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Venezuela's Oil History: From Boom to Bust

Explore the rise of Venezuela's oil industry, from nationalization to current challenges, and its impact on economy, politics, and corruption. Can the country's "sowing the oil" ethos be a solution for resource-rich nations? Delve into PdVSA's role, export stats, and social missions. Analyze corruption's grip on the nation and its effect on poverty and governance.

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Venezuela's Oil History: From Boom to Bust

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  1. Venezuela: A country report Brennan Full, aileen Almanzar, jorgedavila

  2. Chavez’s “New Socialism” Can Venezuela’s practice of “sowing the oil” serve as a viable model for poverty alleviation in resource-rich countries? Brennan full

  3. Brief History of Venezuela’s Oil • 1912-1943 - Initial discovery and production • Largest players: Royal Dutch Shell and Rockefeller’s Standard Oil • ‘29 - Venezuela as world’s largest oil exporter, second largest producer (2nd to US) • 1943-1974 - Venezuela’s right to oil • ’43 - Hydrocarbons Act - foreign companies could no longer make profits larger than the amount paid to the Venezuelan government • Overproduction and U.S. quotas --> Very low oil prices • ’60 - Formation of the Organization of Petroleum Exporting Countries (OPEC) and Venezuelan Oil Corporation

  4. Brief History of Venezuela’s Oil 3. 1974-1998 - Oil boom and Nationalization • ‘73 - Middle east oil embargo -> price of oil quadruples • ’74 - Carlos Andres Perez - “Sow the oil” • ’76 - Oil nationalized - PDVSA created 4. 1998-2003 - Government asserts control • ’98 - Chavez elected - rallies members of OPEC to adhere to quotas • ’02 - Massive strike - 18,000 employees fired • Present - Company never fully recovered from firings of ‘02 - public participation has increased Source: U.S. Department of State

  5. PdVSA • Created 1976 • Oversees the exploration, production, refinement, and export of oil as well as exploration and production of natural gas • Fifth largest oil reserves in the world • The president of Venezuela has the power to appoint the president of the PdVSA • Prior to Chavez - President often selected from the existing managerial team

  6. PdVSA Today • President: Rafael Ramirez (also serves as Minister of Energy and Petroleum) • Ranked 66th largest corporation in the world (Fortune) • Employees: 80,000 • Revenues: $88,361 million (17.2% increase from 2009) • Profits: $4,313 million Source: CNN Money - Fortune 500

  7. Exports • Exports (2009) - $60.9 Billion • Petroleum - $57.6 Billion (94.58% of total exports) • Other products - aluminum, steel, iron ore, cigarettes, fish, cement, and paper products • Markets (2005): U.S. 57.5%, Netherlands 5.2%, Mexico 4.5%, Colombia 4.5% Source: U.S. Department of State

  8. Oil Profits = Government Revenue • According to the the Guardian: 95% of total government revenue can be linked to oil money (2008) • The CFR reported that “oil generates about 80% of the country’s total export revenue, contributes about half of the central government’s income, and is responsible for about one-third of the country’s GDP.”(Stephanie Hanson, 2009) • Increases in oil prices have allowed Chavez to bolster social spending

  9. Bolivarian missions • Series of social justice, welfare, anti-poverty, educational, electoral, and military recruiting programs • Implemented by Chavez administration • 2007 - Government earmarked 44.6% of budget for social programs

  10. PdVSA funded Missions • Ribas Mission (7/06) - Education; high school • Sucre Mission (late 2003) - Education; college • VuelvanCaras Mission - Employment; youth job training • Barrio Adentro Mission - Health; low cost medical services • Mercal Mission (4/03) - Food; low cost purchases and production stimuli • Identity Mission - Concerned with citizenship; issuing identity cards • Guaipaipuro Mission (10/03) - Indigenous rights

  11. Measuring results

  12. Measuring results cont

  13. Measuring results cont

  14. Millennium development goals

  15. Venezuela’s future • More and more pressure is placed on PdVSA -> finance social missions, expand production, pay off labor liabilities, and develop gold mining projects • PdVSA’s debt - $30 Billion (USD) • US demand for Venezuelan oil on the decline

  16. Corruption in venezuela

  17. Themes to be discussed • Economic/sociocultural factors that have made corruption rampant • Massive amounts of petroleum revenue • Rapid influx of money into markets • Avarice • High tolerance (complacency?) for deviancy • Low levels of regulation, punishment, accountability and transparency • What corruption has resulted in: • How corruption relates to continued presence of poverty • How corruption has resulted in citizens growing more disillusioned with government and state of affairs • Types of Corruption present in Venezuela

  18. Source: Corruption Perception Index 2010 Spain: 30 Portugal: 32 Costa Rica: 41 Brazil: 69 United Kingdom: 20 Chile: 21 United States: 22 Uruguay: 24 Cuba: 69 Colombia: 78 Mexico: 98 Argentina: 105 Ecuador: 127 Honduras: 134 Venezuela: 164 Somalia: 178

  19. What is corruption? • Government corruption violation of public interest for personal/partisan gain. • Involves the use/abuse of political power in order to obtain higher social status and material wealth. • Includes actions that erode ethical standards of society • Illegitimate transactions from the public to the private • For Venezuela, it is the combined illegal actions of the public arena (civil servants or public officials—on their own or with private citizen complicity), and of the private realm, both with the ends of illicitly appropriating money, resources and other goods, or to obtain any kind of patrimonial advantage

  20. Historical-structural component • Has a historical-structural component since: • It is a wide-reaching and meaningful social occurrence • It transcends society beyond quantitative indicators • It maintains a constant presence throughout the historical timeline. • There has always been corruption in Venezuela, since colonial times; but rampant corruption can be attributed to the 70’s where: • Venezuela’s incorporation to the dynamics of world capitalism was consolidated, and neoliberal shocks were introduced • Exploitation of petroleum increased along with technological expertise • Massive growth of commodity imports as a result of increased circulation of money Source: “Historia de la Corrupción en Venezuela.” Bernardo Carpio

  21. Motives for Corruption I • Poorly paid bureaucrats • Low-level officials ask for payment from the public to do basic tasks • High-level officials ask for commissions from private contractors • Weak political and social institutions • Lack of adequate administrative norms and judicial controls: Impunity • Corrupt acts are justified through electoral legitimization

  22. Motives for Corruption II • Large volumes of revenue from petroleum exports • Not earned by work of the majority of the population, but by a small group of oil industry technical staff  dependency of the population on oil, since it’s not their own work, it’s much easier to engage in corrupt action (Francisco Javier Marin Boscan, 2004). • In 1997 Pro Calidad de Vida, a Venezuelan nongovernmental organization (NGO) doing anti-corruption work, estimated that some $100 billion in oil income had been wasted or stolen during the last 25 years. • Public Complacency/Complicity • Some claim that corruption has become a way of life in Venezuela, deeply engrained in the culture itself • Massification instead of democratization of corruption

  23. What has corruption done to venezuelan society? Corruption has affected Venezuela’s: • Political system—democracy—by invalidating potential benefits from it • Institutional design fails to operate effectively  public policy deviates from its original purpose and produced unexpected outcomes (Source: Raul Gonzalez Fabre). • Economy and its growth and development, by discouraging investment, both foreign and domestic • Distribution of wealth becomes more unfair and disparate (Source: Raul Gonzalez Fabre) • Education and Culture,by creating perpetuating incentives instead of deterrents against corruption • Social capital gets destroyed as well as social confidence (Source: Raul Gonzalez Fabre) • National sovereignty, by eroding the State’s dignity, integrity, and ability to effectively protect public order and well-being  Corruption is a problem both at the State and Society levels Source: “El Combate a la corrupción en Venezuela” by Adelso González Urdaneta

  24. Types of corruption Grand Corruption • Corruption derived from major policy decisions by the highest decision-making levels of government Examples: • Acceptance of foreign contributions for presidential campaigns. • Argentina-Suitcase scandal • Expenditures of up to $17 billion in the last four years, mostly to buy weapons, personal items, and political loyalties • Presidential airplane acquisition: violation of article 314 of VZLAn constitution and of law regulating government expenditures Source: Gustavo Coronel, “Corruption, Mismanagement, and Abuse of Power in Hugo Chavez’s Venezuela”

  25. Types of Corruption Bureaucratic Corruption • Includes violation of laws, norms, and regulations by government employees or non-government accomplices. • Can involve extortion, bribery, stealing of public funds, abuse of political power, nepotism, and other varieties of illegal/unethical use of public assets for private gain Examples: • Government contracting is mostly conducted without following existing bidding regulations • Transparency International identify this as one of the main causes of corruption in VZLA • 95% of all known public contracts are awarded without bidding (according to TI) • Corruption at the National Electoral Council • Electoral registry consists of 17 million voters, a statistical impronbability since population ±26 million, 60% of whom are too young to register • 39,000 voters who are over 100 years old • Tascón List • Corruption at the Supreme Tribunal of Justice • Justice Afiuni: demoted after not complying with Chávez’s opinion on a corruption case. Source: Gustavo Coronel, “Corruption, Mismanagement, and Abuse of Power in Hugo Chavez’s Venezuela”

  26. Types of Corruption Systemic Corruption • Interface between government and private sector • Involves both large amounts of money and small favors – “petty corruption” Examples: • Corruption in state-owned petroleum company • Misuse of funds for purposes of political propaganda • Little to no transparency • Emergences of a new rich “revolutionary” class • New bourgeoisie, those closely associated to the government, that drives Hummers and Audis and fly to Miami for shopping sprees on private jets (from article in El Nuevo Herald) • Government-controlled private corporations • Government family members who own private companies are given privileges Source: Gustavo Coronel, “Corruption, Mismanagement, and Abuse of Power in Hugo Chavez’s Venezuela”

  27. Venezuela: Police Source: Transparency International Global Corruption Barometer 2010.

  28. What’s being done? Government launched an offensive • against corruption as part of austerity drive • Public prosecutor initiated court cases against former and current officials for alleged corruption • In 2009, 9 ex-mayors convicted for corruption charges: 5 pro-Chavez and 4 in opposition • to cut down superfluous expenses and bloated salaries • Getting rid of particular “mega salaries” and “mega bonuses” • Rafael Ramirez, pres of PDVSA, announced cutback of 2009 budget by cutting executive salaries by 20% and freezing executive bonuses Source: “Venezuela Combats Crisis by Fighting Corruption, Bureaucracy” by Federico Fuentes

  29. Do people believe corruption has decreased?

  30. In the past three years, how has the level of corruption in the country changed? Source: Transparency International Global Corruption Barometer 2010.

  31. How would you assess your current government’s actions in the fight against corruption?

  32. Venezuela-cuba relationship Jorge davila

  33. Abstract Venezuela-Cuba a Contradictory Relationship • Relationship between two peripheral countries • Political, social, and cultural arrangement between Caracas-Havana which goes beyond than a diplomatic and commercial relationship

  34. Introduction 1. The aim of this work is to understand the extent and intention of Venezuela-Cuba Relationship • The relation among both countries that amount 1% of Venezuela’s GDP and programs that add up to US$ 1.5 billion in 2009 • Composed of 31 Cuban entities and institutions in more than 157 bilateral projects 2. The use of Venezuela’s oil revenue dependency to promote Chávez continental leadership • State and non-state manipulate Venezuela’s aid in form of favors, donations, financing, and non-returnable investments. • Recipients capture the revenue through the subsidized and deferred sale of oil.

  35. Two Junctures in Venezuela- Cuba Relationship 1. The first, fundamentally bilateral, went from the arrival of Hugo Chávez to the presidency for the first time in 1999 until 2004. 2. The second goes from 2004 until today, in the context of the Bolivarian Alliance for the Peoples of Our America, ALBA.

  36. Economic, Commercial and Social Cooperation First stage: • Converge and defense of two similar ideological and political projects. • Economic and commercial increase to create a common identity at the regional level • Grow the supply of Venezuela oil in Cuba to overcome a severe economic crisis • Reinvigorate the global leftist movement Second stage: • December 14, 2004, the Integral Cooperation Agreement between Cuba and Venezuela was modified and expanded. The expansion of this agreement consolidated a new phase of economic complementarities beyond energy cooperation and the exchange of human resources. • Bolivia joined the ALBA the same year, Nicaragua in 2006, Dominica and Honduras in 2008, and Antigua and Barbuda, Saint Vincent and the Grenadines, and Ecuador in 2009. • This alliance allows trade of goods inside member countries with no tariffs, in addition to the Unified System for Regional Compensation (SUCRE) for foreign exchange operations between member countries, and considered the basis for a future common monetary system. • The alliance promotes the creation of several ALBA ‘grand-national’ companies

  37. Glance of the First Stage in Cuba- Venezuela Relation Agreement Cuba-Venezuela in October 2000 to promote exchange of good and services • Venezuela sell oil at a fixed, preferential price of US$ 27 a barrel • Barrels are paid half in 90 days after purchase and the rest over 25 years • In exchange Cuba sent more than 14,000 workers, mostly in the health sector

  38. Glance of the second Stage in Cuba-Venezuela Relation After the ALBA creation • Trade between Cuba-Venezuela grew from US$388.2 million in 1998 to US$ 7.1 Billion in 2007 • In 2008 trade goods between Cuba- Venezuela totaled about US$5.375 billion, which US$4.892 billion were Venezuela’s exports to Cuba and US$483 were imports from Cuba • Total aid to Cuba from Caracas in 2008: US$ 9.970 billion • US$5.6 billion in payments for professional services; US$2.5 billion in subsidies for oil sold at a fixed price of US$27 and US$1.87 billion in other bilateral cooperation projects. (Accumulated aid since 1999 is calculated to be about US$18 billion)

  39. Strategy and Military in Cooperation Relationships In 1999, the connection between Cuba and Venezuela has been replacing the historical relationship between Venezuela and the US. • A military doctrine was adopted, taking in consideration an eventual American attack on Venezuela first and then Cuba. • The Cuban-Venezuelan strategy contemplates the need to propose a regional block different from TIAR, with the participation of Cuba and the exclusion of the US and help revolutionary governments and movements in the region. • Since 1999, the Venezuelan Squadron has provided humanitarian assistance in Cuba related to natural disasters as well as regular visits to the island for official delegations and military study groups to perform professional exchanges and military training.

  40. Notes • Entering the 21st century, Cuba was able to relate its own experience with those of the newly emerging Left in Latin America and the Caribbean, which began to grow first in Venezuela and later in Brazil, Bolivia, Ecuador and other diverse, interesting cases. • The debate about whether Cuba is a security problem or a model to be followed in the Americas is one more time in the table. This has led to a debate in Latin America about revolution, the supposed interference of these countries in the internal affairs of other countries, and the possibility that the Venezuelan political model follows the steps of the Cuban model. • Since 1999, Cuba has had a important partner in Venezuela. The expression “Cuba and Venezuela, two flags, one revolution” indicate the approach between the two countries, their joint participation in ALBA, the development of an important socio-economic exchange, the creation of a complex cooperation process, and the promotion of socialism. • Noteworthy aspects of this relationship are the great financial volume accompanying this experience and the asymmetric cooperation model where Venezuela provides significant support.

  41. Questions to consider • Is this cooperation conditioning to Venezuela’s oil revenues or rather to the development of Cuba’s economy? • How can the effectiveness and efficiency of these cooperation programs be measure? • What hidden results can this combine effort have for the balance of Venezuela foreign aid as well as for Cuban society in terms of income distribution?

  42. Conclusion The Future cooperation between both countries could continuing develop by: • First, by continuing developing and expanding the main elements of this alliance • Second, It would include a political and economic opening in Cuba. The Island would seek to build up energy trade and financial relations with other countries and start breaking the dependency from Caracas • Third, It would arise from internal changes in the position between both countries which would forced them to reconsider their cooperation that has been base on the duty of building socialism and promoting an anti-imperialist foreign policy

  43. Sources Venezuela’s New Socialism Section • US Department of State • CNN Money – Fortune 500 • World Bank Corruption in Venezuela Section • Adelso González Urdaneta “El Combate a la corrupción en Venezuela” http://www.clad.org/documentos/otros-documentos/el-combate-a-la-corrupcion-en-venezuela • Gustavo Coronel. November 27, 2006. “Corruption, Mismanagement, and Abuse of Power in Hugo Chávez’s Venezuela.” Development Policy Analysis no. 2. CATO Institute: Center for Global Liberty and Prosperity http://www.cato.org/pubs/dpa/dpa2.pdf • Federico Fuentes. “Venezuela Combats Crisis by Fighting Corruption, Bureaucracy.” International News, Green Left Weekly Issue #793. May 6, 2009. http://venezuelanalysis.com/analysis/4423 • Francisco Javier Marin Boscan. 2004. “La corrupción: ¿Un problema de sociedad y/o político?” Frónesis. Vol. 11, no.2. p. 58-75. Caracas: Issn 6268 http://www.scielo.org.ve/pdf/frone/v11n2/art04.pdf • Raúl González Fabre. “DesafíosSocioculturales de la Vida Pública en Venezuela.” Programa de FormaciónPolíticaCiudadana. <http://es.wikieducator.org/images/4/42/Temas_de_Formacion_Sociopolitica_N_43.pdf> • Bernardo Carpio. “Historia de la Corrupción en Venezuela.” 2011. La Historia http://www.reporteconfidencial.info/ver_noticia.php?id_n=30140 • Transparency International. Global Corruption Barometer 2010 • Transparency International. Corruption Perception Index 2010. • Latinobarometer. Latinobarómetro 2010http://www.latinobarometro.org/latino/LATContenidos.jsp Venezuela-Cuba Relationship Section • Alvarez, Cesar. February 9, 2009. “Venezuela's Oil-Based Economy” Council on Foreign Relations.http://www.cfr.org/economics/venezuelas-oil-based-economy/p12089 • Castaneda, Rolando. “La ayudaeconómica de Venezuela a Cuba: Situación y Perspectivas ¿Essostenible?” http://www.cubasource.org/pdf/venezuelacuba_castaneda_asce.pdf • Friedman, George and Bhalla, Reva. September 21,2010. “A Change of Course in Cuba and Venezuela?” Strafer. http://www.stratfor.com/weekly/ 20100920_change_course_cuba_and_venezuela • Marc, Frank. July 28, 2008. “Analysis-Cuban-Venezuelan ties boom under Raul Castro” Reuters. http://uk.reuters.com/article/2008/07/21/cuba-venezuela-idUKN2142241920080721 • Yanes,Hernán. December 2005. “The Cuba-Venezuela Allience: Emancipatort Neo- Bolivarismo or Totalitarian Expansion?”Institute for Cuban & Cuban-American Studies University of Miami Occasional Paper Series. http://www6.miami.edu/iccas/Cuba-Venezuela- e.pdf • 30 November, 2010. “Wikileaks reveal US concerns on Cuba-Venezuela ties” BBC News Latin America & Caribbean. http://www.bbc.co.uk/news/world-latin-america-11883465 • Data from: http://www.alianzabolivariana.org/

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