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VENEZUELA - The Economy & The Oil Curse.

For many years, Venezuela has faced one economic crisis after another. Because of a collapse of oil prices and a rise in domestic interest rates to defend the bolivar, the GDP in 1998 contracted by more than 5%, sending the country into a third recession in five years. The situation now is getting bad again, despite high oil prices from April 1999 to the Sept. 11, 2001 terrorist attacks on New York and Washington. Crude oil prices have been falling rapidly since OPEC's Nov. 14 meeting which said it would only cut production by 1.5m b/d in January 2002 if non-OPEC states have pledged to lower their output by 500,000 b/d.

Oil in Venezuela now is regarded as a curse. Anibal Romero, a political science professor at Simon Bolivar University, has said: "This is a sick a result of an illness called oil. Oil...has asphyxiated the rest of the economy and led the majority of Venezuelans to believe that if they are not rich, it is because someone has stolen what belongs to them". In polls, most people say the state must let all share the oil wealth.

In Oct. 2001 President Chavez ordered a halt in payments to a fund created by his predecessor Rafael Caldera to save extra oil revenue for use at times of low oil prices. In 1999 the Chavez government pledged to deposit half of all oil income in excess of $9/b into the fund. The fund's current balance is $7 bn. Payments will be suspended until the beginning of 2003.
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Publication:APS Review Downstream Trends
Date:Nov 19, 2001
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