Why Venezuela Can Weather the Financial Crisis
How a populist government has protected national resources
May 28, 2009
Last Venezuelan Oil Field Nationalized
The nationalization in 2007 of Venezuela's last privately run oil field. As opposed to simply suspending the joint operating agreements with foreign oil companies, like Exxon-Mobil, Chevron-Texaco, Statoil, Conoco-Phillips, and BP, the decree changes the provisions of the agreements giving the Venezuelan state oil company, Petroleos de Venezuela, a minimum 60% controlling share.
Effects on International Financial Reserves
One of the results of the re-nationalization was a sudden increase in Venezuela's International Reserves, which ended up in excess of $34 billion at the end of 2007. This gave Venezuela additional cash, and the highest per-capita international reserves in Latin America, to help it weather the international financial crisis by ensuring domestic liquidity not dependent on foreign economies.
Oil Field Nationalization a Result of Increasing Poverty
Hugo Chavez's rise to power followed decades of financial turmoil triggered by the exploitation of Venezuelan resources by foreign multinational corporations. His rise to power was a result of a 30% increase in poverty to 66% between 1984 and 1995, according to a report on venezuelananalysis.com.
Chavez began the oil field nationalization program in 2001 after a new Hydrocarbons Law was passed by the Venezuelan National Assembly. This new law allowed foreign investors to own no more than 49% of any hydrocarbon production in Venezuela. This law was later amended and the maximum share allowable to foreign companies was reduced to 40%.
Popular Perception of Foreign Oil's Responsibilityfor Increasing Poverty
Many Venezuelans blamed the increase in poverty on the 67% of oil profits being taken out of Venezuela by American and multi-national oil companies. Of the remaining 33%, much of that was required for re-investment in exploration and infrastructure. According to venezuelananalysis.com, the net result was that around 1% of oil revenues were retained, often by the wealthiest Venezuelans.
Many Venezuelans objected to the neo-liberal ideology that was, in effect, producing incredibly high profits on modest investments in Venezuela. By electing Chavez in 1999, Venezuela unintentionally took the first step in weathering the current financial crisis. By re-directing the majority of oil profits back in to the local economy, Chavez is viewed as ensuring adequate financial resources for the people of Venezuela.
Nationalization Results in Reducing Poverty
Although criticized by the multinational oil companies, the result of the re-nationalization to majority shareholder status of Petroleos de Venezuela has been a much more stable economy and a 28% drop in national poverty rates since the 2007 decree. This data is supported by research performed in the Fall 2008 issue of ReVista, the Harvard Review of Latin America
The decree had an additional financial and environmental benefit of putting oil production and exploration back in the hands of people who have a personal stake in the protection of the nation's environment and resources.
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