Historical Overview


Geographically, Venezuela is located in South America, situated between Colombia and Guyana. It is a coastal nation with plentiful ocean access to both the Caribbean and North Atlantic. The Carib, Arawak, and Chibcha-speaking people were the original inhabitants of the country. To this day, they are still an integral part of the racial and cultural mix. In the late 1500’s, Venezuela was ‘discovered’ by the Spanish, who were searching for gold and other riches. Within a short span of time, it became a land of plantations, in which slave labor from Africa was used to work the cocoa, sugar, coffee, cotton, and tobacco fields.

Dissatisfied with the Spanish involvement in local politics, in the 19th century the country's creole population initiated a drive for freedom. Although independence is celebrated on the fifth of July (based on the 1811 charge led by Simón Bolívar) it was not until 1821 that Bolívar became the leader of a Venezuela that was independent of Spain. The remaining Spaniards were forced out of Venezuela in 1823, after their defeat near Maracaibo. Venezuela was initially part of Gran Columbia, but they seceded on May 6, 1830 at which time they named Jose Antonio Paez their first President.

The next one hundred years were fraught with numerous caudillos and the reign of various dictators. In 1958, the first elected government came into being.  The most recent change came about when Venezuela abandoned its traditional political parties and established a new constitution, with a newly elected government in 1999. Since then, the government has been forced to deal with numerous natural disasters (floods and mudslides), which have left Venezuela trying to rebuild itself.[1]




Venezuela is a Federal Republic with twenty-two states, one Metropolitan District, and eleven federally controlled islands. There are an additional seventy-two islands in the Caribbean Sea, known as federal dependencies. Governors hold executive power at the state level and they are elected to four-year terms. The local government is composed of the Mayor, the Municipal Council, and the Parishes. The current Chief of State and Head of Government is Hugo Chavez, elected in December 1998. The Chavez administration called for fundamental change – a complete reorganization of the public administration and a reduction in the number of ministries.  His government also drafted and won approval from the electorate for a new constitution, which subsequently appointed the National Constituent Assembly.  President Chavez was reelected in July 2000 for a six-year term.[2]

Due to recent political upheaval, in a recent United Nations visit with Hugo Chavez, Kofi Annan stated, “I hope those who seek to bring about change in Venezuela will…stick to democratic, constitutional means, in keeping with the principles of human rights and justice.”[3] According to the Venezuelan Embassy, “the Constitution guarantees the freedom to create political parties….that guide national policy through democratic methods.”[4]

The National Assembly is unicameral and represented proportionally by deputies from each electoral district. The original creole inhabitants are also granted three Deputies under the new Electoral Law.

Citizen empowerment has been provided by the Republican Moral Council, which consists of the People’s Defender, the Public Prosecutor, and the General Accountant. Their job is to “observe, prevent, investigate and penalize acts against the public ethic and administrative moral and oversee the legality of the use of public fund.”[5]


General Statistics


            The major industries in Venezuela are petroleum, iron ore mining, construction materials, food processing, textiles, steel, aluminum, and motor vehicle assembly. Export commodities include petroleum, bauxite and aluminum, steel, chemicals, agricultural products, and basic manufactured goods. Venezuela imports a great deal of commodities, including raw materials, machinery and equipment, transport equipment, and construction materials.[6] Venezuela also imports a large percentage of many of its basic food needs.

            In the past ten years, the population growth rate in Venezuela has been steadily declining, from 2.3 percent in 1992 to 1.5 percent in 2002. A commensurate fall has occurred in the birth rate and fertility rate.

            With regard to unemployment, Venezuela has seen skyrocketing numbers, from 7.1 percent in 1992 to an estimated 14.1 percent in 2002. Unemployment has not increased steadily, however, as it grew to 12.4 percent by 1996 and has been leveling off since.

            The Gross Domestic Product growth of Venezuela has been hit-or-miss, growing in 1993 and 1995, falling in 1994 and 1996. Most recently, GDP was expected to rise, however the estimates were made before the strikes, which effectively shut the country down. Per capita GDP has of course varied with GDP, but overall has grown from USD 2400 in 1994 to an estimated USD 6100 in 2002.

            Inflation over the past decade has experienced dramatic rises and falls, going from a (by comparison) moderate 38 percent in 1993 to over 100% in 1996. In 2001 Venezuela was able to reduce inflation to just over 12 percent.[7]

The Venezuelan population is young: 12.6% are under 4 years of age; 23.6% are between 5 and 14 years, 55.5% are under 25, and 4.1% of the population is 65 or older. The last group, however, is growing faster than that of the general population – a situation that could lead to difficulties in the future. Life expectancy at birth in 1995 was 72.2 years (69.3 for men and 75.1 for women).[8]

Some additional statistics, as provided by the World Bank, may be found on the following page:[9]







Population, total

22.8 million

24.2 million

24.6 million

Population growth (annual %)




National poverty rate (% of population)




Life expectancy at birth (years)




Fertility rate, total (births per woman)




Mortality rate, infant (per 1,000 live births)




Mortality rate, under-5 (per 1,000 live births)




Malnutrition prevalence (% of children under 5)




Urban population (% of total)




Illiteracy rate, adult male (% of males 15+)




Illiteracy rate, adult female (% of females 15+)





Surface area (sq. km)

912.1 thousand

912.1 thousand

912.1 thousand

Forest area (sq. km)


495.1 thousand


Annual deforestation (% of change)




Freshwater resources per capita (cubic meters)




CO2 emissions (metric tons per capita)




Improved water source (% of total population with access)




Improved sanitation facilities, urban (% of urban population with access)




Energy use per capita (kg of oil equivalent)




Electricity use per capita (kwh)





GNI, Atlas method (current US$)

80.2 billion

104.2 billion

117.2 billion

GNI per capita, Atlas method (current US$)




GDP (current $)

88.7 billion

121.3 billion

124.9 billion

GDP growth (annual %)




Inflation, GDP deflator (annual %)




Agriculture, value added (% of GDP)




Industry, value added (% of GDP)




Services, etc., value added (% of GDP)




Exports of goods and services (% of GDP)




Imports of goods and services (% of GDP)




Gross capital formation (% of GDP)




Current revenue, excluding grants (% of GDP)




Overall budget balance, including grants (% of GDP)





Technology and infrastructure

Fixed lines and mobile telephones (per 1,000 people)




Telephone average cost of local call (US$ per three minutes)




Personal computers (per 1,000 people)




Internet users


950.0 thousand


Paved roads (% of total)




Aircraft departures


138.5 thousand


Trade and finance

Trade in goods as a share of GDP (%)




Trade in goods as a share of goods GDP (%)




High-technology exports (% of manufactured exports)




Net barter terms of trade (1995=100)




Foreign direct investment, net inflows in reporting country (current US$)

5.5 billion

4.5 billion


Present value of debt (current US$)


38.7 billion


Total debt service (% of exports of goods and services)




Short-term debt outstanding (current US$)

4.2 billion

1.8 billion


Aid per capita (current US$)





Oil Background


Oil exportation began in the early 1920s, making Venezuela the richest country in South America of that time. The income from the oil, however, was not invested sensibly and the industry was steeped in corruption and waste.[10]

An OPEC member, Venezuela is the world’s fifth exporter and the eighth-largest producer. The state owned petroleum sector dominates the economy. Oil revenue accounts for roughly one third of the Gross Domestic Product (GDP) and is the country’s main source of wealth.[11] 80% of Venezuela’s export earnings stem from the exportation of oil and the earnings provide for more than one half of the government’s operating revenue.[12]

In the late mid-nineties, when oil prices fell, so did the Venezuelan economy. This crisis led to the eventual governmental reorganization. The economic recovery from the 1999 recession was hampered due to a weak non-oil sector, capital flight, and a continued fall in oil prices. However, a period of reduced price volatility was achieved when Venezuela (in a coordinated move with OPEC) reduced the supply of crude. Since then, the government has taken the lead to promote an oil production strategy that would maintain prices between $22 and $28 per barrel.[13]

In order to prevent future oil price induced recession, the government created the Macroeconomic Stabilization Investment Fund. Portions of the petroleum revenue are deposited into this fund whenever the price rises above $9 per barrel. The idea was to create a fiscal safety net that can be utilized when prices fall.[14]


Oil strike


In November 2001, President Chavez enacted a new law that makes the government the majority partner in any new energy venture in Venezuela.[15] The current strike began December 2, 2002. The intent of the strike was to force President Hugo Chavez from power. Chavez, in turn, has called for international partnerships in order to avoid future work stoppages. Consistent with Chavez’s repeated efforts to appoint political allies to key positions, he has also sought to eliminate state contracts with Venezuela’s private sector. This move was intended to weaken the private sector's influence in the industry, which is made up mostly of opposition members. [16]

The United States has imported up to 15% of its oil from Venezuela. However, due to the strike, which has the industry producing 440,000 in contrast to 3 million barrels a day, the U.S. State Department has “branded” Venezuelan oil supplies as unreliable.[17]

Trade and FDI Summary


From the viewpoint of the United States, in 1999, the U.S. trade deficit with Venezuela was $5.9 billion, an increase of $3.1 billion from the previous year's trade deficit of $2.8 billion. In 1999, Venezuela was the United States’ 24th largest export market. The U.S. exported approximately $5.4 billion of goods to Venezuela, a decrease of $1.1 billion (17.6 percent) from the previous year. U.S. imports from Venezuela were about $11.3 billion in 1999, an increase of $2.0 billion (21.4 percent) from the level of imports in 1998. [18]

U.S. Foreign Direct Investment (FDI) in Venezuela in 1998 was $5.7 billion, an increase of 5.9 percent from the previous year. U.S. FDI in Venezuela was predominantly in the manufacturing, petroleum and wholesale sectors.[19]

Venezuela is part of the Latin American Integration Association (ALADI), it has a free trade agreement with Chile, in conjunction with Colombia it is part of the “G3” (the Free Trade Agreement with Mexico), and it has an agreement with the Caribbean Common Market (CARICOM). The country, with other Andean Community members, is currently negotiating a free trade agreement with MERCOSUR.[20]

Foreign investors receive relatively low tariffs and a competitive tax rate. New legislation designed to draw in foreign investment, has increased investment opportunities. Additionally, there are no capital repatriation limits, no profit transfer limits, and no prior authorization requirements for investment. Lastly, foreign companies are not treated any differently from their domestic counterparts.[21]

In early 2002, the government changed the exchange rate system from pegged to free-floating, which caused the Venezuelan currency, the Bolivar, to depreciate.[22] Since then, it appears that the Venezuelan Planning and Development Department has pegged the bolivar to the US dollar (pegged at Bs. 1600.00 – 1596.00). Currently, the Planning and Development Department is investigating a crawling peg system, which would modify the exchange rate on a weekly basis.[23]


Commercial History


Venezuela has been an open market for new exporters, attracting the highest per capita U.S. investment in South America.  Up to USD 1 billion in U.S. exports quarterly have absorbed by its markets. [24]

In the late 80s, Venezuela was among the “hottest” emerging markets. In the early 90s, President Perez avoided two attempted coups, but was impeached in mid-1993.  This caused investor optimism to plummet and international concern turned to preserving the democracy.

Then, in early 1994, the country suffered an additional blow from a devastating banking crisis, which led to capital flight, currency erosion, and worsened the fiscal crisis.  In June of that year, the President declared emergency currency and price controls.[25]

Economic recovery was dependent on the revision of labor benefits, the elimination of subsidies, and government withdrawal from industry. Plans were put into place for selling off state owned corporations, such as aluminum and steel mills.  The government eventually sold several hotels, and banks, and telephone company shares.[26]

In the mid-nineties, a landmark decision by the Venezuelan government opened the oil sector to foreign investment.  Eight international groups were selected to explore potential new oil fields.  The national oil company, PDVSA, planned to invest USD 33 billion between 1996-2005 and foreign investment was expected to provide an additional USD 27 billion.  This expansion plan was thought to increase imports of U.S. oil field equipment by 15 percent annually.[27]

Finally in 1996, the Government initiated a fiscal, monetary, and foreign exchange plan that was intended to lower inflation, balance the budget, restructure and strengthen the financial system. A new social security program, resource allocation to the most vulnerable sectors, and reformation of legal institutions was also part of the plan. [28] However, this plan also caused gasoline prices to be raised by over 400 percent.

Venezuela now offers a safeguard to investors through its membership in the Overseas Private Investment Corporation (OPIC), which protects investors from political risk. Additionally, Venezuela joined the World Bank’s Multilateral Investment Guarantee Agreement (MIGA), which provides similar protection to foreign investors.[29]


Financial Overview


External debt as of 2000 was $34.5 billion. The Inter-American Development Bank approved two loans to Venezuela in 2001. The Bank has made 74 loans, which on a cumulative basis, total $3,730 million; total disbursements have amounted to $3,094 million. [30]


Summary of IDB Financing (USD millions)











Due to the international financial crisis, which resulted in a decline in trade, the Venezuelan economy experienced a 5.9% drop in 1998 and 1999.[31]

In 2000, an expansive fiscal policy provided a 3.2% increase in economic growth. The external current account balance (reflecting oil revenues) was $13.365 billion in 2000 (more than twice that of 1999). International reserves totaled $21.647 billion. All of this led to the fall of inflation (to 13.2% in December 2000). Lastly, sages and salaries increased by about 5% in real terms. Despite strong oil prices in 2001, the economy contracted by 6.4% in the first nine months.[32]

The current dispute over leadership has dampened investment outlook for Venezuelan bonds. Historically, in the late nineties, when President Chavez was temporarily removed from power in a coup Venezuelan bond prices actually increased by nine points. In 2002 bonds were again steadily increasing (rising by more than 17%) until the oil strike caused them to lose a large percentage of the year’s gains. Many analysts believe that the Venezuelan bonds remain over-valued because Chavez has retained power into 2003. "The only other country in Latin America rated in the triple C category is Ecuador. Ecuador 30-year bonds are trading at a spread of 1500 basis points, while Venezuela 27s are trading at 890."[33]

It is thought that the oil problems may cause ratings agencies to start downgrading the country's debt, and fund managers to dump it. This could be disastrous, as Venezuelan debt is already rated as ‘junk’. Moody's, Standard & Poor's, and Fitch all give it a low rating, and two of the three have a “negative outlook on the credit.”[34]

 The cumulative index return thus far into 2003 has been 22.8%, according to J.P. Morgan. One of the agencies has said there are three pillars holding up the country's debt. One is that Venezuela has a low foreign debt stock, equivalent to about 20% of Venezuela's $100 billion in gross domestic product. In addition, it has “relatively healthy foreign reserves amounting to $12.43 billion, not including $3.35 billion in a windfall oil revenue fund”.

On the domestic front, local debt swaps of 4.55 trillion bolivars (there are roughly 1300 bolivars to the U.S. dollar) have helped the country manage its debt. More recently, Venezuela has “managed to exchange the equivalent of some $2.1 billion in National Public Debt bonds, or DPN, maturing this month through mid-2005, with an allocation rate of 34%.”[35]

These auctions have put Venezuela on slightly better footing for the not-so-distant future, reducing 2003 amortizations by three quarters of a billion dollars, or nearly one percent of GDP, and 2004 amortizations by half a billion. This will still leave nearly $3 billion in local debt maturing in 2003.[36]

Due to the financing needs for 2003, many analysts assume there will be a further devaluation in order to cover local debt obligations. This has been a costly tactic with regard to domestic prices: despite an estimated 6.5% drop in GDP this year, inflation through November 2002 was running at 31%, up sharply from 12.3% for the whole of 2001. In the first 11 months of 2002, the currency lost 42% of its value.[37]




            The educational system in Venezuela originated in the Catholic Church in the colonial period. Education was reserved for the wealthy landowner class. The concept of education for the privileged has continued on into the modern period. Thus a dichotomy opened between those who worked with their hands and those who pursued “artistic” studies.  This has led to an education system which at the university level steered clear of technical and scientific fields in favor of traditional and philosophical studies, and in the primary and secondary levels “ignored the vocational needs of most of the population.”[38] In addition, Simón Bolívar studied in Europe and was impressed with their pedagogical methods. As such several key points of Venezuelan education can be directly traced to French roots.

            Primary education was first opened to the general public after 1811, when a number of decrees were issued by Bolívar regarding free education. Implementation was slow – so slow, in fact, that “by the time of his death in 1830, most of the programs he had proposed had not been implemented.”[39] Because of the hero’s association with free education, however, it has become an integral part of the Venezuelan political landscape. Despite this association, the next century brought significant ups and downs, primarily in funding. It was not until the return of democracy in 1958 that education began to expand both in quality, quantity, and kind. Universities opened, primary education became compulsory, and alternative methods of educating hard-to-reach groups such as farming communities were developed.

Unfortunately, due to these historical roots, education has been geared primarily toward those seeking professional or academic careers, in favor of less glamorous but perhaps more necessary professions like the sciences and technology. The government in 1969 attempted to address this by facilitating the entry of students of various backgrounds, including technical, into the university system.

            In the secondary system, which until 1980 was not compulsory,[40] there also exists a rather interesting social split. The strong support for education makes public schools better funded than private. However, the more traditional curriculum and the historical associations continue to make private schools the more prestigious of the two. Because of the social advantages given by association with a private school, some teachers choose to work in both.[41]

            Since the changes in 1958, the influence of international organizations has made itself felt in the promotion of natural sciences. In addition, development work in the United States has had a strong influence on the social sciences in Venezuela.[42]

            Another item seriously affecting education since the introduction of compulsory education in 1958 has been the dramatic growth in population, which necessarily has fueled a commensurate growth in the educational system. From 1958 to 1984 the number of Universities in Venezuela more than trebled, and the overall number of places of higher education grew tenfold, from seven to more than 70.

            As of 1985, Venezuela’s literacy rate was one of the highest in Latin America, at nearly 90 percent among those fifteen and older. The government had a strong influence on this, taking actions such as giving away training materials to encourage the dissemination of literacy by the literate.

            The current educational system involves nine years of required schooling (from the age of six to fourteen). The required schooling is six years of primary and three years of required secondary education.[43] From the age of fourteen one can go on to two years of senior high school and then a variety of colleges, universities or technical schools. A variety of classes are also offered for adults to continue their education. As can be seen from the table on the following page, education expanded dramatically during the 70’s and 80’s. Until the economic downturn of the 80’s, skilled workers were at a premium in Venezuela, and as such workers were recruited from abroad and much of the educational spending went towards filling this gap. With the advent of the downturn, however, the large number of skilled workers was no longer needed, and technical education became less important.[44]


Schools, Teachers, and Enrollments by Public and Private Institutions, 1974-5 and 1983-4



































































































Higher Education4




























n.a.--not available.
1 - Rounded off to nearest hundred.
2 - Includes preschools.
3 - Middle schools and high schools.
4 - Universities, teachers' colleges, technical colleges, polytechnical institutes, and other comparable institutions.
5 - 1981-82 figures.

Venezuela Country Data – Library of Congress – Appendix Table 5

One of the more interesting (and troubling) results of Chavez’s rise to power is a proposed overhaul of Venezuelan education. The National Educational Project (PEN) is, according to the government, an overhaul intended to fix some of the things still considered wrong with the educational system, such as the failure of nearly 10% to complete primary school, and nearly 20% to complete secondary.[45] In addition, according to the World Bank, illiteracy is still nearly 7% among males 15 and over, and 7.6% among females 15 and over.[46] Thus there is still significant improvement to be had. However, the draft plan also “rails…  against the evils of globalisation and privatisation” and is led by former revolutionaries. Teachers groups and the church leaders claim it is a “Cuban-style indoctrination of youth.”[47]

            Venezuela conducts an annual census in all public and private educational institutions in order to provide the country (and its creditors, such as the IMF) a statistical overview of the educational system. According to documents filed with the IMF, Venezuela is currently looking at ways to improve the data collection in order to break the data down into smaller geographical units. Current uses of collected data include evaluating causes of class repetition and causes of drop-outs, both items cited by the IMF in other documentation as high-priority items.[48]




            All available information on Venezuela points to a country which could go either way. The oil resources give Venezuela both the benefits and problems of an easy source of revenue – some actions have been taken to counteract the cyclical revenue streams, but alternatives to oil revenue carry with them their own burden. At present, it is difficult to see past the problems of leadership to attempt to say where fate will carry the country next.
Anonymous; “The Americas: Venezuela's revolution reaches the classroom
The Economist;
London; Jan 27, 2001; p.33


Commercial Overview; STAT-USA on the Internet US Department of Commerce; August 21, 1997;


Country Health Profile for Venezuela; Pan American Health Organization;


Deen, Thalif; Politics – U.N. Chief Stresses Rule of Law in Venezuelan Dispute; January 17,2003;


Emerging Debt-Venezuela bonds dip as strike continues; Reuters Limited 2002;

Foreign Trade Barriers; pgs 418-422;


International Monetary Fund. GDDS - República Bolivariana de Venezuela - Table B. Data Categories and Indicators Socio-demographic Data. DATA CATEGORY: Education.


Psacharopoulos, George and Steier, Francis. Education and the labor market in Venezuela, 1975-1984. World Bank Working Paper EDT93.


Roth, Charles;  Dow Jones Newswires; Venezuela strike, force majeure endanger debt outlook; Dec. 6, 2002


Rudnicki, Robert; US$-Bs. Exchange rate may be modified in 15 days; February 27, 2003;


Rudnicki, Robert; United States Brands Venezuela as an unreliable supplier of crude oil; February 28, 2003;

Rumbaut, Luis;
Venezuela – History in a Capsule; Latin American Folk Institute;


Venezuela: A Brief Economic Review;


Venezuela and the IDB; Inter-American Development Bank;


Venezuela Country Paper; Regional Operations Department 3, Country Division 5; Executive Summary and pgs 1-6


Wilson, Scott; Venezuelan’s Oil Crisis Boils Down to Power; January, 17, 2003; Washington Post; http://.www/


World Development Indicators database; April 2002; The World Bank Group; Country Profile Data;


The World Factbook; CIA; 2002;

[1] Venezuela – History in a Capsule

[3] Politics – U.N. Chief Stresses rule of Law in Venezuela Dispute

[10] Venezuela – History in a Capsule

[11] Venezuela’s Oil Crisis Boils Down to Power

[12] World Factbook

[15] Venezuela’s Oil Crisis Boils Down to Power

[16] Venezuela’s Oil Crisis Boils Down to Power

[22] World Factbook



[40] Psacharopoulos et al. Education and the labor market in Venezuela



[43] Psacharopoulos et al. Education and the labor market in Venezuela


[45] The Americas: Venezuela's revolution reaches the classroom

[46] World Development Indicators database, April 2002

[47] The Americas: Venezuela's revolution reaches the classroom

[48] IMF GDDS Table B