Tuesday June 18, 2019
Home Business Know How Vene...

Know How Venezuela Can Restore Back Its Economy

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

0
//
Venezuela
A man holds a sign that reads in Spanish "They attack for oil" during a march of in support of the state-run oil company PDVSA, in Caracas, Venezuela, Jan. 31, 2019. VOA

Oil-rich Venezuela’s near economic collapse may make it easier for U.S.-backed opposition leaders to reverse socialist policies instituted by late President Hugo Chavez, if they are able to oust his successor, Nicolas Maduro, according to analysts.

“I do think at the very beginning, because the Venezuelan people have suffered so much there, they’re going to be willing to give a lot of political capital to the new leadership to do all of these changes,” said Dany Bahar, an Israeli and Venezuelan economist with the Brookings Institution in Washington.

People line up to receive bags with food subsidized by the Nicolas Maduro's government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019.
People line up to receive bags with food subsidized by the Nicolas Maduro’s government near the international bridge of Tienditas on the outskirts of Urena, Venezuela, Feb. 11, 2019. VOA

Economic collapse

In the last five years, Venezuela’s economy has shrunk by nearly half. Nationalization of much of the private sector, including the oil industry, has driven away foreign investment. Hyperinflation, aggravated by the increasing fiscal deficit, is now close to 180 percent, with prices of goods tripling every month. More than 3 million people have fled the country to escape increasing poverty.

The government-subsidized assistance programs for the poor have been plagued by chronic food and medicine shortages, due in part to corruption and declining oil revenues that account for more than 95 percent of Venezuela’s export earnings.

Maduro has claimed the humanitarian crisis in his country is a “fabrication,” and blamed U.S. sanctions and capitalist sabotage for the economic shortfall.

The United States, as well as most of Latin America and Europe, has recognized Juan Guaido, president of Venezuela’s National Assembly, as the country’s interim leader, and support opposition claims that Maduro’s reelection last year was illegitimate after he banned most opposition parties from running.

FILE - Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019.
Opposition National Assembly President Juan Guaido talks with reporters upon his arrival to the Venezuelan Central University for a conference on economic plans for reviving the country in Caracas, Venezuela, Jan. 31, 2019. VOA

Market reforms

With the “Chavista” socialist model discredited, new Venezuelan leadership aligned with the United States would be expected to embrace strong market reforms that would entail an infusion of international aid and credit, privatizing state-controlled industries and cutting government subsidies.

“Market mechanisms have been completely destroyed. The government centralizes everything, decides who gets what, rations all sorts of goods, food, medication, everything. So, you have to get rid of that and just allow the market to reappear, which doesn’t really take very long if the situation on the ground is stable,” said Monica de Bolle, a senior fellow at the Peterson Institute for International Economics in Washington.

Fighting inflation will likely be the top priority for any new government. Recommended fiscal controls would include introducing a new currency tied to international exchange rates, as was done by Brazil and Argentina in the past. Venezuela’s bolivar has lost most of its value, as the Maduro government reacted to inflation by printing more money while its oil revenues plummeted and its deficit grew.

“The moment you move from very high inflation to low inflation, the first thing that you see is a dramatic reduction in poverty rates. This is what happened in Argentina. This is what happened in Brazil, you know, at the time when they were fighting their own inflationary problems,” said de Bolle.

Privatizing oil industry

The International Monetary Fund would likely require Venezuela to lift price controls and privatize state-owned companies, including the oil and gas company Petróleos de Venezuela, S.A. (PDVSA), in exchange for billions of dollars in aid and loans. The reforms and influx of capital would help ease food and medicine shortages.

Venezuela has the world’s largest oil reserves, but production has fallen from three 3 million barrels per day (bpd) in 1997 to just over 1 million bpd in 2019. Maduro contributed to the decline by putting generals in charge of the company rather than industry professionals, and replacing qualified staff with thousands of political supporters.

“If we’re generous with the interpretation, they have also been doing social programs and things like that. If we’re not generous, it has become a vehicle of corruption for the regime. So, there’s going to need to be a deep restructuring of the oil company,” said Bahar.

A U.S.-aligned government in Caracas would likely seek to restructure its debts to creditors like China and Russia, two countries that continue to support the Maduro government. China has loaned Venezuela $20 billion in exchange for future oil shipments.

Also Read: Drugs Taken To Neutralize Stomach Acids Can Lead To Kidney Diseases

Ending Venezuela’s free oil shipments of an estimated 50,000 barrels per day to Cuba, another key Maduro ally, could redirect billions of dollars to support limited social programs at home.

If Maduro is removed from office, Washington is expected to ease oil sanctions imposed this year that are estimated to cut Venezuela’s oil exports by two-thirds. Oil sales to the U.S. had provided nearly 90 percent of Venezuela’s hard currency before the sanctions were enacted. (VOA)

Next Story

Aging US Population Creates Problem for Economy

Americans are getting older and family size is shrinking

0
Aging, US, Population, Problem
The U.S. birth rate dropped to a 32-year low last year. Pixabay

Americans are getting older and family size is shrinking, which means the nation will have fewer working-age adults going forward.

“I think it is a cause for concern if we are calibrating our expectations of having a strongly growing population,” says David Kelly, chief global strategist for JP Morgan Asset Management. “If you’re investing in things like the housing industry or the auto industry and you need an ever-growing population, then you have to adjust to a world in which the U.S. population is growing more slowly.”

By 2030, one in five U.S. residents — 20%— will be older than 65, compared with 13% in 2010 and just under 10% in 1970.

Various studies show that not only does an aging population cut into economic growth, but older workers who stay in the workforce tend to be less productive.

Aging, US, Population, Problem
FILE — Caregiver Warren Manchess, 74, left, shaves Paul Gregoline, 92, in Noblesville, Indiana. The share of the U.S. population over age 60 is expected to rise by 40 percent between 2010 and 2050. VOA

Meanwhile, as Americans age, the U.S. birth rate dropped to a 32-year low last year. Fewer than 3.8 million babies were born in 2018, down 2% from the previous year. Overall, the population grew 0.6% in 2018 compared to 1.2% growth in the mid-1990s.

That’s not necessarily a negative in the long run, says Kelly, adding that if you look beyond economics, a growing world population will potentially do more damage to the planet. Instead, he says, policy makers should plan for the expectation of a reduced workforce.

”There’s so many things in this world you can’t see coming. Demographics you see coming from a mile off,” he says. “It should be something that we try to adapt policy to as opposed to a lot of the things that we’re very unsure about, which we can more reasonably hesitate to act on. We really should adapt to a world of slow population growth because it’s clearly happening to us.”

He expects the lack of workers to spur the growth of robotics and artificial intelligence to replace the missing human labor. And he says Americans need to “get over our delusions” and prepare for U.S. economic growth to slow a bit.

Also Read- GRAIL Announces Significant Progress on Blood Tests to Detect Cancer

Another fix for a diminishing workforce is to add more legal immigrants rather than restrict them. Immigrants tend to arrive in the United States during their working years.

“I think what you need to do is, first of all, change immigration policy so you can do something about the lack of immigration growth or lack of population growth,” Kelly says. “But also you need a more open trade policy. If we don’t have big growth in our population, we won’t have big growth in our domestic markets. If we want to attract fast growing companies they’ll have to see the world as their market and not just the United States.”

Kelly believes the U.S. economy can easily adjust to the challenges of slow population growth, but he worries politics could get in the way.

”Of course we can adapt to this stuff,” he says. “The real question is a political question because it seems even as our population matures in years, it seems that our political system gets less mature in terms of thought process.” (VOA)