Question

MHR

This closing case explores the political and economic situation in Venezuela under Hugo Chavez and, after Chavez's death, Nicolas Maduro. When Chavez, who was elected president in 1998, ran on a platform against corruption and economic mismanagement, Venezuela's economy was in a deep recession. Once in office, Chavez consolidated his hold over the government by drafting a new constitution that put him in power until 2012. Chavez died in 2013, but during his presidency, Venezuela was considered to be only "partly free." Economically, things were also difficult for Venezuela. Chavez did achieve some gains. Unemployment, though still high, fell to 7.6 percent in 2013 from its high of 14.5 percent in 1998. Similarly, poverty remained a problem despite falling from 50 percent to 28 percent in 2012. Yet, corruption was rampant, and there was a move to take certain industries into state ownership, with the oil industry being a particular target. Following his death, the situation for his successor, Nicolas Maduro, became worse. The decline in the price of oil resulted in economic collapse with inflation reaching 275 percent, the poverty rate above 30 percent, and considerable value reduction of the Venezuelan currency, the bolivar. The result was heavy losses in December 2015 parliamentary elections which saw the opposition gaining a majority of seats over the ruling United Socialist Party. Discuss the following questions with your classmates. Before you begin, make sure to read the full closing case text from Chapter QUESTION 1: How do you think that Chavez's unilateral changes to contracts with foreign oil companies affected future investment by foreigners in Venezuela? QUESTION 2: In your estimation, what is the long-run prognosis for the Venezuelan economy? Is this a country that is attractive to international businesses? Post your answer by creating a new thread under this forum. Answer both questions, in a short answer format (no less than 75 words each) in that thread. Once you posted your original thread, you must reply to at least two of your classmates' posts for a shot at full points. Original response post: 3 points Two additional replies: 0.5 points each (total 1 point) ** CLICK THE DISCUSSION LINK ABOVE, AND THEN CLICK THE "CREATE THREAD" BUTTON TO START POSTING. **

Answer 1

A1. Since Chavez unilaterally decided that various industries should be state-owned with a particular focus on the oil industries, it would have deterred the foreign investors from investing in the country. This is because of the fear that their company could be owned by the state without a due process as Chavez was a one-man army who decided and implemented his own rules.

A2. The long-run prognosis for the Venezuelan economy would not be highly beneficial for attracting foreign investors. Not only corruption was rampant, but it was run by one man instead of having a government which took everyone into confidence before implementing changes. This creates fear and apprehension which are not conducing factors for international business.