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Australia and Venezuela have cordial relations, and while commercial cooperation is modest there is some potential for it to strengthen.
The Australian Embassy in Brazil is responsible for Venezuela. Venezuela has an Embassy in Canberra.
Venezuela is a Federal Republic, made up of 23 states, one Capital District (Caracas) and the Federal Dependencies (Venezuela's islands in the Caribbean Sea and the Gulf of Venezuela). It has a unicameral parliament comprised of 167 Deputies who can serve a maximum of three five-year terms. Along with a number of other countries in Latin America, in 2010 Venezuela celebrates its bicentenary of independence from Spain. Independence from Spain was declared on 5 July 1811, when the area was included in the Republic of Gran Colombia.
Under the 1999 Constitution, the Venezuelan government consists of a democratically elected representative system with a strong executive. The president, who is head of state, is elected for a period of six years (previously five) and then may also be re-elected for further terms of six years. The National Assembly replaced the previous bicameral legislative system, with members elected for six-year terms.
Recent political developments
Recent political developments
After orchestrating an unsuccessful coup d'état against former President Carlos Andrès Pérez in 1992, Hugo Chávez was elected as President in 1998 with a campaign centred on aiding Venezuela's poor majority. Despite some ongoing political tension, Chávez successfully won his third term in office in the presidential elections of 3 December 2006. Following his re-election Chávez moved to strengthen his hold on power by passing legislation allowing him to rule by decree — without reference to the National Assembly — for 18 months. In addition, Chávez refused to renew the licence of Radio Caracas Television, a television channel that had been critical of him. The station was subsequently replaced with a new state-funded channel.
In a constitutional referendum in December 2007, Venezuelans rejected — by a narrow margin — Chavez's proposal to amend 69 articles of the 1999 Constitution to complete the transition to a socialist republic. Amongst the proposals defeated included: a proposal for no limit on presidential terms; greater presidential control over the Central Bank; a maximum 6-hour working day; the right to expropriate private property by decree; and the removal of intellectual property rights for foreign companies investing in Venezuela. However, in November 2008, Chavez announced another attempt to alter the constitution to allow him, and other senior office holders, to run for re-election beyond the end of his current term (2007-2013). The referendum was held on the 15 February, 2009 with a solid 54% of the vote supporting Chavez in his bid to eliminate term limits for the offices of the President, as well as state governors, mayors, and National Assembly deputies. Chavez has since declared his candidature in the next presidential elections, hoping to remain in his position until ‘2019 or 2021'.
Chávez has made deep changes to Venezuela's foreign policy and relations with other countries. Chávez identifies with the ‘global south' favouring not only a fundamental shift in international political economy, but also the re-emergence of a multipolar world order to constrain the United States. His views manifest from time to time in vitriolic criticism of the US's role in Latin America, especially in relation to Colombia where the United States strongly supports the campaign against FARC, the Marxist-Leninist revolutionary guerrilla organisation.
Tensions with Colombia escalated in 2008 when Chávez condemned a Colombian attack against FARC in Ecuadorian territory. The cool down in regional relations was used by Chávez to support his claims that Venezuela required two million reservists (directly under the command of the President) to dissuade potential aggressors. Although reports suggest that up to 1.5 million Venezuelans have registered to become reservists, the actual number of trained soldiers is significantly smaller than this.
President Chávez has strengthened relations with many of Latin America's progressive administrations, including Bolivia, Ecuador and Nicaragua, and has a good relationship with Brazil's President. He has also sought to deepen Venezuela's foreign and strategic relations with states not allied to the US, such as Cuba, China, Russia, Vietnam, and Iran. Evidence of this includes Venezuela's offer of support to Russia during its 2008 war against Georgia in South Ossetia and Abkhazia. Chávez has also publicly supported Iran's nuclear program, claiming that Venezuela would ‘not be indifferent' should a pre-emptive attack be launched against Tehran. In addition to closer political ties, Venezuela has materially benefited from its strategic relationship with Russia. Since 2006, Venezuela has purchased around US$5 billion in Russian defence technology, including the building of a factory to manufacture Kalashnikov rifles and conducted joint military exercises with the Russian navy.
At a glance
For latest economic date refer to the Venezuela fact sheet (PDF) (http://www.dfat.gov.au/geo/fs/venz.pdf)
Venezuela's economy is largely based on its petroleum sector, which accounts for roughly a third of the country's GDP and around 80 per cent of its exports. Like other oil-dependent economies, Venezuela has suffered from the rapid reduction in the price of oil compounded by the global financial crisis.
Venezuela has also experienced high inflation, with inflation hitting 32 per cent in 2008. Inflation in 2010 is forecast to rise to around 40 per cent and may reach as high as 44 per cent in 2011. The Venezuelan Government introduced a new currency in January 2008, known as the bolivar fuerte, to replace the old currency, known simply as the bolivar , at a rate of 1 bolivar fuerte = 1000 bolivars to deal with the rampant inflation. The government preserved the official exchange rate peg, but in grey trading the new bolivar fuerte tumbled to BsF5.8 (to USD$1) in February 2009, suggesting that Venezuela may have trouble repaying its USD$46 billion debt, a large proportion of which it ran up during the 2009 referendum campaign.
In a bid to reduce Venezuela's dependence on imports, on 8 January 2010, President Chávez announced a devaluation of the currency from 2.15 to 2.60 to the US dollar and the creation of a new, second tier rate of 4.30 to the dollar, to be applied to “non-essential” imports. However, even this higher rate is well below the rate applied on the unofficial currency market of around 6 to the dollar. While the measure will help narrow a growing budget shortfall and provide some relief to Venezuela's stagnant industry, analysts fear the devaluation may add to the country's already high rate of inflation.
Due to Venezuela's dependence on oil revenue, the focus of the government's economic strategy has been to increase this by controlling output, working primarily through OPEC and other oil-producing allies. In an effort to reduce reliance on oil, the Chávez government has also worked to promote growth and diversification of the economy by implementing major tax incentives for small and middle sized enterprises in the manufacturing, commerce and service sectors, so as to boost employment in the most economically-depressed states. President Chávez has also expressed a desire to reinvigorate labour-intensive, non-oil sectors of the economy, in particular tourism, agriculture and small business. Restoring and sustaining investor confidence remains an important issue. However, given the challenging operating environment and continuing uncertainty over contract and property rights, restoring investor confidence in Venezuela is unlikely to occur in the near-term.
In July 2006, Venezuela signed a membership agreement with Mercosur — the Southern Common Market formed in 1991 between Argentina, Brazil, Paraguay and Uruguay. Venezuela is yet to receive full membership to the organisation because Paraguay has withheld ratification. If Venezuela is granted full membership of Mercosur, it will expand the market to 250 million people with a gross domestic product worth US$1 trillion, 76% of South America's GDP.
Venezuela's main source of income continues to be Petróleos de Venezuela (PDVSA), the state owned oil company. Its revenues have given Chávez the ability to fund his sweeping social reforms such as free health care clinics, discounted food centres in poor areas and university and education programs.
However, the global financial crisis and the oil price drop, combined with several years of lack of investment in the company, have affected the fiscal health of PDVSA. Recent cash-flow problems have also lead to the suspension of drilling at several rigs. A 2008 report released by the Venezuelan energy ministry revealed that PDVSA suffered a 35 per cent fall in profits in 2007 which the International Energy Agency estimated to amount to an USD$8 billion loss. This will affect Chávez's ability to fund many of his core domestic and foreign programs.
While Venezuela experienced solid GDP growth of around 6 per cent in 2008, Venezuela's economy contracted by 3.3 per cent in 2009, and is predicted to contract by a further 5.5 per cent in 2010, with a return to weak growth in 2011. An expected increase in global oil prices will provide a much needed boost to government income, but lack of investment in the oil sector will limit its impact. Compounding the current economic difficulties, a growing energy crisis has crippled Venezuela's industry through mandatory electricity rationing. The crisis was triggered by a prolonged period of drought which has rapidly depleted the reservoirs of the country's hydroelectric dams, which provide 70 percent of Venezuela's electricity. Underinvestment, mismanagement and poor maintenance of the grid are also contributing factors. In an attempt to limit electricity consumption, the government has demanded businesses to cut electricity usage by 20 percent. Due to electricity shortages, industrial production is forecast to contract by 15 per cent in 2010. While the onset of the rainy season in mid-2010 helped to ease the crisis, absent of significant investments in the energy sector, a repeat of the energy crisis may occur again in the future.
Bilateral trade is modest, although businesses continue to explore possibilities for expanding commercial interaction, particularly in the mining, agriculture and maritime sectors. Two-way trade was A$33.7 million in 2008-09. Australian exports to Venezuela totalled A$29.4 million in 2008-09, consisting mainly of medicaments (including veterinary), motor vehicle parts and crude minerals. Imports to Australia from Venezuela were A$4 million, consisting primarily of telecommunications equipment and cutlery.
The mining industry offers some potential for Australian involvement. Despite abundant mineral wealth and some of the world's largest reserves of iron ore, aluminium, nickel and gold, Venezuela's mining industry is underdeveloped and accounts for less than 1 per cent of GDP. The government has identified the mining industry as a key sector in the diversification of the economy away from petroleum, particularly as a source of export revenue and inputs for domestic industry.
Excel Mining and RFC Finance Corporation are involved in two mining projects in Venezuela: a diamond project in the Guaniamo region and the Cosila coal mine.
A significant Australian investment in Venezuela is Orica's joint venture with Venezuela's Grupo Merand in two explosives manufacturing projects. One project involves an existing plant that supplies on-site bulk explosives for a large coal mining facility in western Venezuela. In the other, Orica Venezuela upgraded an existing packaged explosives plant and operates it on behalf of its owner, CAVIM, the state-owned military industries company.
However, the government's recent action to nationalise strategic industries in addition to banks and food producers that do not comply with government regulations has alarmed some foreign investors. Government policy is increasingly favouring ties with state-owned firms linked to governments that are either close allies of the Chávez administration or countries the administration wants as allies. The imposition of foreign-exchange controls requires all persons in Venezuela to obtain government approval to send any funds overseas. The difficulty in receiving payment in foreign currencies such as $US or the Euro has discouraged many small to medium sized Australian companies from exporting to Venezuela. All commercial opportunities should be considered in this light. Government contracts (defence, communications, agricultural products and energy) and outward investment possibly offer the best opportunities for Australian businesses.
Other areas that offer potential for Australian interests include:
-- Natural gas : large development projects, both off-shore and on-shore, are being planned. There are also opportunities in the petrochemical sectors including environmental related projects. (Although the nationalisation of four huge heavy-oil joint ventures in the Orinoco oil basin and other government action has caused concern amongst investors.)
-- Information technology : particularly in relation to mining and banking. The government's nationalisation of the major Venezuelan telecommunications company, CA Nacional de Teléfonos de Venezuela (CANTV), may impact foreign telecommunication industry suppliers' and related industries' approach to this sector.
-- Agriculture : opportunities exist in this area, including agriculture equipment and consultancy, as the sector suffers from inadequate levels of investment.
-- Education services: There has been strong Venezuelan interest in Australian education. While overall enrolment of Venezuelan students is low at around 400 students in 2008, these numbers have been showing good growth for a number of years. The majority of Venezuelan students in Australia undertake ELICOS (English Language Intensive Learning Courses for Overseas Students), university and vocational education and training courses.
-- Maritime : Venezuela continues to offer potential to the Australian shipbuilding industry, including military applications, following the purchase by Conferry in 1999 and 2001 of large Australian-manufactured fast-ferries. There are continuing prospects for the construction of high-speed launches and patrol boats. Australian leisure craft have also found a market in Venezuela.
-- Infrastructure : the upgrade of major airports, the relaunch of a national railways plan (targeting over 4000km of mostly new lines), the short-term need for alternative power generation capacity and the establishment of a national meteorological network represent possible opportunities for high technology, specialist Australian companies.
-- Wine : Venezuelan wine producer Bodegas Pomar imports Australian wine through the Hardy's group.
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(Bs) Venezuelan Bolivar Fuerte (VEF)
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