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VenEconomy : Becoming more mature?



 

On February 18, 1983, “Black Friday,” Venezuelans lost their innocence. That day marked the end of a golden age spanning more than 50 years of sustained growth, low inflation, and an extraordinarily stable currency. That Friday, the bolivar was devalued for the second time in the 20th century.

Venezuela reached that black day as a result of the excesses of the first Carlos Andrés Pérez administration, when it spent the revenues from the oil bonanza and put the country deeper in debt than ever before.

Back in March 1979, it fell to Luis Herrera Campins to receive a “mortgaged country” and pick up the pieces, a difficult task if account is taken of the fact that no one had the least idea of how much the debt restricting the country came to. That information only became available two years later when the Bolinaga Commission reported that the country's foreign debt was in the order of US$17 billion, versus barely US$1.2 billion in 1973.

On top of that Herrera Campins was faced with a period of weak oil prices, which fell from US$38/bbl to US$28/bbl.

So, the burden of the foreign debt, the drop in oil prices, and constant capital flight triggered a balance of payments crisis that erupted in that Black Friday.

After Black Friday, the country went through a lengthy, problem-wrought period of adaptation to the global market, a process that was pointed in the right direction and, paradoxically, was promoted by Carlos Andrés Pérez during his second term in office. Unfortunately, this process was interrupted for a number of different reasons, among them the rentier culture of the majority of Venezuelans.

Now, Hugo Chávez is repeating CAP's errors, but with a crucial difference that makes the country's present economic situation much worse than it was in 1983.

Like CAP in the 1970s, Chávez spent the revenues from the oil bonanza and plunged the country in debt as never before.

The difference that makes today's situation worse than yesterday's, however, is that CAP left behind him a nationalized PDVSA that was autonomous and efficient and an aluminum industry and basic industries in full production, and he also promoted infrastructure works and the construction industry; whereas Chávez has presided over the destruction of PDVSA and the basic industries and has neglected infrastructure and the construction sector.

The way has been smoothed for another Black Friday. Let us hope that Venezuelans cope better with this new challenge!

 

 


VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by Veneconomy , on February 18, 2011. Petroleumworld reprint this article in the interest of our readers.

All comments posted and published on Petroleumworld, do not reflect either for or against the opinion expressed in the comment as an endorsement of Petroleumworld. All comments expressed are private comments and do not necessary reflect the view of this website. All comments are posted and published without liability to Petroleumworld,

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Petroleumworld News 02/21/2011


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