Oil and Economic Development in Venezuela

Like many oil exporters, Venezuela’s economy has been rocked by the recent collapse in global oil prices. According to the Organization for Petroleum Exporting Countries, of which Venezuela is a member, oil accounts for approximately 95 percent of the country’s foreign exchange earnings and about a quarter of the gross domestic product. The steep decline in global oil prices have thus left a major hole in government coffers and a sharp economic downturn in the country’s economy.

To cope with the ongoing crisis, Venezuela’s government is undertaking a policy to devalue its currency, the bolivar. But the response of global currency markets suggest that the move is too-little, too-late, and that move will have little effect on the value of the bolivar, and that the government’s strategy may be an effort to retain foreign exchange in order to make upcoming loan payments to international creditors.

What do you think? Is Venezuela in danger of defaulting on its international debt? What effect would such a default have on Venezuela’s economy? And what effect might a default have on the country’s domestic politics?

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