Is Venezuela Isolated?

Why Venezuela?

Venezuela is a Latin American country situated on the northern coast of South America. Considering the country’s favorable location in terms of geography and, thus, biodiversity, it is unexpected that it could be in such a bad economic state. Nevertheless, other countries are in a bad economic state despite the fact that they have natural resources in abundance. There are other oil-based economies that are doing exceptionally well in the Middle East and West Africa, and it follows that one would expect Venezuela to be exceptionally developed in Latin America in terms of economic stability. This discrepancy is one of the major reasons for the interest in Venezuela in particular. Another recognizable factor is that quite a number of people in the US, and particularly in our class, are originally from Venezuela. In this respect, therefore, it is unbelievable that Venezuela, a country with immense oil deposits, is currently suffering from poverty with inflation rates that are as high as 62% (Billig, 2004). The need to really understand what is going on in this country is imperative in order to find a lasting solution to this cycle of poverty that only recently caused serious protests across the country. The fact that we have family and friends staying in Venezuela at the moment makes it a subject that is close to our hearts, especially given the connection between economic stability and social wellbeing of the nation’s citizens. Another reason for concern over the state of this nation is in its importance to its neighbors, given the geographical location and abundance of oil reserves. If Venezuela improves economically, her neighbors are likely to benefit as well given the improved trade and investment opportunities. Therefore, finding a sustainable solution to Venezuela remains a matter of paramount importance for its citizens, neighbors, as well as the international community in general. In addition, in the recent past, there have been a number of American and international airlines that are either reducing their flights to the country or simply halting the routes completely. Moreover, while these airlines cite problems like civil unrest and profitability problems, Venezuelan economic challenges seem to play a big role in this isolation.

Overview

Geography

The location of Venezuela is relatively favorable in terms of accessibility and convenience. The country is located on the northern coast of South America and comes in at the 33rd position globally in terms of size (Billig, 2004). The country has a number of Caribbean islands on its northern coastline, as well as lowlands, mountains, plains, and highlands, as a major part of the topography. In essence, Venezuela is a land of geographic diversity and immense beauty in terms of the landscape. With respect to borders, the country shares them with Colombia, Guyana, and some Caribbean islands, like Trinidad and Tobago, Grenada, and Aruba among others. Furthermore, the country has a lot of arable lands, petroleum oil, and gas, as well as iron and gold mines. The geographic location is, thus, a great basis for impeccable economic stability, given its position on the coast and wealth of its natural resources.

Demography

In entire Latin America, Venezuela stands out as the most urbanized country with most of the population (about 73%) residing in the northern cities (Canache, 2012). The capital city is Caracas, and the country has a population of about 28 million people (Canache, 2012). The country’s population comprises mostly of the two ethnic definitions, which are “white” and “mestizo”, where mestizo means those of mixed heritage with the remaining population claiming African, indigenous, or “other” races. In terms of socioeconomic status, it can be noted that the country’s populations are rather middle-income based on the local standards. The nominal GDP per capita stands at around $7,000 making them a largely poor country (Phillips, 2013). The Gini coefficient is, however, medium at 39, meaning that the disparity between the rich and the poor is not that severe (Phillips, 2013). The population is, thus, mostly middle-income, but foreign trade and investment are very low, making them generally poor from an international perspective.

History

Venezuela was a colony of Spain during the colonial era despite the severe opposition by the locals at that time. The country was under the Spanish colonization from 1522 to 1811, during which the colonial government had to encounter a series of resistance events from the indigenous people (Phillips, 2013). After the declaration of independence in 1811, the country had to endure another decade of power struggles before they could declare sovereignty and full independence in 1821 (Phillips, 2013). The political environment in this nation has since been tense, characterized by power struggles, revolutions, and coups that stipulate a raging conflict in terms of the kind of leadership that people want. The current president, Nicolas Maduro, actually got into power with a very small margin of roughly 1.5% votes more than his opponent in the general elections of April 2013 (Phillips, 2013). It can be noted that a country with such a turbulent political history must have numerous problems in its political framework that contribute to the bad economic atmosphere being experienced now.

Economy

This nation’s economy is driven by the petroleum sector that accounts for over 80% of the country’s exports, with their petroleum being the most heavily subsidized in the world in a bid to protect their consumers from the high pricing (Irazbal & Foley, 2010). Manufacturing and agriculture come in after petroleum in terms of their contribution to this nation’s GDP, with manufacturing bringing in 17%, while agriculture claims about 3% (Iraz?bal & Foley, 2010). It is important to note that while this country exports food items like fish, coffee, pork, and rice among others, they are not entirely self-sufficient in terms of food security. Currently, the country’s economy continues to wallow in debt and misery gave the bad state of the local currency and the recent global recession that saw a serious drop in oil prices across the world. The Venezuelan dependence on oil is one of its greatest weaknesses now, followed by its political instability and outdated framework.

International Relations

• What Does the Venezuelan’s Crisis Mean to the USA and Its Neighbors?

The question of Venezuela’s impact on itself, the US, and other neighbors can be considered by looking at the tiers, under which this nation relates to these “other” countries. This implies considering trade ties, immigration issues, and political instabilities that affect human rights protection. Venezuela’s GDP is heavily dependent on oil and manufacturing, and most of the revenue actually comes from the export industry. The current currency devaluation implies that other countries are able to get the products from Venezuela very cheaply, while the Venezuelans pay more for the imports. This means that among other things, the living standards in this country go down, while international businesses can profit obscenely from the crisis. The impact here is, thus, that the country will be focused more on exporting, as they cannot import comfortably. The export, however, also has a negative implication on the national economy, as the revenue obtained is much lower than it could have been under different circumstances. To the US and other neighboring nations, this could have two different effects. First, the businessmen could decide to source their imports from Venezuela; thus, being able to reduce the prices or rake in large profit margins. This would imply exploiting the nation and using its crisis to get rich and feigning concern for their business sector seeing their dependence on the export economy. Another possible implication would be the drop in the quality and quantity of the exports. The companies that carry out the exploration and extraction of oil in Venezuela need supplies and labor, often from foreign professionals. With the decline in the national economy and current state of the extreme currency devaluation, operating these companies is becoming more and more expensive. There is a serious risk that even the export business might not be sustainable in the long run. This also means that the countries that are seeking to uphold their trade ties with Venezuela may soon have to search for the new trade partners.

On the problem of immigration, it can be noted that during the Bolivarian revolution alone the country lost more than a million of its residents to the neighboring countries, most of them sneaking to the US in order to contribute further to the ever-increasing immigrant population. Immigrants have had a number of advantages in their host countries, like the provision of cheap labor and the promotion of ethnic diversity among other things, but the challenges that they bring with them from their origin countries are far greater. They burden their host countries with new health, cultural, and socioeconomic challenges that could otherwise be avoided if they stay in their home country. They, however, cannot stay because of the dropping living standards that increase crime, illiteracy, poverty, child mortality, moral decadence, and even human rights abuse rates within the country. The problem is that they carry these problems to the new host country, as they cannot support themselves, and the government is often not prepared to support them either. This also applies in the context of political instabilities, which lead to human rights violations and an increased number of immigration, as people seek asylum and refuge in the peaceful neighboring countries.

Social, Economic and Political Change in Venezuela

Time Before and After Chavez

• The Path to Socialism

When the last president, Hugo Chavez, decided to devalue Bolivar, it was a bold statement of socialism as the mode of government in the country. The president further imposed draconian control measures over the business environment to a point that the state was in control of most of the businesses. To this day, any corporation that is seen to overcharge the citizens is often reprimanded and even punished for hoarding. The state, thus, practically owns every industry in the country, and those that it does not own, it controls stiffly (Crisp, 1998).

• Legal and Political Changes

When President Chavez came into power, his major concern was the poverty levels that hampered service delivery in the Venezuelan nation. He embarked on a mission titled the “Bolivarian Revolution”, in which he built schools, hospitals, roads, and other infrastructure units that were meant to improve the living standards of the Venezuelan people (Crisp, 1998). He, however, has also passed a number of habilitating laws that gave him too much power, previously restricted to the Congress. This enabled him to exercise ultimate powers and the complete overhaul of the police force that has come to be accused of so many crimes including corruption, collusion, and even kidnapping and assassinations.

• Social Crisis

Initially, Chavez used propaganda to effectively mobilize support for his personalized version of Bolivarian socialism. This positive public relation spread hope among the people, as they were lavished with subsidies and cheaper living costs given the draconian price control initiatives under the Bolivarian Revolution. However, the positive outlook was washed over by the negative effects of currency devaluation, as people got poorer, and foreign investors packed up and left. The end result was a wave of protests that not only hit President Chavez’s administration but has also followed President Maduro today.

Economic Overview

Devaluation and Inflation

The currency devaluation was a concept introduced to this country by Chavez in his bid to ease the burden of living for his people. This was an overall component of the draconian controls he was applying over the business environment in a bid to make life much cheaper; thus, more affordable for the Venezuelans. Devaluing the currency, however, only makes the exports cheaper, and this does nothing for the imports. The foreigners are able to buy this country’s products, but the residents of Venezuela cannot afford to acquire foreign merchandise owing to the steep foreign currency prices. Currently, the country’s inflation is at over 62%; thus, explaining the outcome of the currency devaluation even clearer (Phillips, 2013). As the cost of living in the country comes down, the businesses are unable to sustain their operations, and the people’s sources of revenue also dry up as the businesses close down.

Sliding Profits

The problem with Venezuelan socialism is that some of the manufacturing companies would not be able to source raw materials at an affordable price, while other service-based companies will not be able to afford labor for their expatriate employees. As a result, the companies will be unable to sustain their operations given the high cost of operation and the low-profit margins, as they sell their products to foreign and local customers at very low costs, while paying a lot for labor and raw materials. The sliding profits being encountered in this country’s business environment end up limiting economic and social growth. The businesses are strictly controlled by the state, and in the end, they do not have much to gain by staying in Venezuela.

Production Fallouts

• Deterioration Of The Productive Forces

Productive forces can be argued to include the means of production and labor, as well as raw materials. The Chavismo ideologies in the long term impeded the growth of the productive forces by limiting the access of the local businesses by cutting down their profit margins drastically (Canache, 2012). In the end, these businesses could neither afford the labor nor the raw materials needed for their production activities. In addition, the poor economy created a situation of never-ending social protests, where people complain about the state of affairs under the socialist governments. Today, there is not enough labor in Venezuela just like there are not any manufacturing companies that are willing and able to keep operating in the country. The raw materials have become unaffordable, as they cannot be sourced externally and the dependence between the import and export sectors is more evident in these circumstances. They cannot export effectively if they are unable to import.

• Intellectual Leakage

Venezuela has had a problem with regard to the growth and development policies that have trickled into the education sector. What this means is that while Chavez’s government tried to build schools and make education accessible, there is not much progress in the standards and value of education in a country riddled with poverty and social unrest. The learned members opt to go and work outside the country; thus, leaving a severe shortage of intellects (Canache, 2012). The country is suffering a serious amount of brain drain given the need for professionals to make more money and live better lives, and these are the things that Venezuelan companies cannot afford, owing to the state restrictions on their pricing strategies, as well as the currency devaluation issue within the country.