The Bolivar is Venezuela's official national currency (often denoted VEB). After the First World War, the Venezuelan economy moved from one that was primarily agricultural to one that is centered on oil production and export: which continues to account for about a third of the GDP. Following a recession in 1999, the increase in international oil prices helped the recovery of the economy. However, the relatively weak non-oil sector and capital flight, along with a temporary fall in oil prices undercut the recovery. Moreover, an overall negative balance of payments led the Central Bank of Venezuela to switch the exchange rate regime from a crawling peg to a free-floating one in 2002, causing the Bolivar to depreciate dramatically. Before the float, the crawling peg allowed the Bolivar to float in a trading range of 7.5 percent on both sides of the parity exchange rate. The crawling peg regime helped to bring inflation to a 14 year low in 2001; which, brought about an overvalued Bolivar. The overvalued USD at this time led to difficulties in Venezuela, which led to a suspension of USD purchases and currency controls in place. The 2003 decision to fix the exchange rate at 1598 VEB to one USD was meant to help replenish reserves and pay the national debt. This allowed the government and central bank to change the currency rate if need be. The domestic debt increase and an increase in Iraqi oil production into the world markets, which led to a decrease in oil prices, puts Venezuela at risk of currency exchange pressures to the Bolivar.
Average Ranges:
Daily Range Over Three Year Period:10.4442
Average Monthly Range Over Three Year Period: 0.051263
| Moody's Rating |
| Caa1 |
| S&P Rating |
| B- |
|
Sovereign credit ratings play an important part in determining a country's access to international capital markets, and the terms of that access. Sovereign ratings help to foster dramatic growth, stability, and efficiency of international and domestic markets. |
What does it look like?
Political Structure
The Venezuelan government is divided into five branches: the executive (president), the unicameral National Assembly (165 members), the judiciary, the Republican Moral Council (representing the citizens) and the National Electoral council. The president is elected to a six-year term by direct vote and may serve two consecutive terms if re-elected. All elected officials can be subjected to revocatory referendums halfway through their terms.
Prominent Figures
The current president of Venezuela is Hugo Chavez. Chavez has recently allied himself with Fidel Castro. This will cut any potential trade relationship with the U.S. for oil, the country's largest export, a loss that will hurt the Venezuelan economy far more than any harm done to the U.S. economy by the lack of demand from Venezuela. The demand for the currency will remain low and should stay valued below the USD. Another figure to watch for regarding the economic state of Venezuela is Gaston Luis Parra Luzardo, the President of the Central Bank of Venezuela.
Unique Characteristics
Venezuela is the world's fifth largest oil exporter and a major supplier of crude oil to the United States. Lack of progress on structural reform has created an over-reliance on oil revenue in recent decades, leading to sharp fluctuations in the fiscal accounts, volatile GDP growth and repeated currency crises. Petroleum has been a large component of the Venezuelan economy since the 1920s, contributing to at least one-third of central government revenue, over 80% of export revenue and approx. 25% of the GDP. The U.S. and other major importers of oil are purchasing less oil, which hurts Venezuela's export industry. As the oil prices rise, governments are able to finance public expenditures. When the prices of oil decrease, there are fiscal shortfalls.
Key Economic Factors
Overview of the economy: Venezuela continues to be highly dependent on the petroleum sector, which accounts for roughly one-third of GDP, around 80% of export earnings, and more than half of government operating revenues. Despite higher oil prices at the end of 2002 and into 2003, domestic political instability, culminating in a two-month national oil strike from December 2002 to February 2003, temporarily halted economic activity. The economy remained in depression in 2003, declining by 9.2% after an 8.9% fall in 2002. Despite continued domestic instability, output recovered strongly in 2004, aided by high oil prices. Both inflation and unemployment remain fundamental problems.
Venezuela's economic market currently relies on 3 major factors: Consumer Price Index, GDP, and Industrial Production. Their foreign trade market has also played a huge role in their market success. Venezuela is a huge exporter of oil and gas; in 2003, 84.9% of their exports were oil and gas. They also rely heavily on imports; in 2002, 65.5% of their imports were for raw materials and intermediate goods. More importantly, the United States is the major supplier for Venezuela. This is vital because it ties the value of the USD and the United States' currency market to Venezuela's economy, making Venezuela sensitive to the US' growth. Venezuela's relationship with the United States has strained recently because of Venezuela's connection with Fidel Castro. However, Venezuela's strength lies in its strong oil exporting industry. Foreign companies owe the government $3 Billion (USD) in taxes from the operation of oil fields owned by monopoly PdVSA. However, many speculate that the climate for investing in Venezuela's oil industry will deteriorate.
Consumer Price Inflation has become a difficult problem in Venezuela. The Chavez administration has used up a lot of its cash in oil reserves to finance domestic spending, which has increased inflation. The recent hikes in crude oil prices have further caused problems for Venezuela's economy and the value of its currency. The Consumer Price Inflation Index has been increasing every month; the index has increased approx. 50 points since Oct 04'. The prices for goods have increased by 3.8% resulting in less demand for Venezuelan currency.
Industrial Production is directly connected with the CPI and inflation. Venezuela is home to one of the largest oil reserves outside the Middle East (it is the world's #5 oil producer and OPEC's #3 largest oil exporter). As oil constitutes such a large part of Venezuelan economic activity (namely, 85% of major exports as of 2003), crude oil production is an important economic indicator to follow.
The most recent GDP figures have a relatively high importance to the markets. The GDP indicates the pace at which Venezuela's economy is growing (or shrinking). The GDP percentage has decreased over the course of the past few years as well. Venezuela's economy seems to be in a downtrend. Government regulation, intervention, and absence of efficiency have destabilized the government. Moreover, Venezuela remains hostile towards outside businesses and private enterprises. In addition, the political atmosphere between the Chavez administration and its opposition has also remained
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