The document analyzes Venezuela's economic collapse post-1978, highlighting its poor growth performance and high inflation, particularly after the oil boom. It discusses the country's unsustainable public spending, electoral pressures, and the failure to implement effective stabilization policies. The future remains uncertain with potential macroeconomic adjustments and upcoming elections amidst rising social tensions.

1. Francisco J. Monaldi
Baker Institute Fellow and Adjunct Professor, Rice University
Belfer Center Associate, Kennedy School of Government, Harvard University
Founding Director, Center on Energy and the Environment, IESA, Venezuela
francisco_monaldi@hks.harvard.edu
@fmonaldi
Kuwait, November 2015
Venezuela:
After the Party, the Collapse

2. The best regional performance in 1938-1978
The worst regional performance in 1978-2003
1.57
1.95
2.37
1.90
1.54
2.27
0.00
0.50
1.00
1.50
2.00
2.50
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Index(1950=1)
In 2003 GDP per capita bellow the 1962 level.
In 2010 close to peak level of 1978.
GDP per capita
Source: Venezuelan Central Bank.

3. Source: Own calculations based on ONAPRE (several years).
-100%
-50%
0%
50%
100%
150%
200%
250%
Percentagevariation
Oil fiscal income and spending growth
Public Spending Oil Fiscal Revenue
Venezuela has never implemented an effective stabilization policy

4. Poor overall economic performance even
during peak oil prices…
…but a large consumption boom

7. IMF Study: Unprecedented Resource Windfall
(comparable only to Middle East oil exporters)
Emerging Latin America and Selected Regions: Income Windfall during Terms-of-trade Booms,
1970-2012 1/
(Share of annual GDP)
1975
PER
ECU
2000
NOR
AUS
CAN
EM Latin America
2000
RUS
UKR
BEL
2000
IDN
0.0
0.1
0.2
0.3
0.4
2000
SAU
KUW
0.0
0.4
0.8
1.2
1.6
2.0
2.4
2.8
3.2
1970 2000
VEN
BOL
CHL
ARGPER
PAR
COL
ECU
BRA
PAR
Sources: IMF, International Financial Statistics; and Chapter 5.
¹ Cumulative percentage change in terms of trade (of goods and services) from start to peak of each identified episode (that meet the criteria of at
least 15 percent cumulative and 3 percent average increase). Episodes are grouped in 5-year window s according to the date of their first year. Dotted
lines indicate group averages.
EM Europe AE MENA Oil exportersEM Asia
Bars: cumulative income windfall
Dots: Annual average (right scale)

8. Second worse growth performance, behind Libya, among major oil producers and second worse
inflation rate behind Angola.

9. Collapsing exports, booming imports
Real
Imports
Real
Exports
50100150200250
1985 1990 1995 2000 2005
year
Venezuela
Chile

10. Higher oil dependence, with declining net oil exports
10

11. -
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Poverty Evolution in Venezuela (1997-2012)
Poverty
Extreme
Poverty
Numberofpeople Poverty and the Boom: 2004-2008
Source: INE and Miguel A. Santos
>5 million out of poverty

12. 0.35
0.4
0.45
0.5
0.550.60
0.80
1.00
1.20
1.40
1.60
1.80
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
GDP and Consumption per Capita (1998=100) and
Gini Coefficient (1980-2012)
GDP PC 1998=100 CON PC 1998=100 Gini
Growth and Inequality or Consumption and Inequality?
14.3%
CAGR:
0.8%
60.0%
CAGR:
3.2%
Source: INE and Miguel A. Santos

13. IMF: Latin America’s Golden Decade: Strong Social Gains
40
44
48
52
56
2000 2004 2008 2012
12
16
20
24
28
32
Poverty (%, rhs)²
Inequality (Gini coefficient)
Poverty, Inequality and the Middle Class since 2000¹
Sources: PovcalNet; SEDLAC; World Bank, World Development Indicators; and authors'
calculations.
¹ Simple average of Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican
Republic, Ecuador, El Salvador, Honduras, Mexico, Panama, Paraguay, Peru, Uruguay, and
Venezuela.
² Poverty line of US$2.5 per day.
³ Middle class is defined as people with per capita income between $10-$50 per day (2005
PPP), as defined by Milanovic, Branko and Yitzhaki, Shlomo (2002), “Decomposing World
Income Distribution: Does the World Have a Middle Class?”, Review of Income and Wealth,
International, Vol. 48(2).
-20 0 20 40 60
URY
CHL
CRI
MEX
ARG
BRA
VEN
PER
GUA
PRY
ECU
DOM
PAN
COL
NIC
ESV
BOL
HON
2000
Change
2010 Middle Class³
(Percent of population)

14. Boom in public expenditure and imports exceeded the oil bonanza
28.705
28.455
29.067
26.104
25.942
27.702
28.853
28.138
30.534
26.598
38.681
50.909
67.449
85.304
98.011
105.779
106.048
0
20.000
40.000
60.000
80.000
100.000
120.000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-II
Deuda Pública Externa
(USD Millones)
Fuente: BCV
Foreign Public Debt
(US$ Million)

15. Venezuela: The highest level of public expenditures (% GDP) in the region
Gasto Público Consolidado (% del PIB)
18.2 19.1
22.1 23.3
28.7
32.5
34.6
38.8 40.0
41.9
47.2
50.6
26.2
0.0
10.0
20.0
30.0
40.0
50.0
60.0
Argentina
Bolivia
Brazil
C
hile
C
olom
bia
C
osta
R
ica
Ecuador
M
exico
Paraguay
Peru
U
ruguayVenezuela
2011venezuela
2012
51.3
Fuente: Ministerio de Finanzas, CEPAL, Miguel A. Santos

16. Unsustainable path even before the oil price collapse
16

17. GDP Growth 2015: OPEC members
-10%
-6%
-1%
0.03%
1%
1%
3% 3%
3% 3%
4%
5%
Venezuela Libia Ecuador Irak Iran Kuwait Emiratos
Árabes
Unidos
Argelia Arabia
Saudita
Angola Nigeria Catar
GDP Growth Forecast 2015
Source: IMF

18. Inflation 2015: OPEC members
190%
14% 14% 12% 11%
4% 3% 3% 3% 2% 2% 2%
Venezuela Iran Angola Libia Nigeria Ecuador Emiratos
Árabes
Unidos
Kuwait Irak Arabia
Saudita
Argelia Catar
Forecasted Rate of Inflation 2015
Source: IMF

19. The Politics:
electoral cycles on steroids

20. World Governance Indicators
0
10
20
30
40
50
60
1996
1998
2000
2002
2003
2004
2005
2006
2007
2008
2009
2010
PercentileRank(0-100)
Venezuela 1996 - 2010
Voice and Accountability Political Stability
Government Effectiveness Regulatory Quality
Rule of Law Control of Corruption
26.1
11.3
18.6
3.8 2.8
8.1
51.4
35.9
44.4
47.6
33.8
43.5
0
10
20
30
40
50
60
Index
2009
Venezuela Latin American Average
Institutional Collapse

21. An electoral budget cycle on steroids...
ElectionsElections

22. The public sector deficit in the year to the election at historical high of close to 19%
of GDP, with total public expenditures also at a historical high of around 51% of GDP.
This when the price of oil is also at a historical peak.
Source: BCV and Barclays
Elections
Elections

24. Ven
Ven
Ven

25. Consumption and Popularity
-25
-20
-15
-10
-5
0
5
10
15
20
25
25
35
45
55
65
75
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14
Chavez popularity (lhs)
Maduro (lhs)
Real consumption growth (rhs)
Source: BCV and Datanalisis

27. Source: Keller y Asociados

28. Source: Datanalisis, July 2015
Public Opinion: How is the country doing?
28

29. Source: Datanalisis, July 2015
Public Opinion: Maduro’s Approval
29

30. The Oil Industry:
another wasted opportunity

31. 31
Venezuela will continue to produce oil… until the world demands it
Venezuela’s official proved oil reserves are 298 billion barrels (using a 20% recovery rate on the Orinoco Belt, for 257 billion barrels). The USGS estimates that
510 billion barrels would be ultimately recoverable in the Orinoco Belt (using a 45% recovery rate). Even using a 10% recovery rate Venezuela would have the
second largest reserves after Saudi Arabia, at around 190 billion barrels (close to Canada’s).
0 50 100 150 200 250 300
US
Venezuela
Russian Federation
Iran
Kuwait
Saudi Arabia
United Arab Emirates
Nigeria
OPEC
Non.OPEC
Years of production
Reserves/production (years)
Source: BP Statistical Review of World Energy (2013)
Canada including oil sands 110 years
Venezuela low estimate 190 years

32. The Rise and Fall…
and Rise again and Fall again… of the Venezuelan Oil Industry
32

33. • Significant contributions to FONDEN &
social programs, compared to
investment.
• Financial Debt has increased to more than
US$ 45 bn. Debt with suppliers and
partners above $15 bn. Debt with Central
Bank above Bs. 800 bn. Arbitrations $7-8
bn. (estimate)
Cash Flow availability – PDVSA

34. Venezuela Domestic Oil Consumption
Gasoline price: $0.07 per gallon or $0.002 at black market exchange rate.
1 cent per barrel versus $21 in Saudi Arabia
Domestic subsidies: $24 billion in 2013. $13 bn. in 2015 34

35. • Texas 5
• Qatar 33
• United Arab Emirates 39
• Colombia 48
• Alberta 51
• Trinidad and Tobago 58
• Brazil 66
• Alaska 83
• Angola 118
• Nigeria 124
• Algeria 126
• Russia 127
• Libya 128
• Iraq 129
• Kazakhstan 131
• Iran 132
• Bolivia 133
• Ecuador 134
• Venezuela 135
Fraser Institute Global Petroleum Survey 2011:
Jurisdictional rankings according to the extent of investment barriers
(based on All-Inclusive Composite Index values)
135 jurisdictions ranked
The Reputational Legacy
Ranking sobre barreras a la inversión Fraser Institute
2009 2010 2011 2012 2013 2014
Ranking Venezuela 141 132 135 146 157 156
Jurisdicciones Consideradas 141 133 135 147 157 156
35

36. The Future?
• Macro-adjustment?
– Devaluation? Gasoline price hike?
• Hyperinflation?
• Price of oil?
• Legislative elections the end of 2015?
– The opposition today has a 30 point lead, but margin would be probably smaller.
Gerrymandering and malapportionment help the PSUV.
• Recall Referendum in 2016 or 2017?
• Presidential elections in 2018 or 2019?
• Non-electoral outcomes? Social upheaval?

37. Thanks for your attention
francisco_monaldi@hks.harvard.edu
Twitter: @fmonaldi
37