HOW TO STABILIZE THE ECONOMY?
Why is the economy failing?
The facts:
·
- Unemployment is high, might climb from 17% to 30% in a year.
- · Worst negative growth rate by IMF
- · Shortage of basic food supplies
- · Ninth most corrupt country in the world by Transparency International
- · Oil revenues make half of the country´s budget and 95% of foreign trade.
Venezuelan
economy has been dependent of oil revenues and International debt for long.
During recent years the oil prices have been falling and as a result of that
state revenues have been falling. During recent years oil money has been used
to fund spending and many private companies have been forced under state
control and therefore economy has not been functioning. Nicolas Maduro´s
government has been blaming the crisis on the US, because they are said to have
cut oil production and as a result of that Venezuelan revenues have been
falling. The government have been printing money as a solution to the problem,
it has not worked and inflation has sky-rocketed and prices of necessities are
constantly rising. Many producers say that they can´t go on producing basic
goods, because they do it with a loss. This is a huge problem for regular
people, because they can´t afford buying food for their families. Venezuela is
funding the price-controlled system with foreign money, but it has not worked,
it has made the lives of ordinary people harsh and difficult. Venezuela has
also used their gold reserve to pay off their debt, but this cannot go on for
long.
How does Government save its economy?
Venezuela
has not done the most obvious thing to save its economy, holding off payments
to its creditors. As a sovereign country no one can force them to pay, but
Venezuela is rather waiting to oil prices to rise again and even pay off their
debt, despite the humanitarian crisis. If they don´t pay it can weaken their
position as an oil exporting country.
The current
government might have a hard time saving the economy, but the opposition might
do a better job when they have not been actively making the poor decisions in
the future. The first thing would be addressing the humanitarian crisis. The National
Assembly team made a 10-point plan to
fight corruption, change the policy of deficit
spending and tackle inflation.
Many parts
of the government, central bank and national run oil-company should be revised
in order to get rid of corruption. Venezuela should also find international
allies to gain support for their new policies. They should also fight crime,
which is a huge problem in a country with low buying power and huge crisis.
They can´t spend on social welfare if they don´t make money. This mismanagement
of the government in addition with falling oil prices is the biggest reason for
their problems.
If Venezuela
decides to adopt new policies what should be done? Many things in the
government
should be changed, but it´s not enough. These steps could help
Venezuela´s situation.
No more price controls: Price controls make it impossible for
producers to make a profit, if prices are heavily controlled but producers have
to pay wages and other costs without price control.
Free the currency: The Bolivar is a fixed rate currency.
It´s politically good for support, but foreign companies can´t make a profit
and flee the country and export is difficult when it has to be done with
dollars.
Get rid of subsidies: Venezuela spends more on subsidies
than on education and healthcare. This is very harmful for the people and the
country. This is not an easy step, because some people will suffer, but it is
needed to make the economy healthier.
International loans: Venezuela is not in a good position
to negotiate with creditors, but if they were to ask for help from the IMF,
they could get money, but as well knowledge how to solve the crisis. They would
have to make strict reforms, but the outcome could be a lot better than the situation
today.
Diversing the economy
Firstly it
has to be said, the Venezuelan economy is not at all diverse. They mainly
export oil products, some agricultural products and some aluminum. When the
country will not be able to sell oil for a high price forever, they should do
something to have other sources of income. They should think how they can have
a sound domestic demand and what products they can sell abroad, besides oil.
Venezuela has large agricultural sector and producers should be able to sell
with a profit. Prices should not be decided by the government. If that is
possible, then growth could happen and jobs could be created. This would have
positive impact on domestic demand with resources already available.
If growth is
a target, then education should be considered important and more money should
be spent on that. Now less in spent on healthcare and education, than on
subsidies and this will have far reaching consequences if nothing is done.
Educated people will start businesses and generate taxes and create jobs
absolutely necessary for diversifying the economy. In some oil-producing Arab
countries they have had similar issues and started to tackle these problems.
Some key elements are that the impact of price volatility of oil should be
reduced, energy should be produced without oil, public sector should not
compete with the private sector, it should strengthen it and security should be
a major concern. These are all big problems in Venezuela. If these had some
kind of solutions, Venezuela might be a better place to live when babies grow
up, than it is at the moment for their parents.
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