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Venezuela (07/05)For the most current version of this Note, see Background Notes A-Z.
PROFILE OFFICIAL NAME: Geography People Government Economy PEOPLE HISTORY AND POLITICAL CONDITIONS Toward the end of the 18th century, the Venezuelans began to grow restive under colonial control. In 1821, after several unsuccessful uprisings, the country succeeded in achieving independence from Spain, under the leadership of its most famous son, Simon Bolivar. Venezuela, along with what are now Colombia, Panama, and Ecuador, was part of the Republic of Gran Colombia until 1830, when Venezuela separated and became a separate sovereign country. Much of Venezuela's 19th-century history was characterized by periods of political instability, dictatorial rule, and revolutionary turbulence. The first half of the 20th century was marked by periods of authoritarianism--including dictatorships from 1908-35 and from 1950-58. In addition, the Venezuelan economy shifted after the first World War from a primarily agricultural orientation to an economy centered on petroleum production and export. Since the overthrow of Gen. Marcos Perez Jimenez in 1958 and the military's withdrawal from direct involvement in national politics, Venezuela has enjoyed an unbroken tradition of civilian democratic rule. This earned Venezuela a reputation as one of the more stable democracies in Latin America. Until the 1998 elections, the Democratic Action (AD) and the Christian Democratic (COPEI) parties dominated the political environment at both the state and federal level. The Caracazo And Popular Dissatisfaction Deep popular dissatisfaction with the traditional political parties, income disparities, and economic difficulties were some of the major frustrations expressed by Venezuelans following Perez's impeachment. In December 1998, Hugo Chavez Frias won the presidency on a campaign for broad reform, constitutional change, and a crackdown on corruption. Constitutional Reforms The president is elected by a plurality vote with direct and universal suffrage. The term of office is 6 years, and a president may be re-elected to a single consecutive term. The president appoints the vice president. He decides the size and composition of the cabinet and makes appointments to it with the involvement of the National Assembly. Legislation can be initiated by the executive branch, the legislative branch (either a committee of the National Assembly or three members of the latter), the judicial branch, the citizen branch (ombudsman, public prosecutor, and controller general) or a public petition signed by no fewer than 0.1% of registered voters. The president can ask the National Assembly to reconsider portions of laws he finds objectionable, but a simple majority of the Assembly can override these objections. The National Assembly is unicameral, consisting solely of the Chamber of Deputies. Deputies serve 5-year terms, and may be re-elected for a maximum of two additional terms. These legislative agents are elected by a combination of party list and single member constituencies. When the Congress is not in session, a delegated committee acts on matters relating to the executive and in oversight functions. The Constitution designates three additional branches of the federal government--the judicial, citizen, and electoral branches. The judicial branch is headed by the Supreme Tribunal of Justice, which may meet either in specialized chambers (of which there are six) or in plenary session. The justices are appointed by the National Assembly and serve 12-year terms. Under the 1999 Constitution, the Supreme Tribunal of Justice is composed of 20 justices. The 1999 Constitution was amended in 2004, and the total number of justices was expanded by 12 to a total of 32. In December 2004, the National Assembly selected new judges to fill the expansion. The judicial branch also consists of lower courts, including district courts, municipal courts, and courts of first instance. The citizens branch consists of three components--the prosecutor general ("fiscal general"), the "defender of the people" or ombudsman, and the comptroller general. The holders of these offices, in addition to fulfilling their specific functions, also act collectively as the "Republican Moral Council" to challenge before the Supreme Tribunal of Justice actions they believe are illegal, particularly those which violate the Constitution. The holders of the "citizen power" offices are selected for terms of 7 years by the National Assembly. The "Electoral Power," otherwise known as the National Electoral Council (Consejo Nacional Electoral or CNE), is responsible for organizing elections at all levels. Its five members are also elected to 7-year terms by the National Assembly. In the event of a hung vote in the National Assembly, the Supreme Tribunal of Justice can be called on to appoint the members. Political Turmoil In April 2002, the country experienced a temporary alteration of constitutional order. When an estimated 400,000 to 600,000 persons participated in a march in downtown Caracas to demand President Chavez’ resignation, gunfire broke out, resulting in as many as 18 deaths and more than 100 injuries on both sides. Military officers took President Chavez into custody, and business leader Pedro Carmona swore himself in as interim President. On April 14, military troops loyal to Chavez returned him to power. In an effort to promote national reconciliation, the Tripartite Group was formed in August 2002 to facilitate dialogue between the government and the opposition. The group included representatives from the Organization of American States, the UN Development Program, and the Carter Center. Formal direct talks between government and opposition dialogue representatives began in November 2002. Continued dissatisfaction with the Chavez administration led to a national work stoppage on December 2, 2002. Strikers protested the government and called for the resignation of President Chavez. On December 4, 2002, the petroleum sector joined the strike. Other sectors of the economy also joined the work stoppage and effectively shut down all economic activity for a month. The OAS Permanent Council passed Resolution 833 on December 16, 2002, calling for a "constitutional, democratic, peaceful, and electoral solution" to the crisis in Venezuela. In January 2003, the Organization of American States established the Group of Friends of the OAS Secretary General’s Mission for Venezuela group. The Friends, coordinated by Brazil, include Chile, Spain, Portugal, Mexico, and the United States. The Friends met in January 2003 and visited Caracas to facilitate a peaceful resolution to the political crisis. Despite increased tensions during the national strike, dialogue facilitated by the Tripartite Group resulted in a nonviolence pledge by all parties in February 2003 as the strike was drawing to a close. After months of negotiations facilitated by OAS Secretary General Gaviria, the Venezuelan Government and the opposition’s Democratic Coordinating Committee signed an agreement on May 29, 2003, which set the framework for a possible recall referendum on President Chavez’ continued tenure in office. The recall referendum is allowed under the Venezuelan Constitution. The Referendum Process Venezuela’s presidential recall referendum was held August 15, 2004. Following two months of extensive campaigning efforts, President Chavez won 59% of the vote. His opponents immediately contested that the results of the referendum were marked by electoral fraud. However, international electoral observation missions carried out by the Organization of American States and the Carter Center found no indication of systemic fraud. On October 31, 2004, Venezuela held gubernatorial and mayoral elections nationwide. Following an upsurge in political support for President Chavez after the recall referendum, pro-government candidates won control of 20 out of a total 22 state governor positions. Principal Government Officials The Venezuelan embassy in the United States is located at 1099 30th St. NW, Washington, DC 20007 (tel. (202) 342-2214). In addition to Washington, D.C. Venezuela maintains consulates in Boston, Chicago, Houston, Miami, New Orleans, New York, San Francisco, and Puerto Rico. NATIONAL SECURITY ECONOMY The Consumer Price Index increase was expected to be approximately 20% at the end of 2004, following increases of 27.1% in 2003 and 31.2% in 2002. As of January 23, 2003, all foreign exchange requests have required approval from the National Exchange Control Administration (CADIVI). This exchange control regime fixed the U.S. dollar exchange rate at Bs. 1,596=U.S. $1.00 for purchase operations, and Bs. 1,600=U.S. $1.00 for sale operations, and established the compulsory purchase and sale of foreign currency through the Central Bank. On February 7, 2004, the Ministry of Finance and the Central Bank devalued the Bolivar 20%, to 1,920.00. As official foreign exchange liquidations increased over the course of 2004, the exchange rate in the quasi-legal parallel market decreased. The national budget for 2005 assumes that the new official exchange rate will be 2,150/USD, representing a devaluation of 12%. The parallel market exchange rate closed at around 2,500/USD at the end of November 2004. Central Bank-held international reserves increased from U.S.$21.39 billion in January to U.S. $23.91 billion in November 2004, after growing U.S. $6.6 billion in 2003. There are three primary reasons that reserves did not increase more, even though oil prices averaged about $6.50 (25%) more per barrel in 2004 than in 2003. State oil corporation PDVSA bought back U.S. $2.5 billion in external debt in August 2004; CADIVI was on track to liquidate more than U.S. $12 billion in 2004 (approximately 2.7 times as much as in 2003); and the government diverted, amid great controversy, at least U.S. $2.0 billion to a new Social Development Fund run by PDVSA. Venezuelan sovereign debt, both internal and external, has been increasing, but in 2004 the government succeeded in extending its debt profile and reducing near-term debt service. While Venezuela’s debt/GDP ratio is low by Latin American standards, it has increased in recent years. Venezuela’s Emerging Markets Bond Index investment risk rating, at 398 basis points, dropped somewhat over 2004, but remained higher than all countries in the region except Argentina. There is considerable income inequality. The Gini coefficient was 0.618 during 2003. According to private sources, the percentages of poor and extremely poor among Venezuelan population were 74.6% and 39.3%, respectively, in 2003. These high ratios are due primarily to lower real wages earned by employees, and high rates of un- and underemployment. Petroleum And Other Resources The Government of Venezuela had historically opened up much of the hydrocarbon sector to foreign investment, promoting multi-billion dollar investment in heavy oil production, reactivation of old fields, and investment in several petrochemical joint ventures. Almost 60 foreign companies representing 14 different countries participate in one or more aspects of Venezuela's oil sector. On November 13, 2001, under the enabling law authorized by the National Assembly, President Chavez enacted the new Hydrocarbons Law, which came into effect in January 2002. This law replaced the Hydrocarbons Law of 1943 and the Nationalization Law of 1975. Among other things, the new law provided that all oil production and distribution activities were to be the domain of the Venezuelan state, with the exception of the joint ventures targeting extra-heavy crude oil production. Under the new law, private investors cannot own 50% or more of the capital stock in joint ventures involved in upstream activities. The new law also provides that private investors may own up to 100% of the capital stock in ventures concerning downstream activities, in addition to the 100% already allowed for private investors with respect to gas production ventures, as previously promulgated by the National Assembly. During the December 2002-February 2003 general strike, petroleum production and refining by PDVSA, the state-owned oil company, almost ceased. Despite the strike, these activities eventually were substantially restarted. Out of a total workforce of 45,000, 19,000 PDVSA management and workers were subsequently dismissed because the government asserted they had abandoned their jobs during the strike. Current levels of production remain a subject of debate, with considerable difference between the levels cited by the Venezuelan government and those cited by private sector observers. With world oil prices high, there remains significant international interest in investing to develop Venezuela’s oil resources. However, as of late 2004 there had been no major new deals announced under the new Hydrocarbons Law. Venezuela’s Gaseous Hydrocarbons Law provides significantly more liberal terms and two large natural gas projects are in different stages of development. Trade, Manufacturing and Agriculture The government of Venezuela has taken a vocal role against the proposed Free Trade Agreement of the Americas. Its stated goal is to develop a South American bloc prior to engaging in negotiations with the U.S. Manufacturing contributed 16% of GDP in 2003, though manufacturing output decreased by 8%. The manufacturing sector was recovering during 2004, although it remained hindered by a marked lack of private investment. Venezuela manufactures and exports steel, aluminum, textiles, apparel, beverages, and foodstuffs. It produces cement, tires, paper, fertilizer, and assembles cars both for domestic and export markets. Agriculture accounts for approximately 4% of GDP, 10% of the labor force, and at least one-fourth of Venezuela's land area. Venezuela exports rice, cigarettes, fish, tropical fruits, coffee, cocoa, and manufactured products. The country is not self-sufficient in most areas of agriculture. Venezuela imports about two-thirds of its food needs. In 2003, U.S. firms exported $373 million worth of agricultural products, including wheat, corn, soybeans, soybean meal, cotton, animal fats, vegetable oils, and other items to make Venezuela one of the top two U.S. markets in South America. The United States supplies more than one-third of Venezuela's food imports. Labor and Infrastructure Labor unions allege the government repeatedly violates International Labor Organization (ILO) agreements on freedom of association and the right to organize and bargain collectively. Specifically, the Constitution and laws permit undue influence in the internal elections of unions. The government has told the ILO it will correct the problem; draft legislation remains pending in the National Assembly. Venezuela has an extensive road system. With the exception of air service, transportation has failed to keep pace with the country's needs. Much of the infrastructure suffers from inadequate maintenance. Caracas has a modern subway but only one functioning rail line serves the rest of the country. FOREIGN RELATIONS
Hemispheric cooperation and integration are two pillars of President Chavez's foreign policy. Venezuela worked closely with its neighbors following the 1997 Summit of the Americas in many areas--particularly energy integration--and championed the OAS decision to adopt an Anti-Corruption Convention. Venezuela also participates in the UN Friends groups for Haiti. It is pursuing efforts to join the MERCOSUR trade bloc to expand the hemisphere's trade integration prospects. The Venezuelan Government advocates an end to Cuba's isolation and a "multi-polar" world based on ties among Third World countries. Venezuela has longstanding border disputes with Colombia -- most recently over the capture of a Colombian insurgent leader inside Venezuela -- and Guyana, but seeks in general to resolve them peacefully. Bilateral commissions have been established by Venezuela and Colombia to address a range of pending issues, including resolution of the maritime boundary in the Gulf of Venezuela. Relations with Guyana are complicated by Venezuela's claim to roughly three-quarters of Guyana's territory. Since 1987, the two countries have held exchanges on the boundary under the "good offices" of the United Nations. U.S.-VENEZUELAN RELATIONS U.S.-Venezuelan commercial ties are close. The United States is Venezuela's most important trading partner, representing about half of both imports and exports. In turn, Venezuela is the United States’ third-largest export market in Latin America, purchasing U.S. machinery, transportation equipment, agricultural commodities, and auto parts. Venezuela's opening of its petroleum sector to foreign investment in 1996 created extensive trade and investment opportunities for U.S. companies. As a result, Venezuela is one of the top four suppliers of foreign oil to the United States. The Department of State is committed to promoting the interests of U.S. companies in overseas markets. For contact information and a list of government publications, please go to the end of this document. Venezuela is a minor source country for opium poppy and coca but a major transit country for cocaine and heroin. Money laundering and judicial corruption are major concerns. The United States is working with Venezuela to combat drug trafficking. In June 2004, Venezuela was listed at Tier 3 status in the State Department’s Report on Trafficking in Persons. Tier 3 status indicates a perceived lack of effort to combat human trafficking. Approximately 23,000 U.S. citizens living in Venezuela have registered with the U.S. embassy, an estimated three-quarters of them residing in the Caracas area. An estimated 12,000 U.S. tourists visit Venezuela annually. About 500 U.S. companies are represented in the country. Principal U.S. Embassy Officials U.S. Embassy Other Government Contacts U.S. Department of Commerce, Trade Information Center, International Trade Administration Venezuela-American Chamber of Commerce |
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