Exploring Venezuela's Economic Landscape: Understanding the

Root Causes, Effects, and Solutions

A Country Review

Final Examination in:

Political Economy

Submitted by:

Mahinay, Pamela N.

Submitted to:

Ms. Vibeli Hermano

 The Role of Foreign Aid: Assessing its Effectiveness in the Country of Venezuela

Over the years, there has been a lot of discussion and disagreement concerning foreign

aid, with opposing parties presenting different justifications for their viewpoints. Foreign aid

is viewed by certain people as a waste of funds that only helps the receiving nations, while

others argue that it is a crucial tool for fostering economic growth and eradicating poverty in

developing nations. For a country to flourish and recover from a downturn, it needs help from

other countries regardless if it be from emergencies, contentions, or economic hardships. The

sentiment of “no man is an island” applies to all countries as no country can thrive in isolation

without relying on other countries for resources, trade, and collaboration. When states are

unable to sustain their economies, they might become more prone to instability and unrest,

which can have a detrimental impact on a macro level with neighboring countries as well as

the global community in general. This is where the role of international aid becomes vital.

The once-prosperous country, which was formerly a beacon of economic potential and

opportunities is currently in dire need of foreign aid. Venezuela is known for being abundant

in natural resources especially when it comes to non-renewable reserves such as oil making it

thriving in transporting oil, shipping, and chemical operation industries across northern South

America region. However, despite this, Venezuela has been struggling with a severe economic

crisis for several years now which has been fueled by various factors, including political

instability, corruption, and mismanagement of resources.

Venezuela's economy was primarily reliant on the oil industry, which had been in a

collapse in the mid-1990s. As a result, the government's revenue and foreign currency reserves

dropped significantly, making it harder for the government to cover its fiscal responsibilities.

In 1997, Venezuela's oil-dependent economy grew substantially, but exports of oil slumped and

by 1998, the economy had major instability due to the high inflation which resulted in a rapid
drop in the nation's GDP according to the World Bank. Throughout the years, some other

factors contribute to the Venezuelan government in terms of political, social, and environmental

challenges in the country. This includes corruption, a high poverty rate, impacts of natural

disasters, and a lack of access to basic services such as healthcare and education. Due to these,

it became more challenging for the government to support its people and uphold stability. In

this sense, the Venezuelan government needed aid from other nations for the past 15 years.

The data below represents the financial aid provided through the Development

Assistance Committee of the Organization for Economic Co-operation and Development, and

the Geographical Distribution of Financial Flows to Developing Countries, for economic

development assistance of Venezuela.

As we can see in the graph, each year is provided an aid with the increase and decrease

of the total amount of net assistance in Venezuela. It is also clearly evident the severe rise of

assistance in 2020 because of the global crisis due to the COVID-19 pandemic. To help the

nation overcome its economic difficulties, Venezuela has received aid from various countries

and international organizations including governments and non-governmental cooperation.

United Nations (UN) and its agencies along with the European Union (EU) have been

providing humanitarian aid to Venezuela where it has been focused on supporting the most

vulnerable communities in the country with food, healthcare, enough sources of water, proper

sanitation, and hygiene facilities. Another one, particularly in food security, one of the

specialized agencies of the UN which is the World Food Program (WFP) provides assistance
for food supplies to reduce malnutrition, especially among those children under the age of five,

pregnant and breastfeeding women, and the people who are suffering from medical conditions.

Aside from international organizations, there are some countries have also given foreign aid to

the Venezuelan nation such as Russia wherein its country provided financial and technical

assistance to Venezuela’s oil industry, which is the country’s main source of revenue. Moreover,

China also lends financial support to Venezuela including loans and investment in terms of

infrastructure particularly in construction of railways, highways and ports projects. The

different agreements and international forums contributed to the foreign aid received by

Venezuela. The neighboring countries of Venezuela also lend its capacity to cooperate through

various sorts of foreign aid to the country such as Colombia and Brazil. However, the amount

and type of assistance supplied have varied according to the country and the political situation.

Colombia has provided humanitarian aid to Venezuelan migrants and refugees fleeing the

nation owing to political and economic unrest. Among other things, this assistance has offered

food, housing, and medical care. The Colombian government has also given money to non-

governmental organizations for the Venezuelans in their country. Furthermore, Brazil has

contributed to international efforts for helping Venezuela, including the United Nations and the

International Organization for Migration (IOM) as it has contributed financing to these

organizations in order to support their efforts to provide humanitarian assistance to Venezuelans

both inside and outside of the country according to the International Organization for

Migration.

According to World Bank data, Venezuela received significant net development

assistance from multiple organizations between 1997 and 2021 which are presented below:
 The World Bank approved loans and grants to Venezuela amounting to approximately

total of 35 billion US dollars between 1997-2021 from Official Development Assistance

(ODA), Other Official Flows (OOF), Multilateral Debt Relief Initiative (MDRI), International

Development Association (IDA), and International Bank for Reconstruction and Development.

These funds were allocated to various sectors such as education, health, transportation, food

and water supply, and sanitation. There are various cases where international assistance has

had a positive impact. The IDA, has financed a number of programs targeted at improving

access to essential services such as healthcare, education, and water supply and has also funded

social programs such as conditional cash transfers, which have contributed to the reduction of

poverty and inequality in the country. However, there have been reports of corruption and

diversion of aid finances, that have slowed the implementation of aid-funded projects and

initiatives.

Despite being a foreign aid receiver of Venezuela in the present, they used to be a

foreign aid donor in the past. During 1980s, Venezuela and other oil-producing countries in the

region, including Mexico, Colombia, and Trinidad & Tobago, signed the San José Accord. This

agreement was aimed to give financial and technical support to Caribbean countries who had

been heavily struck by the 1980s debt crisis where Caribbean countries, particularly Jamaica,

and the Dominican Republic, received subsidized oil from Venezuela that helped them to

recover. However, Venezuela's capacity to give foreign help has been greatly damaged in recent

years by the country's severe economic and political crisis. Because of this, the world seems to

be turned upside down as the once giver has now become a receiver.

Overall, while foreign aid can help to promote development, many factors may

contribute to its success, including governance, economic policies, and the utilization of aid

funds. In the case of Venezuela, foreign assistance has helped Venezuela's humanitarian crises

in many ways, but it hasn't significantly advanced the country's general needs for economic
development such as infrastructure, health, and education systems. In fact, despite receiving

international aid, the nation's economic situation has worsened according to the United Nations

Office for the Coordination of Humanitarian Affairs (OCHA). One reason for this is that a large

portion of the foreign aid given has taken in the way of humanitarian help, including food,

medical supplies, and other basic necessities which greatly helped the immediate needs of the

population. But, it has been considered that it not addressed the underlying economic and

structural issues that have led to the crisis in the first place. Foreign governments and

humanitarian organizations find it difficult to effectively deliver aid to Venezuela due to the

country's political instability. The administration of assistance has been hampered by

bureaucracy, political influence, and corruption, which leads to inefficiencies. Therefore, to

address the problem's underlying causes and achieve sustainable development, the ongoing

crisis in Venezuela needs a deeper and prolonged effort not just only in well-managing its

foreign aid, but also in terms of fostering its nation in all aspects.

The Summarization of Venezuela’s Economic Line, Covering the Findings from all the

Previous Country Review, and Adding Policy Recommendations

The influence of inflation and the country's revenue, notably in terms of the oil industry

reflects to the Venezuelan GPD over the years as its economy is dominated by the oil sector

due to its abundance of natural resources in non-renewable supplies. Venezuela's economy

grew strongly during the late 90’s, but experienced a decline in the same period as well due to

economic problems in Asia and a downfall in oil prices. Inflation caused a dramatic drop in

GDP due to excessive government spending and money supply expansion where it affects

different sectors of Venezuela such as its industry, agriculture, and services. Overall,

Venezuela's GDP sector composition has changed over the past 25 years.
 On the other hand, Venezuela is bearing with its high unemployment rate due to

economic and political crises, human crisis, migration, inflation, and a decline in foreign

investment. Despite having one of the greatest oil reserves in the world, Venezuela has suffered

job losses and layoffs due to poor government management and a decline in oil prices. High

labor costs make it hard to hire and fire employees, which makes it challenging for companies

to remain competitive. As a result, investments have decreased and the private sector has

shrunk, worsening the unemployment problem. While having a challenge in terms of

employment opportunities, the population has been falling as there are no severe demographic

issues in the country that have been reported and because of the help of population control

policies implemented by the Venezuelan government. However, due to current economic and

political difficulties the nation has been facing, such as high rates of inflation, emigration, and

deficiencies in healthcare services, and living standards, the Venezuela continues to experience

an economic hardship. This has become a factor in the importance of foreign aid in the country.

Venezuela's humanitarian difficulties have been alleviated owing to different foreign assistance

from both other countries and multiple organizations, but the country's overall economic

growth needs have not been achieved. This is because a significant amount of aid has taken the

form of humanitarian assistance, which hasn't addressed the underlying economic and

structural problems that caused the crisis. This is why the current crisis requires a more

intensive and sustained effort in order to address the root causes of the issue and accomplish a

long-term economic development.

In this sense, policy recommendation will help to provide a rational assessment of the

underlying issues and encourages stakeholders to consider potential solutions to the economic

challenges of Venezuela. Such recommendations were as follows:

a.) Export Diversification Program Policy: The economy of Venezuela is prone to

price changes in the international oil market as oil exports remain the country's main
 source of income. This makes the economy vulnerable to fluctuations in global oil

prices and demand. Therefore, the government have to focus to other sources of

economic income and revenues.

Purpose of the Policy: This policy will promote other sectors, such as agriculture

and manufacturing, that can generate more trade revenue by increasing exports and

reducing imports. This will also open new opportunities for investment, innovation,

and job creation that will improve the efficiency and competitiveness of the

economy.

b.) Local Entrepreneurship Security Policy: Through stimulating innovation, raising

productivity, and opening up new local markets, the local entrepreneurship can

support economic growth.

Purpose of the Policy: The goal of this policy is to protect a local firm community

for Venezuelan people particularly those in the Small and Medium-sized enterprises

areas that enables entrepreneurs to start and grow businesses and create more

establishments to generate more employment for its people. This will reduce

unemployment.

c.) Financial Inclusion for All Policy: Many Venezuelans are unable to access official

financial services. Programs that provide cash aids by the means of banking,

insurance, and investment especially to vulnerable populations to cope up with

economic hardships and reduce poverty would be a big help.

Purpose of the Policy: This policy aims to alleviate poverty and improve the

quality of life of Venezuelan through giving them awareness and wider access to

financial services as well as to enhance their financial literacy in understanding their

financial options and make better decisions to save, borrow, and invest their money

more efficiently.
 d.) Youth-led Technological Advancement and Research & Development Program

Policy: Investing in the knowledge and skills of Venezuela's young people in the

sectors of technology and research and development (R&D) can help the country's

human capital flourish through establishing a funded tech-hub and research

facilities for the youth and giving them benefits and opportunities while engaging

with this initiative.

Purpose of the Policy: This program policy aims to provide training, education,

and resources to nurture technical and research abilities of the Venezuelan young

people. A spike in competent youth can give the nation a competitive edge in areas

that are driven by digitalization through technology advancements which will

attract both domestic and foreign investment. Fostering research and development

will also provide improvements for addressing underlying economic issues in

Venezuela. Lastly, this program will seek to encourage the youth to engage in

productive government programs like this instead of making a family at an early

age.

These policy recommendations would be a big step up for the Venezuelan Economy in

terms of different sectors and situations to increase and develop economic growth. It also

addresses the underlying issues in the country’s economic hardships. However, take note that

the successful execution of such a program requires collaborative lead, productivity, and

extensive cooperation of the people and government to promote long-term sustainable

economic prosperity.
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