Economic Polices

Economic Polices Venezuela

The source of Venezuela's development since the 1970s has been its immense oil wealth. The economy has been constructed on this. However, it is also the source of its problems and the long gestation of the economic crisis lies in the strategies constructed on this easy influx of foreign exchange. With the drop in oil prices in the 1980s the shaky superstructure of state intervention, populism and corruption started to show its cracks, and awareness has grown in the country that the genuine problems lie in the foundations of this edifice. It seems increasingly tough to patch up the economy.

The growth in the early 1990s was helped by the rise in oil prices resulting from the invasion of Kuwait. The earnings from privatization also stimulated the economy. However, the economic urgent situation honed in 1994 with expanded contraction in output. Table I shows severe fluctuations in GDP - 1994 saw the biggest down turn in GDP since 1989.

Venezuelan small businesses

The Venezuelan PYMI is considered to be all those firms employing less than 100 employees - matching, in detail, to the European small firm other than SME sector. It employs over 70 percent of the labour force in Venezuela (Caldera, 1994). It also constitutes 70 percent of constructing productive capacity. It normally dominates in areas such as retail and commerce, tourism, transport, services, agriculture and manufacturing.

An important structural distinction between economies of developed and less developed countries (LDCs) is the heaviness of the informal sector in the latter. Nowhere is this more clear-cut than in the small firm sector - especially the micro sector and the self-employed. It has often been pointed out that the informal sector is not marginal to the economies of LDCs but is really incorporated into the economic structure as a whole and plays an important role. This is precisely the case in Venezuela.

An important and growing part of the PYMI is the casual sector. According to a survey “La encuesta de hogares” (CESAP, 1993), 20 percent of the labour force was in the informal sector in 1976. By 1988 it was nearly 40 per cent. Figures now show that this approaches 50 per cent. This informal sector growth was directed by micro firms (as opposed to the self-employed and those in domestic service). In 1979 they were 10 percent of the labour force in the informal sector. By 1984 they were more than 50 per cent. This is a very important development. Traditionally, the informal sector has been equitably atomized - individuals working on their own account. These figures show that the informal sector is becoming increasingly organized in micro firms. The worrying factor is that it indicates a malfunction in government policy: these micro firms are not in the formal sector and are therefore neither giving taxes nor part of an incorporated economic strategy.

 

Policies

Clearly the most important direct obligation for the PYMI is macroeconomic stability. This implies the reduction of inflation, the lowering of interest rates and the stability of the economic system ...