Perseverance paying off in Venezuela
Despite being vilified by his political opposition at home and the Bush administration in the US, President Hugo Chavez has reversed years of Washington-influenced economic policies in Venezuela, spurring strong economic recovery.
Venezuela: Saturday, July 03 - 2004 at 09:19
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The new constitution elevated the importance of social development in Venezuela. While going great lengths to protect private property, it also emphasized the preeminent role of the state in the economy and subordinated the role of foreign investors, especially in the crucial oil sector. The new constitution abruptly changed Venezuela's existing economic order, which had been molded by the Washington Consensus and administered by the IMF.
Central to the heightened role of the state in the economy has been the reassertion of government control over Venezuela's largest company, PdVSA. Including its indirect impact on the economy, PdVSA accounts for 40 percent of Venezuela's production-based gross domestic product. It also produces over 80 percent of the country's export receipts and over 50 percent of fiscal revenue.
The management of state-owned PdVSA enjoyed, for many years, considerable autonomy from the government. Using this autonomy, management focused on keeping company assets and revenue offshore to avoid mandated tax and royalty payments to the government. Unfavorable transfer pricing and huge economically questionable investments in offshore downstream operations, including refineries and gas stations in the U.S., siphoned enormous resources out of Venezuela.
PdVSA had developed its own self-serving style of management cronyism. By directly appointing executives, Chavez began to dismantle this cronyism. Following the PdVSA strike in late 2002 and the mass firing of PdVSA employees in early 2003, the company's new boss, Ali Rodriguez, began to refocus PdVSA investment on Venezuela. Rodriguez also began to dismantle tax and royalty avoidance schemes and began the process of renegotiating foreign investment contracts.
Not only had the Chavez government become a threat to U.S. energy security and foreign policy goals, it also threatened the credibility of economic liberalization already under fire throughout South America. The Bush administration became deeply involved in undermining Chavez. Washington found willing accomplices in Venezuela among opposition political organizations and former PdVSA employees.
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Though strongly contradicting the Washington Consensus, the Chavez government is proving that social development and firm state influence in the economy can produce strong economic growth. Other countries in South America are beginning to implement economic policies similar to Venezuela's. Such developments are natural, as the Washington Consensus has proven to be economically disastrous for South America.
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http://www.ameinfo.com/42051.html