Venezuela Table of Contents
The importance of oil exports made foreign trade essential to the country's prosperity. Venezuela benefited from extraordinarily favorable terms of trade in the 1970s--the quadrupling of oil prices in 1973 alone provided the nation with unprecedented wealth. Despite its benefits, the increase in oil exports also exacerbated the country's overreliance on a single export commodity; oil often exceeded 90 percent of total export value in the early 1980s. The oil boom also affected import patterns. Because of the huge foreign exchange revenues from oil, the country developed a voracious demand for imported luxury goods that persisted even as oil prices ebbed in the midto late 1980s. The 50 percent reduction in world oil prices in 1986 underscored these structural weaknesses in the Venezuelan economy.
In 1988 official imports totaled US$10.9 billion; the country also ran a trade deficit in that year of US$758 million, the first since 1978 (see table 11, Appendix). The country's imports peaked in 1982 at US$11.7 billion, before the 1983 economic crisis and the subsequent imposition of multiple exchange rates, higher tariffs, and greater nontariff barriers, all of which stifled new imports. These protective import measures caused imports to drop by 43 percent from 1983 to 1986, before imports surged again to the 1988 level. In 1988 raw materials represented 44 percent of all imports, followed by machinery (26 percent), transportation goods (16 percent), and consumer goods (15 percent). The United States, traditionally Venezuela's leading source of imports, supplied 44 percent of all foreign goods in 1988. Overall, Venezuela ranked as the sixteenth largest trading partner of the United States and was the largest export market for the state of Florida. In 1988 the Federal Republic of Germany (West Germany) trailed the United States with 8 percent of all imports, followed by Italy with 6 percent, and Japan with 5 percent. Brazil, France, Britain, and Canada were other notable suppliers. Imports from members of the Andean Common Market ( Ancom--see Glossary)--Colombia, Peru, Ecuador, and Bolivia--accounted for only a small fraction of total imports.
Import policy traditionally sought to protect local industry and agriculture from foreign competition and to substitute local production for imports. The government accomplished these goals through exchange rate manipulation, the imposition of tariffs, and through import licensing restrictions. In 1988 there were forty-one different tariff rates on more than 6,000 goods. Although tariffs sometimes exceeded 100 percent, the average was 37 percent. Fiscal policies, however, reimbursed as much as twothirds of these tariff payments through a complex system that favored priority development activities. Nevertheless, as part of the 1989 structural adjustment policies, the Pérez administration chose to liberalize the import regime to force local industries and farms to be more competitive with international counterparts, much to the displeasure of most local businessmen. In 1989 the government reduced the maximum tariff to 80 percent to simplify tariffs into a uniform structure, expected to include a maximum of 20 percent and a minimum of 10 percent tariffs by 1993. Import liberalization also addressed nontariff barriers, such as import licensing agreements, which further hampered the free flow of imports and often bred corruption. The government abolished most import licenses in 1989, including those of several state-owned enterprises. Economists expected that liberalization policies would hurt the country's balance of payments in the short run, but make the economy more competitive in the long run. Improved access for imports was also expected to increase trade flows from within the Andean region.
Exports declined in the early 1980s, then rose unevenly in the late 1980s, but still did not came close to the peak level of US$20.1 billion in 1981. Both export and import figures excluded substantial contraband trade along the Colombian border. Declining exports in the 1980s resulted almost entirely from lower oil prices. Traditional exports--oil, iron, coffee, and cocoa--averaged about 95 percent of total exports from 1980 to 1985, but fell as a percentage of total exports after the drop in oil prices in 1986. The role of nontraditional exports jumped from 4 percent of total exports in 1980 to 18 percent by 1988. Increased overseas sales of aluminum, steel, and petrochemicals also diversified the country's export base. The public sector produced nearly all the country's exports. The state also exported as much as two-thirds of all nontraditional goods in 1988, but the increasing role of private investment in basic metals and petrochemicals was expected to lower that percentage during the 1990s.
Venezuela shipped half of its exports to the United States in 1988, with another 6 percent destined for West Germany, 4 percent to Japan, 4 percent to Cuba, and nearly another 4 percent to Canada. Ancom countries received an average of about 2 percent of exports in the 1980s. Venezuela exported oil to a large number of other countries, quantities of which were often controlled under OPEC quotas or other agreements, such as the San José Accord (see Petroleum; Natural Gas and Petrochemicals , this ch.).
Trade policy focused on making national exports more competitive and diversifying away from an overdependence on oil. The most consequential reform toward this goal was the 1989 devaluation of the bolívar to market levels. This made Venezuelan exports cheaper and imports more expensive, thereby favoring export-oriented production over import-dependent activities. The Foreign Trade Institute, a government body, also sought to expedite exporting procedures to encourage entrepreneurs to seek foreign markets.
Trade policy, however, also concentrated on the goal of Venezuela's accession to the General Agreement on Tariffs and Trade ( GATT--see Glossary) during the early 1990s. Venezuelan adherence to the GATT entailed several unpopular policy reforms, some of which would come at the expense of exporters. For example, the government reexamined the various subsidies it afforded to exporters, many of which were in violation of GATT regulations. As a result, the government curtailed the amount of subsidized credit offered to merchants for financing exports, credit which paid for as much as 25 percent of exports in a given year during the 1980s. Likewise, exporters received tax rebates, or bonos de exportación, which the GATT also considered an unfair export subsidy. The government planned to phase out these rebates in the early 1990s, a decision opposed by various export associations because of the country's already weak export infrastructure for nontraditional items. Other subsidies found throughout the economy, such as subsidized industrial and agricultural credit, were also potentially affected. The tariff reductions begun in 1989 also worked to fulfill GATT requirements.
Venezuela joined Ancom in 1973 and became a signatory to the Latin American Free Trade Association (LAFTA) in 1982. Caracas was the headquarters of Ancom's Andean Development Corporation and the region's Latin American Economic System (Sistema Económico Latinoamericano--SELA); the latter was dedicated to analyzing economic and social policies throughout the hemisphere. Although thoroughly endorsing the aims of these organizations, Venezuela played only a minimal role in regional economic relations because the composition of its trade provided it with only limited interaction with neighboring economies. Venezuela did, however, accept Ancom's provisions to lower the profile of foreign investment by reducing the level of such investment to 50 or 20 percent depending on the sector. Nevertheless, as Chile, Ecuador, Bolivia, and eventually Venezuela embraced more orthodox economic policies in the late 1970s and 1980s, the integration pact diminished in significance. By 1990 Venezuela anticipated liberalizing its foreign investment code to promote new multinational ventures, thereby breaking with Ancom's stipulations.
Data as of December 1990
Venezuela Table of Contents