996. Used herein with permission]


    To read a disclaimer about the analysis in this file, scroll to the bottom of the file.

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    VENEZUELA

    Comparison of Venezuela's economic policies to MIEPA criteria as prepared by a native student of Venezuela studying in the US: Oswaldo Diaz of Berkeley California, November 1997.

    RATING SUMMARY
    
    POLICY NUMBER      RAW SCORE   ADJUSTED SCORE     POSSIBLE  PERCENTAGE
    
            1               4.5          13.5             15.0        90 %
    
            2               2.5           7.5             15.0        50
    
            3               1.0           3.0             15.0        20
    
            4               5.0          15.0             15.0       100
    
            5               2.5           7.5             15.0        50
    
            6               3.0           9.0             15.0        60
    
            7               1.0           3.0             15.0        20
    
            8               2.0           6.0             15.0        40
    
            9               5.0          15.0             15.0       100
    
            10              3.0           9.0             15.0        60
    
            11              1.5           4.5             15.0        30
    
            12              4.1           8.2             10.0        82
    
            13              1.6           3.2             10.0        32
    
            14              4.0           8.0             10.0        80
    
            15              1.0           2.0             10.0        20
    
            16              4.0           8.0             10.0        80
    
            17              1.0           2.0             10.0        20
    
            18              2.5           5.0             10.0        50
    
            19              2.5           5.0             10.0        50
    
            20              4.0           8.0             10.0        80
    
            21              1.5            3.0            10.0        30
    
            22              2.0            4.0            10.0        40
    
            23              1.0            2.0            10.0        20
    
            24              1.5            3.0            10.0        30
    
            25              2.5            5.0            10.0        50
    
            26              2.5            5.0            10.0        50
    
            27              4.0            8.0            10.0        80
    
            28              2.5            5.0            10.0        50
    
            29              3.5            3.5             5.0        70
    
            30              4.5            4.5             5.0        90
    
            31              1.0            1.0             5.0        20
    
            32              5.0            5.0             5.0       100
    
            33              3.0            3.0             5.0        60
    
    
       TOTAL               90.2          194.4           360.0        54.0%
                          =====          ======          =====        =====
    
    

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    INDIVIDUAL POLICIES

    1. Freedom From Internal Control: 4.5

    In general Venezuela offers an absolute freedom to move among its territory. Also the government allows the creation of almost any kind of business. Venezuela has been declared a free country since July 5 of 18l0. During these 187 years of freedom different internal situations have increased and decreased that freedom. The current constitution divides Venezuela in 21 states and two federal territories which are perfectly available for any citizen. Even though the constitution states the existence of freedom of internal moving there are several restriction regarding free enterprises that can be helpful to develop. The Venezuelan government allows that CAVIN is the only authorized institution to produce, import and/or trade weapons. It means that nobody can create a weapon business because it is illegal. There is not available permission to produce whole or even parts of weapons, or to trade or exchange any weapon. Even sports using weapons are restricted under CAVIN. The other important restriction is military areas. No civil citizen can entry military zones without express permission or authorization. The most explicit example of this situation is Aves island. A military island located in the Venezuela's territory sea where no citizen is allowed. This issue has been subject of controversy in the Venezuelan congress.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela; and, Personal

    2. Freedom of Speech: 2.5

    In theory Venezuela has freedom of speech. According to Venezuela's constitution any citizen has the right to express his own feelings, desires and opinions in public or in private if so he wants without punishment or persecution. My particular opinion is that it is not strictly true. It has been the situation when journalists have been persecuted because of their political opinion. In 1996 an astrologer was put in jail because of writing an article about a possible death of Venezuela's president. Also when a journal publicized some private affair between President Jaime Lusinchi and his private secretary that journal lost its subsidies. Recently was celebrated in Margarita Island, Venezuela the Eighth Presidential Congress of Hispanic Countries (17 presidents participated). One of the main topics was what President Caldera denominated "TRUE INFORMATION". It was an attempt to state common bases among participating countries in controlling Freedom of Speech. The main point was that "any opinion must have true and demonstrable source". Some observers and specialists cataloged that proposition as a free speech restriction. An important aspect of the recent history can be helpful: in 1994 and with the government controlling imports--including supplies of imported newsprint and ink - newspaper publishers worried that the government would try to exert undue influence over reporting.

    Sources: National Trade Data Bank: Document Title: Background Notes-Venezuela Personal

    3. Effective, Fair Police Force: 1.0

    Besides the political force the other most corrupted force is the police. It is not only my personal opinion but the most Venezuelans' opinion. A survey asked this question: "What is the biggest problem facing the common citizen." The answer was unsafe life. Since five years Venezuela is facing what some experts say is a Colombianization process. The police force is not only inefficient but corrupted; many times agents are involved in felonies. The current requirements to ingress in the police force are as few as possible. Academic, physics and psychology requirements are missed. As a recommendation it is possible to say that if the business success depends on a very effective and fair police force, then it will be better for the business to control and prevent any incident.

    Sources: Personal

    4. Currency: 5.0

    Venezuela uses a single currency as money since the 1820 Congress. It is called the Bolivar. Different values have been issued. Because of the devaluation many more has been issued. There are 5,000, 2,000, 500, 100, 50, 20 , 10 ,5, 2, 1, 0.5, and 0.25. In general 12 different values. Also the government apply different mechanism in order to ensure the use of the national currency.

    Sources: Personal

    5. Commercial Banks: 2.5

    The financial crisis which began in 1994 and continued into 1995 has had a tremendous impact on the Venezuelan economy. By the end of 1994 the government had injected over USD 10 billion into the commercial banking sector. The government has intervened in 17 financial institutions, nationalizing 9 commercial banks and closing 7 others plus one financial group. There is still a large commercial bank system and this system includes different kinds of banks with many branches nationwide. There is widespread recognition that the commercial banking sector remains undercapitalized and that assets have been overvalued even after the crisis. The current banking system is divided as follow: 38 commercial banks, including nine government-owned banks and five foreign-owned banks. These commercial institutions are grouped in 349 branches and 1,196 agencies. Commercial banks comprise the largest group of financial institutions in Venezuela, and most of them have branches throughout the country. Additionally there are 25 investment banking institutions with a total of 20 branches and 20 agencies. Also, 38 mortgage banks with 22 branches and 10 agencies. Further, there are 22 leasing companies, 21 savings and loans with 267 agencies.

    In general, Commercial Banks accept demand deposits (checking accounts) without paying interest, although now there are banks that offer checking accounts which will yield interest. These accounts must keep higher balances than conventional checking accounts. Savings accounts and time deposits are freely negotiated on a minimum 30 days term. Time deposits are redeemable prior to maturity, are registered and may be negotiable. Lending is almost all short term, and may not exceed three years except to finance social programs for specific economic sectors.

    Sources: National Trade Data Bank: Document Title: Venezuela-Financial Services ISA506; Personal

    6. Communication Systems: 3.0

    Until 1991, the telecommunications sector in Venezuela was characterized by falling short of the basic services required, the low quality of its telephone service, little variety of telecommunications services, minimal activity by the private sector and a monopoly by CANTV. A new agency, CONATEL, was created in 1991. Its main functions are planning, directing; supervising and regulating telecommunications services, and promoting investment and technological innovation. At present some 170 firms are operating in the different services, without counting those awaiting a concession from CONATEL. In January 1996, 174 firms were operating in the sector in Venezuela. In recent years the telecommunications sector has developed faster than most in Venezuela, with an average annual investment of 1 x 109 dollars between 1992 and 1993, and 500 million dollars in 1994.Even the success of the telecommunications opening in Venezuela there is still an unsatisfied demand for basic telephony (it reach 40%). Some telecommunication services offered are: basic network, cellular technology, public terminal equipment, value added service, telemedicine, cable TV, gigahertz TV, beepers (radio messages) and Internet access.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela Personal

    7. Transportation: 1.0

    Industrial activity is located in the northern part of the country, while the flatlands of the center of the country are almost exclusively agricultural. There is almost complete absence of a road network in south-Orinoco. That situation makes the airplane the only available way of transportation to reach that area. Since industrial and demographic development having taken place primarily in the north, the country's transportation system has also developed primarily in that area. A number of small fluvial ports are being built. Fluvial shipping is dense through the Orinoco from Ciudad Guayana through the Delta into the sea, a distance of around 200 kilometers, mostly because of iron ore exports. Ports exist in La Guaira Puerto Cabello and Maracaibo, plus some smaller ones. A port is to be built at the southern end of Lake Maracaibo for coal export. Large fishing ports exist at Cumana and Guiria, and there is an oil export port at Caripito on the Orinoco. Other oil export ports exist at Tia Juana and Las Salinas on Lake Maracaibo. Venezuela had an extensive railroad system which was eliminated in the 40's and 50's, when the then-government decided that the future lay in road transportation. Now, plans are done to revive the construction of a railroad system, eventually to reach over 4,000 km by 2004. Almost 90% of all passengers are transported by bus. Air transportation is composed by 25 airports, among them there are only three international airports. Venezuela has three airlines serving national and internationally. Most of foreign airlines serve those three international airports.

    Sources: National Trade Data Bank: Document Title: Venezuela-Aviation National Trade Data Bank: Document Title: Background Notes-Venezuela Personal

    8. Education: 2.0

    Venezuela has a population of 23.6 million estimated for 1997 with an annual growth rate of 2.3%. Venezuela is a young country with an age average of 33 years. The educational system is ruled by the Educational Minister. The education system is composed by private and public institutions that provide university level, high school level {9 years) and day care institutions. Also is offered a technical level {3 years after High school}. To serve a population of 12 million of students the educational systems is composed by 900 high schools and day care institutions, twelve universities and one Central University. The last census showed a 91 % literacy rate. The remaining 9% of the population is mostly concentrated in minorities. Even though the educational system in Venezuela has a sound infrastructure and is well distributed among Venezuela's territory, in recent years it lacks required levels of expertise.

    Sources: National Trade Data Bank: Document Title: Background Notes- Venezuela; Personal

    9. Freedom From Outside Control: 5.0

    Venezuela traditionally has said that its international conduct will be governed by respect for human rights, the right of all peoples to self-determination, non-intervention in the internal affairs of other nations peaceful settlement of disputes between nations, including border disputes, the right of all peoples to peace and security; and support for democracy. In the same manner, Venezuela warranties that not other than a corresponding Venezuelan agent can arrest any citizen within Venezuela's territory and neither in its embassies and consulates around the world. Even though there are two US DEA agents in Venezuela, their function is limited to researching as are intelligence agent from other countries.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    10. Foreign Currency Transaction: 3.0

    The only legal currency in Venezuela is the Bolivar. Transactions within Venezuela's limits with other currency is illegal. Even the law, many operations are done in US Dollars because of the continuing devaluation of the Bolivar. Purchasing of foreign currency must be authorized by the Exchange Administration Office, OTAC. At that time every individual, company and public or private entity must submit a registration form with the required data and attachments in order to get authorization from OTAC to purchase foreign currency from commercial banks. The Central Bank authorizes commercial banks, exchange houses, and other exchange entities to sell foreign currency to individuals or companies after being authorized by OTAC. In the first quarter of 1996, the government of Venezuela dissembled the exchange control mechanism. The mechanism used by the government avoiding the use of foreign currency has been successful: the exchange rate has dropped from Bs 371 per $ 1 in 1996 to only Bs.500 per $ 1 in December 1997.

    Sources: National Trade Data Bank: Document Title: Venezuela-Economic News and Background Notes - Venezuela; Personal

    11. Border Control: 1.5

    Regarding the immigration issue, it is important to say that Venezuela has had a policy of open-doors. Most of Venezuelans are of European, Indian, and/or African descent. Many Spanish, Italian and Portuguese immigrants arrived during the early 1950s when that policy was stressed. Because of the economic situation in early 70's Venezuela has tried to regulate illegal immigration mostly from Caribbean islands, Colombia, Peru and Ecuador. Today the illegal population in Venezuela is estimated at over 2 million. Regarding border disputes, Venezuela has numerous border disputes with its neighbors but seeks to resolve them peacefully. Bilateral commissions have been established by Venezuela and Colombia to address a range of pending bilateral issues, including the resolution of the maritime boundary in the Gulf of Venezuela. Relations with Guyana are complicated by Venezuela's claim to the area up to the Essequibo River--more than one-half the area of Guyana. With the concurrence of both countries, the border issue was referred to the UN Secretary General for a determination of suitable means for settlement in 1987. Since then, representatives of the two governments have held exchanges on the boundary under the auspices of the "good offices" of the United Nations.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

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    12. Cultural, Language Homogeneity: 4.1

    Even though Venezuela has been an immigrant's country it is possible to say that it is homogeneous. Its population is composed mostly by 7 ethnic groups: Spanish, Italian, Portuguese, Arab, German, Indian and African. The 96% of the population practices Roman Catholic religion. Also, 99.6 % of its population speaks Spanish which is the official language. There are also many different dialects spoken by Indians who, in total don't reach 1.0% of the population. The biggest differences among the population is social class.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    13. Political Effectiveness: 1.6

    Actually, one of the weakest points of the Venezuela's government and all its different instances is the effectiveness in its actions. Some experts and some political trends say the since 1958 when was instituted democracy in Venezuela the succeeding governments have been highly inefficient. After the decentralization process in Venezuela when the power was delegated to states government the effectiveness increased. For example, in cases of regional catastrophes such as flow, earthquake and popular revolution the government has been highly inefficient.

    Sources: Personal

    14. Institutional Stability: 4.0

    The president is elected by vote with direct and universal suffrage. The term of office is five years. The congress is bicameral, and elections for the Senate and the Chamber of Deputies are held at the same time every five years. The 1993 national election permitted, for the first time, the direct election of one-half of the Chamber of Deputies by name and district. The members of the supreme Court of Justice are elected by the congress to serve nine-year terms; one-third of the court is elected every three years. Governors are elected by popular vote also for 3 years periods, they can be reelected for one more period. In general , the remaining authorities such as police chief and school districts are selected by local authorities. In general, the period average in Venezuela for any authority is 4 years.

    Sources: Personal; National Trade Data Bank :Document Title: Background Notes - Venezuela; Embassy of Venezuela in Sofia, Bulgaria

    15. Honest Government: 1.0

    The different governments of Venezuela, all of them, have been corrupt. The corruption's action ration is present in all of its instances. Since a simple director of a elementary school who profit from outsourcing till top institution. A popular thought about working for the government says "don't give money but put me where there are opportunities". Amazing fortunes are created in few years. This social class is called "new richer ". As a result Venezuela's history has two ex-presidents judged by corruption, many ministers and many other official employees. The corruption also reaches the legal system.

    Sources: Personal

    16. Common Laws: 4.0

    On the local level, a decentralization of power from the national government to state and municipal authorities began in 1989 with the direct election of governors and mayors. Until that year, the states were administered by governors appointed by the president. In December 1989, governors in 20 states and mayors in 269 municipalities were elected for the first time in the country's history. The new system increases the law promulgation rate. Since 1989, homogeneity in law has been reduced. These 269 municipalities have promulgated their own laws. Those availability to promulgate particular laws is limited and never can fight against superior laws. These particular laws are mostly regarding environmental aspects located locally and some social aspect and local holidays. Regarding to legal aspect, all courts in Venezuela are part of the federal system. The 18 members of the Supreme Court of Justice are elected by a joint session of the congress to serve nine-year terms; one-third of the court is elected every three years, and each justice can serve only one term. The minister of justice names judges to the lower civilian courts, which include district courts, municipal courts, and courts of first instance.

    Sources: Personal; National Trade Data Bank :Document Title: Background Notes - Venezuela

    17. Central Bank: 1.0

    The Central Bank of Venezuela which rules the monetary policy in Venezuela is not a separate institution from the government. The president of the Central Bank is named by the president of the Government. Other official institutions regarding some economic aspect such as the Commercial Banking System is also named by the president. This aspect is a pretty weak point because some monetary policies such as the interest rate has been modified just for political implications. Recently, in an effort to centralize the decision making process to stabilize and normalize the financial sector, the government has restructured and enhanced the decision making authority of the JEF, and subordinated FOGADE and the Bank Superintendency to the JEF.

    Sources: Personal; National Trade Data Bank :Document Title: Background Notes - Venezuela

    18. Domestic Budget Management: 2.5

    In 1996, the government of Venezuela displayed and made public what he call The Venezuela's Agenda (Agenda Venezuela). In summary, the Venezuela's agenda has ten priorities. The first one is adjustment and gradual reduction of the fiscal deficit in a period of minimum 2 and maximum 3 years. It is the reduction of the fiscal deficit to 4% of the GDP in 1996 and to 2% in 1997. Because the source of the deficit is tax evasion, SENIAT, the official institution in charge to collect taxes was substantially improved of tax collection, especially of the income tax. Also intensive campaign against tax evasion in order to reduce it by 20% in 1996 and 40% in 40%. Additionally, creation of a Fiscal Stabilization Fund and reallocation of resources according to fiscal priorities in order to reduce government expenses.

    Sources: Personal; Embassy of Venezuela , Sofia, Bulgaria; National Trade Data Bank :Document Title: Background Notes - Venezuela

    19. Government Debt: 2.5

    Program of Ten Top Priority Areas for Economic, Political and Social Balance. GRADUAL REDUCTION OF THE FISCAL DEFICIT. Adjustment and gradual reduction of the fiscal deficit in a period of minimum 2 and maximum 3 years. Reduction of the fiscal deficit to 4% of the GDP in 1996 and to 2% in 1997. SENIAT: substantial improvement of tax collection, especially of the Income Tax. Intensive campaign against tax evasion in order to reduce it by 20% in 1996 and by 40% in 1997. Increase of Value Added Tax on wholesale from 12.5% to 16.5% in 1996. Creation of a Fiscal Stabilization Fund and relocation of resources according to fiscal priorities in order to further reduce government expenses. Creation of a Fund for the recovery of the Foreign Debt. Freezing of 30% of the vacant National Civil Service posts.

    Sources: National Trade Data Bank: Document Title: Venezuela-Economic News; National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    20. Private Property: 4.0

    Venezuela has undergone a series of political and economic crises since early 1992 which have resulted in suspensions of constitutional rights. Its most recent economic and financial crisis led to restrictions on civil liberties earlier this year. Government gave the police the power to detain people without warrants, to enter homes without warrants and to seize property without compensation. When the congress voted to restore civil liberties in late July 1994, the President signed a decree suspending them again. After 1995, constitutional rights were restored again. In general, foreign investors may pursue property claims through Venezuela's legal system, but procedures are lengthy and judgments are uneven. There have been no expropriations in the recent past. In general expropriations, particularly of foreign-owned property, are not expected.

    Sources: National Trade Data Bank: Document Title: Venezuela-Economic News; National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    21. Economic Statistics: 1.5

    The Government of Venezuela keeps two important supplies of economic data. The Central Bank and government's Central Office of Statistics. The central Office of Statistics keeps several units such as The Workers' Center for Documentation and Analysis and the Business Center of Documentation. Information is available to whom wants to check it but the credibility is not as must be. The most important and credible sources of data are private collections and many universities library and surveys.

    Sources: Personal; National Trade Data Bank :Document Title: Background Notes - Venezuela; Embassy of Venezuela in Sofia, Bulgaria

    22. Protection of Public Health and Safety: 2.0

    The Public Health System is ruled by (MSAA) Social Health Ministry. Hospital and Clinics comprise the health system in Venezuela. Even massive sicknesses such as Tuberculosis has been well controlled since 1950, but the health system is full corruption. The waiting time's average in an emergency case is 6 hours. Because there are not medicines in the hospitals a patient is checked in only after presenting his or her own medicines. On the other hand the private system is so expensive to consider it as not an alternative for low income people. There is a proposal in the congress to privatize the Social Security that manage the public hospital system. Also FEDECAMARS is proposing a new security system. The proposal includes: 1.Transfer all Social security Hospital and Clinics to the States; 2. The creation of a preventive health funds administrated by private companies; and, 3. The liquidation of the social security system. The actual infant mortality is 20 per 1,000 and the life expectancy is 72 years.

    Sources: National Trade Data Bank: Document Title: Venezuela Labor Trends,1992-1993; National Trade Data Bank: Document Title: Venezuela-Economic News; National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

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    23. High Wage Policies: 1.0

    Venezuela is rich in oil and other mineral resources, but its per capita income is only average for Latin America. The economy has been shrinking in real terms since 1992; the inflation rate for 1993 was 46%. In 1996 the inflation rate was 90%. Venezuela's labor force of about 7.5 million is growing at about 2.5% per year. Economic contractions sharply pushed up unemployment beginning in 1993 and also increased the informal sector's share of total employment to an estimated 43% in 1994. The government has no high wage policy. It has decreed that $150 per month as a minimum wage. This situation has produced an important reduction in internal consumption. On the other hand, the new social security system proposed by the producer association FEDECAMARAS is expected to increase the wage levels because companies will no longer be charged with past accumulated liabilities for employee's' welfare.

    Source; NTDB: Venezuela - Labor Trends 1993-1993; Economic News; Background Notes; personal

    24. Environmental Protection: l.5

    Venezuela's Criminal Environmental Law (CEL), which entered into force April 4, 1992, established rules comparable to those in the United States and Europe. A major difference, however, is that the CEL has criminalized Venezuela's environmental rules. Although the CEL more seriously addresses environmental problems in Venezuela than an earlier law, it has been criticized as too vague in certain sections and to have extended overly broad criminal liabilities. Some investors have expressed concern over provisions governing the disposal of industrial and hazardous wastes, claiming that Venezuela's infrastructure is inadequate to meet the new standards of the CEL. Sources: National Trade Data Bank Document Title: Venezuela-Economic News; Personal 25. Strong Army: 2.5 The armed forces number 89,000 personnel in four service branches-- army, navy ,air force, and the Armed Forces of Cooperation (FAC), commonly known as the national guard. The guard's primary mission is to enforce internal security. In comparison with neighbor countries' armed forces the Venezuela's armed forces have inferior conditions and training. The armed forces that have been declared a non-political force (its members can not vote and neither can run for public charges) have faced a tremendous conflicts watching the border with Colombia. The Colombia's guerrillas (FMLN and M-19) have done many illegal movements in the border. Many Venezuelans have been killed. In general Venezuela's armed forces have rejected a direct role in national politics since 1959. Civil-military relations in Venezuela are good. The majority of the military support democracy. There have been some departures from this apolitical position in the recent past--such as the two tries in 1992 by elements of the military to overthrow the government--but these coup attempts were put down by the armed forces.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    26. Foreign Trade Impact: 2.5

    Venezuela's economy is dominated by petroleum; oil prices rebounded earlier this year, providing a boost for the economy. Until recently, the country was largely an exporter of crude oil but now is predominantly a marketer of oil products. In 1993, the petroleum industry accounted for 23% of GDP, 74% of exports, and 61% of central government revenue. In GDP (1996): $55.4 billion. Growth rate (1996): -1.1%. Total Trade (1996): Exports--$16.2 billion: petroleum ($12.5 billion) Imports--$11 billion. In general exports+imports accounted $ 27.2 billion, 49.9 % of GDP.

    Sources: National Trade Data Bank :Document Title: Venezuela-Domestic Economy; National Trade Data Bank :Document Title: Background Notes - Venezuela

    27. Protection of Foreign Currency Earning Enterprises: 4.0

    With the end to foreign exchange controls on April 22, 1996 there are currently no barriers to foreign exchange conversion or repatriation for investors in both capital markets and direct foreign investment. Foreign investors in these markets are guaranteed the right to repatriate dividends and capital under Decree 2095.

    Sources: Embassy of Venezuela in Sofia, Bulgaria

    28. Management of Foreign Currency Budget: 2.5

    In 1994 over 3 billions dollars of international reserves were drained in supporting the increasing demand for foreign currency. In 1996 the control exchange policy was removed. The balance of payment went from -1.126 US billions to 6.00 US $ in 1996. The trade balance went from US $ billions 7.2 to US $ 12.2. The coming actions are focused in maintaining a balance of the balance of payments. It will result in lower the surplus in this balance.

    Sources: National Trade Data Bank: Document Title: Venezuela-Economic News; National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    29. Layers of Collective Action: 3.5

    The president is elected by a plurality vote with direct and universal suffrage. The term of office is five years: and a president cannot be re-elected until at least two terms have been served by others. The president decides the size and composition of the cabinet. The congress is bicameral, and elections for the Senate and the Chamber of Deputies are held at the same time every five years. Until 1993,voters cast ballots for a party list of candidates. The 1993 national election permitted, for the first time, the direct election of one-half of the Chamber of Deputies by name and district. All courts in Venezuela are part of the federal system. The 18 members of the Supreme Court of Justice are elected by a joint session of the congress to serve nine-year terms; one-third of the court is elected every three years. The minister of justice names judges to the lower civilian courts, which include district courts, municipal courts and courts of first instance. Councils of cities are elected by popular vote as well as governors every 3 years. There are still some levels elected by the upper level of authority, with out popular vote such as district police, district schools all public service charges.

    Sources: National Trade Data Bank: Document Title: Background Notes - Venezuela

    30. Pro-Business Climate: 4.5

    The Government of Venezuela bases its economic recovery strategy on a gradual reduction of the internal deficit and a very aggressive plan to promote the productive sectors by stressing foreign investments. This plan is mainly based in investment incentives. These investment incentives take the form of tax credits for certain industries, wholesale tax exemptions; exemption from customs duties and some tax rebates for selected sectors. Incentives are available to both domestic and foreign companies and encourage production far the export market. The Venezuelan government has eliminated legal barriers to foreign investment in most sectors. It has also attempted to move toward a more export-oriented and diversified economy. At this time, disincentives to invest in Venezuela stem principally from concerns about the lack of judicial security. Since 1992, foreign companies have been able to operate in certain sectors formerly reserved to companies with a Venezuelan majority interest, including retail sales, export services, telephone and telecommunication services, electrical services, and water. Although the Venezuelan Investment Fund (FIV) had an ambitious plan to generate USD 4 billion in privatization income in 1997, the result will undoubtedly fall far short. Sales of airline Aeropostal (an airline), various hotels, and Planta Centro, the largest Thermoelectric generating plant in Latin America, and other electric utilities have been repeatedly delayed, principally due to government indecision, political interference, and lack of investor interest stemming from uncertain economic and regulatory conditions. In general the Pro-business climate is evidenced by an important improvement but some social and political forces are opponents to this proposition.

    Sources: National Trade Data Bank: Document Title: Venezuela-Economic News; National Trade Data Bank: Document Title: Background Notes - Venezuela; Personal

    31. Government Enterprises: 1.0

    In general, even though the internal policy is clear and has been promulgated as a Privatization Law, the privatization process has been slow. Since 1990 until 1997 have been privatized the communication company, and one airline with previous state participation that in 2 years went broke. Since 1904 the Government of Venezuela (GOV) has grown because of the additional resources from the commercialization of the oil industry. In 90 years the GOV purchased or formed the 95% of the largest industries and business. The most relevant government's business are as follows: Communication: Local, long distance and International calls.{CANTV) . Air transportation: (two airlines. 20 airports) (MTC, Viasa, Aeropostal). Sea transportation (20 ports) Mass Transportation: Metro. Since 1975 the entire oil business (extraction, refinery and commercialization of oil). Education: basic and university education (free today). Hotels (30). Electric Energy: all Aluminum Business (extraction , production and commercialization). Canalization. Water: All country's supply.

    Most of the business cited above have been supported by oil earnings. Almost all of them have closed their fiscal year on red for almost their entire existence. Those except the oil industry have been inefficiently managed by the GOV during many years. During the eighties some political forces had been claimed for the privatization of basic government's industries but those claims were not successful. After some political conflicts in Venezuela produced by an increasing economic crisis during the presidential period of Mr.Carlos Andres Perez in 1991 the new government decided to apply strict changes in the economy. The set of economic policies are called "The Venezuela's agenda ". The Venezuela's agenda has ten top priority areas for Economic, Political and Social Balance. Among its priorities is privatization. The privatization process has two main aspects. The first one is related to Reduction of the number of Government Offices such as agencies, ministries, and other official institution and the public administration decentralization and transfer to the State and Municipal Administrations. The second aspect is regarding privatization of "official business", transfer to private hands, specifically a stress on the privatization of the aluminum industry {Industrial Complex Corporation Venezuelan de Guyana (CVG) ) and the electricity distribution companies.

    Source of Data: 1: http://www.embavenez-sofia.bg/av/ea.htm/Embassy of Venezuela, Sofia, Bulgaria

    32: International Security Agreements: 5.0

    There are two important agreements signed by Venezuela. One of this is that signed with Colombia on December 17 of 1996 in Santa Marta, Colombia. This agreement will allow the country to coordinate national actions of interchange of information as well as execution of military operations in the border. This document has as its main objective the development of procedures in operational, regional and local levels to solve problem and incidents, information interchange, telecommunication systems linking, and execution of simultaneous military operations in the border area. The other important agreement signed by Venezuela is regarding drug traffic. "Venezuela is a party to the 1961 United Nations {UN) Convention on narcotic drugs and its 1972 Protocol, the 1971 UN Convention and the 1988 UN Convention. The Government of Venezuela also participates actively in the OAS/CIDAD Money Laundering and Chemical Control Task Forces" (International Narcotics Control Strategy Report, U.S. Department of State). The Government of Venezuela has signed annual narcotics control agreements with the US since 1987 in addition to other bilateral agreements with other countries. In July 1995, the Government of Venezuela issued its first national drug strategy which designated the National Drug Commission {COACUID) as the central point of contact on narcotics policy issues and the coordinating body for law enforcement agencies. (International Narcotics Control strategy Report U.S. Department of State). There is not another security agreement signed by GOV.

    Source of Data: 1: http://www.usis.usem.se/drugs1996/samerica/drugven.htm . (International Narcotics Control strategy Report U.S. Department of State). 2.-http://www.el-universal.com/1996/il/19/19116a.htm (Operative Procedure Manual)

    33: Protection of Domestic Enterprises from Government Mandated Costs: 3.0

    One of the ten priorities of the Venezuela's agenda is a radical change in the Social Security System implanted in Venezuela. The older system imposes on the enterprises the requirement to create a fund for each worker. In general, this fund was annually updated at the current salary. Also if the worker were fired, this fund must be conceded double. The consequence of this kind of social security system were pernicious for Venezuela and even for its workers. The salaries were not increased in many years. The foreigner investment and even the current privatization process were difficult.

    Source of Data: 1: http://www.embavenez-sofia.bg/av/ea.htm Embassy of Venezuela, Sofia, Bulgaria 2.-Personal

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