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Venezuela Economy


Venezuela's mountains long impeded the nation's economic development because of the communications problems they presented. The country has developed a fine highway system, but goods are still carried primarily by ship. Oil accounts for about 80% of the export income, 50% of government earnings, and 25% of the gross domestic product. Venezuela is the largest foreign supplier of oil to the United States. Other exports are iron ore, bauxite, aluminum, coffee, cocoa, rice and cotton. The main imports are manufactured goods—especially machinery, vehicles, and chemicals—and food. The main trading partners are the United States, Germany and Japan. A large amount of oil is exported to the Netherlands Antilles and Aruba for refining. Maracaibo, Puerto Cabello, La Guaira and Cumaná are the important ports.

The government has used oil revenues to stimulate manufacturing industries. Food processing and the manufacture of construction materials, textiles, chemicals, and automobiles have become well established. Heavy-metalworks have been built on the Orinoco near Ciudad Guayana. Also, Venezuela uses its rivers to great advantage as sources of hydroelectric power. Despite government reform programs, Venezuela's wealth remains in the hands of a small minority. A disproportionately high percentage of the population lives in poverty; after the end of the oil boom in the early 1980s, the percentage of poor Venezuelans has increased dramatically, from 28% to 68%. Many cities have squalid shanty towns, and in the countryside many people are still tenant farmers.

Under President Hugo Chávez, the government has held down the price of staples with price controls (since 2003), and has increased state control over and participation in the economy generally. The government has also emphasized the use of microloans to develop small businesses and the formation of cooperatives in an attempt to improve the lives of poorer Venezuelans, has seized factories, farmland and other assets it has determined to be “unproductive,” and has forced multinational oil companies to cede a controlling stake in their Venezuelan ventures to the government. In late 2005, price pressures on wholesalers and other middlemen due to price controls led to reduce supplies of many staples, particularly coffee, in retail stores.

Venezuela is one of the five founding members of OPEC, which was the initiative of Venezuelan politician Juan Pablo Pérez Alfonzo; it was proposed in 1960 as a response to low domestic and international oil prices. Since 2005, Venezuela has also been a member of Mercosur, joining Brazil, Argentina, Paraguay, and Uruguay; it has yet to gain voting rights. Venezuela is also a member of the Union of South American Nations (Unasul – Unasur).


Economy - overview
Venezuela remains highly dependent on oil revenues, which account for roughly 90% of export earnings, more than 50% of the federal budget revenues, and around 30% of GDP. Tax collection - Venezuela's primary source of non-oil revenue - is expected to surpass $23 billion in 2006, exceeding the year end collection goal by more than 20%. A nationwide strike between December 2002 and February 2003 had far-reaching economic consequences - real GDP declined by around 9% in 2002 and 8% in 2003 - but economic output since then has recovered strongly. Fueled by higher oil prices, record government spending helped to boost GDP growth in 2004 and 2005 to approximately 18% and 11%, respectively. Economic growth in 2006 reached about 9%. This spending, combined with recent minimum wage hikes and improved access to domestic credit, has fueled a consumption boom - car sales in 2006 increased by around 70% - but has come at the cost of higher inflation. Despite government attempts to withdraw liquidity from the economy, Venezuela's money supply set a record in June 2006, approximately 70% higher than the previous year. Imports have also jumped significantly.

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