Economy of Venezuela
has a developing economy strongly dependent on its natural resources. Its economic growth is closely linked to petroleum, as the country holds the largest crude oil supply in the world. Venezuela was historically among the wealthiest economies in South America, particularly from the 1950s to 1980s. With the turn of the 21st century, the Venezuelan economy has been in a state of total collapse since 2013. Following the death of socialist populist Hugo Chávez and the succession of Nicolás Maduro, millions of citizens have fled Venezuela as economic migrants. GDP has fallen by 80% in less than a decade. The economy is characterized by corruption, food shortages, unemployment, mismanagement of the oil sector. Venezuela underwent hyperinflation from 2014 to 2024, with inflation stabilized 59.61%.
Venezuela is the 25th largest producer of oil in the world and the 8th largest member of OPEC. Venezuela also manufactures and exports heavy industry products such as steel, aluminum, and cement. Other notable manufacturing includes electronics and automobiles as well as beverages and foodstuffs. Agriculture in Venezuela accounts for approximately 4.7% of GDP, 7.3% of the labor force and at least one-fourth of Venezuela's land area. Venezuela exports rice, corn, fish, tropical fruit, coffee, pork and beef. Venezuela has an estimated US$14.3 trillion worth of natural resources and is not self-sufficient in most areas of agriculture. Exports accounted for 16.7% of GDP and petroleum products accounted for about 95% of those exports.
Since the 1920s, Venezuela has been a rentier state, offering oil as its main export. From the 1950s to the early 1980s, the Venezuelan economy experienced a steady growth that attracted many immigrants, with the nation enjoying the highest standard of living in Latin America. The situation reversed when oil prices collapsed during the 1980s. Hugo Chavez became president in 1999 and implemented a form of socialism that resulted in the collapse or nationalization of many Venezuelan businesses, and purged the state-run PDVSA oil company, replacing thousands of workers with political supporters with no technical expertise. The Chavez administration also imposed stringent currency controls in 2003 in an attempt to prevent capital flight. These actions resulted in a decline in oil production and exports and a series of stern currency devaluations.
Price controls and expropriation of numerous farmlands and various industries are government policies along with a near-total freeze on any access to foreign currency at reasonable "official" exchange rates. These have resulted in severe shortages in Venezuela and steep price rises of all common goods, including food, water, household products, spare parts, tools and medical supplies; forcing many manufacturers to either cut production or close down, with many ultimately abandoning the country as has been the case with several technological firms and most automobile makers.
Venezuela's economy has been in a state of total economic collapse since 2013. In 2015, Venezuela had over 100% inflation—the highest in the world and the highest in the country's history at that time. According to independent sources, the rate increased to 80,000% at the end of 2018 with Venezuela spiraling into hyperinflation while the poverty rate was nearly 90 percent of the population. On 14 November 2017, credit rating agencies declared that Venezuela was in default with its debt payments, with Standard & Poor's categorizing Venezuela as being in "selective default".
The United States has been Venezuela's most important trading partner despite the strained relations between the two countries. American exports to Venezuela have included machinery, agricultural products, medical instruments and cars. Venezuela is one of the top four suppliers of foreign oil to the United States. About 500 American companies are represented in Venezuela. According to the Central Bank of Venezuela, between 1998 and 2008 the government received around US$325 billion through oil production and exports in general.Economy of Venezuela#cite note-17| According to the International Energy Agency, the production of 2.4 million barrels per day supplied 500,000 barrels to the United States.Economy of Venezuela#cite note-18| A report published by Transparencia Venezuela in 2022 estimated that illegal activities in the country made up around 21% of its GDP.
2020-present
Venezuela was “once among South America's wealthiest countries” before the economic meltdown under the Maduro regime.“The formerly rich petro-state has seen GDP fall by 80% in less than a decade, driving some seven million of its citizens to flee. Most Venezuelans live on just a few dollars a month, with the health care and education systems in total disrepair and biting shortages of electricity and fuel” as of 2024, according to VOA.
A report published by Transparencia Venezuela in 2022 estimated that illegal activities in the country made up around 21% of its GDP. According to the report, drug, oil and gold trafficking, as well as illegal activities in ports and customs had generated over 9.4 billion dollars for organized crime protected by corrupt officials. In 2021, gold extraction generated around 2.3 billion dollars, of which the State received only 25%.
By 2023, the economic situation of Venezuela improved, with the economy growing by 15% and extreme poverty rates decreasing, thanks to a liberalized economy and more access to the United States dollar. However, inequality is high, with wealthy Venezuelans making more than 70 times the poorest ones. In 2024 inflation cooled to 1.7% monthly after injection of Chevron dollars—the lowest in a decade.
History
1922–1959
After oil was discovered in Venezuela in 1922 during the Maracaibo strike, Venezuela's dictator Juan Vicente Gómez allowed American oil companies to write Venezuela's petroleum law. In 1943, Standard Oil of New Jersey accepted a new agreement in Venezuela based on the 50–50 principle, described as "a landmark event". Even more favorable terms were negotiated in 1945, after a coup brought to power a left-leaning government that included Juan Pablo Pérez Alfonso.From the 1950s to the early 1980s, the Venezuelan economy, which was buoyed by high oil prices, was one of the strongest and most prosperous in South America. The continuous growth during that period attracted many immigrants.
In 1958, a new government, again including Pérez Alfonso, devised a plan for an international oil cartel, that would become OPEC.
During Pérez Jiménez' dictatorship from 1952 to 1958, Venezuela enjoyed remarkably high GDP growth, so that in the late 1950s Venezuela's real GDP per capita almost reached that of Ireland or West Germany. Albeit, West Germany was still recovering from WW2 destruction of German infrastructure. However, Rómulo Betancourt, president from 1959 to 1964, inherited from 1958 to 1959 onward an enormous internal and external debt caused by rampant public spending. He managed to balance Venezuela's public budget and initiate an agrarian reform.
1960s–1990s
Buoyed by a strong oil sector in the 1960s and 1970s, Venezuela's governments were able to maintain social harmony by spending fairly large amounts on public programs including health care, education, transport and food subsidies. Literacy and welfare programs benefited tremendously from these conditions. The first tenure of Carlos Andrés Pérez from 1974 to 1979 benefited from the 1970s energy crisis, tripling the amount of public spending and nationalizing the oil industry, establishing PDVSA. He also increased government debt significantly, nationalized the iron industry, created new state-owned companies, nationalized the central bank and replaced its board with cabinet members, eliminating the bank's independence as a result. His government was also allowed to establish the first minimum wage and salary increases with an enabling act approved by the National Congress. Pérez was accused of excessive and disorderly public spending. Venezuela's external debt grew from $2 billion in 1972 to $33 billion by 1982.Venezuela's economic situation was reversed when oil prices collapsed during the 1980s. Luis Herrera Campins was elected just as the oil prices collapsed, with the economy experiencing turmoil throughout his tenure. The economy contracted and inflation levels rose, remaining between 6 and 12% from 1982 to 1986. Policies implemented by Herrera to reduce inflation and reverse increased government spending were not effective, resulting with the election of Jaime Lusinchi in the 1983 Venezuelan general election. The Lusinchi administration continued strict foreign exchange controls and excessive spending while oil prices continued to decrease. Lusinchi focused the nation's funds on paying foreign debtors, sending $15 billion out to international lenders from 1985 to 1988 to tend the remaining $32 billion of debt. By the end of his presidency, the public began to suffer from inflated prices and shortages of basic goods.
Carlos Andrés Pérez based his campaign for the 1988 Venezuelan general election in his legacy of abundance during his first presidential period and initially rejected liberalization policies. Venezuela's international reserves were only US$300 million at the time of Pérez' election into the presidency; Pérez decided to respond to the debt, public spending, economic restrictions and rentier state by liberalizing the economy. He announced a technocratic cabinet and a group of economic policies to fix macroeconomic imbalances known as , called by detractors as El Paquetazo Económico. Among the policies there was the reduction of fuel subsidies and the increase of public transportation fares by thirty percent. The increase was supposed to be implemented on 1 March 1989, but bus drivers decided to apply the price rise on 27 February, a day before payday in Venezuela. In response, protests and rioting began on the morning of 27 February 1989 in Guarenas, a town near Caracas; a lack of timely intervention by authorities, as the was on a labor strike, led to the protests and rioting quickly spreading to the capital and other towns across the country.
By late 1991, as part of the economic reforms, Carlos Andrés Pérez' administration had sold three banks, a shipyard, two sugar mills, an airline, a telephone company and a cell phone band, receiving a total of US$2,287 million. The most remarkable auction was CANTV's, a telecommunications company, which was sold at the price of US$1,885 million to the consortium composed of American AT&T International, General Telephone Electronic and the Venezuelan Electricidad de Caracas and Banco Mercantil. The privatization ended Venezuela's monopoly over telecommunications and surpassed even the most optimistic predictions, with over US$1,000 million above the base price and US$500 million more than the bid offered by the competition group. By the end of the year, inflation had dropped from 84% in 1989 to 31%, Venezuela's international reserves were now worth US$14,000 million and there was an economic growth of 9%, the largest in Latin America at the time. While foreign debtors were repaid and the economy grew, by 1992, the majority of economic benefits were experienced by the upper class while middle to lower classes faced increased poverty and high unemployment rates between ten and forty percent.
Overreliance on oil exports and a fractured political system without parties agreeing on policies caused many of the problems. By the mid-1990s, Venezuela under President Rafael Caldera saw annual inflation rates of 50–60% from 1993 to 1997, with the country suffering a banking crisis. In 1998, the economic crisis had grown even worse. Per capita GDP was at the same level as 1963, down a third from its 1978 peak; and the purchasing power of the average salary was a third of its 1978 level.