Failure of Venezuela

Introduction

Recently in somenewspapers, Venezuela has been reported as one of the worst managed economies. Venezuelais also one of the biggest oil reserve countries in the world. When referring tooil, Arab countries firstly come up in mind but they did not face as terriblesituation as Venezuela did. So this essay is going to dig the reason of thefailure of this “big oil area” Venezuela. Finally, a conclusion and recommendationwill be drawn about economic situation of Venezuela.

Position of Venezuela

Although theex-president of Venezuela, Hugo Chavez tried to shrink the gap between rich andpoor by expand public expenses of government, the economic environment is stillnot positive in Venezuela. The policy that President Hugo Chavez issuedactually works out in some aspect, which cannot be denied. From the data showsin the World Bank, the percentage of poverty keeps decreasing from the year2008. It also was reported that in Venezuela, the unemployment is greater than8% and the inflation rate even greater than 63% by the end of the year 2014. A goodpolicy would even have some negative effect on the society. The huge inflationrate is the best evident. There are several reason behind this phenomenon

Reason of the Failure

First one is thehuge government spending in subsidies. In order to shrink the indifference ofpeople’s income in Venezuela, there are quite a few government services andpolicies to provide social welfare. The oil sold inside the country is only0.05 dollar per gallon, which is the cheapest oil price worldwide. And thatmeans the government losses nearly 27 billion US dollar per year and that leads90% of the government departments in Venezuela to face deficit.

Second reason isthat the whole country rely on oil as its main export product, meanwhile, plentyof necessities rely on import, like food. Oil export has over 70% contributionto Venezuela’s GDP. But oil price is not as reliable and fixable as that couldsupport the economic growth of a country. So from the early 2014, when the oilprice kept decreasing, the net export of Venezuela decreasing sharply. The wholeUS dollar reserves decreasing sharply, a great amount of debt due but more debtneeded to support people’s daily life, and the price of domestic goods increasingsharply are the things Venezuelan government facing every day. Some expertseven forecasted that Venezuela must devaluate their domestic currency todecrease the high inflation rate, otherwise it might increase to 1000%.

Thirdly, the poornational security level is also a main reason. Now the Gini coefficient ofVenezuela is 0.448, greater the UN standard that social campaign will happen. Andit did happen in Venezuela in the early 2014. The whole campaign not only costa lot for the government but also made the not-so-good economic environmenteven worse. Many international companies just evacuated from Venezuela. Employeesworked in those factories lost their jobs. High unemployment rate even led tomore violence and criminal cases and more social campaign in return.

Conclusion

Different formVenezuela, other “big oil areas”, like Kuwait, did better job during thesharply decreasing period. Because they do not only rely on oil as the nationalincome. For healthy long-run development of Venezuela, more kinds of goods andservice should be developed to share the great risk of whole nation. Otherwise,the problem of Venezuela will not only be high inflation rate. Like the oldsaying, never put all of your eggs in the same basket. Diversity is also a goodway to share risk, the risk of a nation and also the risk of the people.

Reference

1.http://baike.baidu.com/link?url=yR89s_IuoYfKSZQ-PZ6ImozHP-_7TV65xDgi1FSxc6zOxb5R1SF2Zs1y7Z5Ne9y9fesWi_OL8CeuQz9_HI6OowBzhkRTwLvSHVbJ2xF2euG

2.http://wenku.baidu.com/link?url=aO9DAI2q232RkpLLdD9CYbrexo4dyfhVBKID3Co4KoNfVZiLIJCmcUUnS6kfTxx5cyiklHwCbClZLVYIXBpOR8uHQf8dhoBWIWzxQBOPfOO

3.http://data.worldbank.org/country/venezuela-rbhttp://zh.wikipedia.org/wiki/%E5%90%84%E5%9B%BD%E6%94%B6%E5%85%A5%E5%9D%87%E8%A1%A1%E5%88%97%E8%A1%A8

4.http://www.nbd.com.cn/articles/2015-01-08/889377.html