History of Venezuela

| Venezuela's Economy | | Pre-Chavez Economy | Chavez Economy | Petroleum Industry |

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Colonial Economy:

• Spanish expenditionaries arrived in what is present-day Venezuela in 1498, but generally neglated the area because of its apparent lack of mineral wealth
• Colonial authorities organized the local Indians into an encomiendo system
• Encomienda is a system where the Spanish crown granted rights over Indian labor and tribute to individual colonists, who in turn undertook to maintain order and to propogate Christianity among the Indians
• The Spanish crown officially ended the encomienda system in 1687, and enslaved Africans replaced the majority of Indian labor
• This time was dominated by a plantation culture, more closely resembling the systems of the Carribbean Islands than that of a South American territory
• Colonial authorities organized the local Indians into an encomienda system to grow tobacco, cotten, indigo, and cocoa

Post Independence:

• Cocoa eclipsed tobacco as the most important crop in the 1700's
• Coffee surpassed cocoa in the 1800's. A coffee boom in the 1830's made Venezuela the world's third largest exporter of coffee
• Fluctuations in the international coffee market created large swings in the economy throughout the 19th century

Early 20th Century:

• The first commercial drilling of oil occured in 1917 and the oil boom of the 1920's brought to an end the coffee era in Venezuela economic history
• The oil boom transformed Venezuela from a relatively poor agrarian society into Latin America's wealthiest state
• By 1928 Venezuela was the world's leading exporter of oil and second in total petroleum production
• Venezuela remained the world's leading oil exporter until 1970
• Oil represented over 90 percent of Venezuela's total exports begining in the 1930's
• In 1936 the government embarked on its now-famous policy of Sembrar el petroleo or "sowing the oil." This policy entailed using oil revenues to stimulate agriculture, and later industry
• After years of negotiations in 1943 the government achieved a landmark 50 percent tax on the oil profits of the foreign oil companies
• The newfound oil let to widespread corruption and deceit by foreign companies and indifferent military dictators flourished which hindered economic developement
• Despite unenlightened policies, economic growth in the 1950's was robust because of unprecedented world economic growth and a firm demand for oil. As a result physical infrastructure, agriculture, and industry all expanded rapidly

Arrival of Democracy:

• With Venezuela bringing in democracy in 1958, their new leaders concentrated on the oil industry as the main source of financing for their reformist economic and social policies
• The year 1960 marked the countries entrance as a founding member of the Organization of Petroleum Exporting Countries, which set the stage for the economies rapid expansion in the 1970's
• Throughout the 1960's the government addressed general social reform by spending large sums of money on education, health, electricity, portable water and other basic projects
• Rapid economic growth accompanied these reformist policies and from 1960-1973 the countries real per capita output increased by twenty five percent

Booms and Busts of Oil

• The quadrupling of crude oil prices in 1973 spawned an oil euphoria and a spree of public and private consumption unprecedented in Venezuelan history
• During the 1970's, the government established hundreds of new state-owned enterprises and decentralized agencies as the public sector assumed the role of primary engine of economic growth
• However, Venezuela was experiencing an unsustainable pace of public and private expansion but the government refused to lower spending
• In 1983 the price of oil fell and soaring interest rates caused the national dept to multiply
• Oil revenues could no longer support the array of government subsidies, price controls, and exchange rate losses
• The government of Jaime Lusinchi (president, 1984-1989) attempted to reverse the 1983 economic crisis through devaluations of currency, a multi-tier exchange rate system and greater import protection
• These reforms only stimulated a recovery for a short time before the economy could no longer support the high rates of subsidies and the increasing foreign debt burden
• Throughout the 1990's Venezuela's economy has staggered through numerous attempts to fix the economy which has been met with little success

History of Venezuela