leadership of Chavez, Venezuela
Question 1
Under the leadership of Chavez, Venezuela functioned in a command economy. This is a type of economic structure in which the central government controls all processes that impact the country’s economy, including deciding the type and quantity of products and services is produced. Shortly after he assumed power, Chavez sought to reinforce his grip over all institutions of government, creating a bureaucratic system (Grier & Maynard, 2016). Dominated by the new president’s loyalists, the national assembly made amendments to the constitution to increases his powers. Chavez was also able to gain control over all media houses in the country. According to a World Bank report in 2003, the state regulation of all commercial operations presented public officials with plenty of opportunities to make themselves rich with public resources. They demanded bribes and kickbacks to allow people to enter or expand businesses.
Question 2
A unilateral change refers to any alteration rendered in contract terms without the agreement of other parties concerned. The control of the government extended to the international oil companies based in Venezuela. He accused them of taking advantage of a poor country to make disproportionately large profits. In 2005, he declared that the government was going to raise the revenues for oil exports from 1% to 30% (Grier & Maynard, 2016). He also raised tax rates from 34% to 50%. These drastic measures will scare away international investors from doing business in Venezuela in the future. These changes have already affected the country’s economy because most foreign investors pulled out, and yet the petroleum industry in Venezuela makes 70 percent of its exports (Mijares, 2015).
Question 3
Despite the claims of Chávez to oppose corruption, Transparency International found that fraudulence had escalated under his leadership. The organization rates the scale of corruption in countries worldwide, and in 2011 ranked Venezuela as one of the most corrupt nations in the world (Mijares, 2015). The extent of fraud by the government is expected to slow down growth severely. By demanding bribes to allow citizens to do business in the country, it will be difficult for Venezuela’s economy to improve because many people will remain poor. Only a small percentage of people in the government will have the chance to grow financially, and that is not beneficial for the nation.
Question 4
As a result of the extreme economic policies by Chavez, many foreign nationals who had businesses in Venezuela pulled out of the country, leading to a significant reduction of private companies. Studies show that in 1999, Venezuela had over 14,000 private companies, but this number decrease to about 9000 in 2011 (Grier & Maynard, 2016). As private investment reduced instead of increasing, the rate of economic growth of the country also stagnated. This led to high inflation that soared to over 20 percent every year. To reverse this situation, the government needs to loosen its control over the economy and allow the private sector to operate. It should also impose a reasonable tax on foreign companies that want to open businesses in Venezuela, to open its job market and put its people to work.
Question 5
The fundamental step that needs to be taken to prevent the economic collapse of Venezuela is the reversal of the policies that were introduced by the administration of Chavez. The current government should also diversify the country’s economy to stop its overreliance on the revenues of oil exports. Venezuela also needs a regime change to institute a democratic system of governance.
References
Grier, K., & Maynard, N. (2016). The Economic Consequences of Hugo Chavez: A Synthetic
Control Analysis. Journal of Economic Behavior & Organization, 125, 1-21.
Mijares, V. M. (2015). Venezuela’s Post-Chávez Foreign Policy. Americas Quarterly, 9(1), 74-