VENEZUELA CASE STUDY The Economic Integration Process of Bolivarian Republic of Venezuela

Carlos Paredes Hoglys Martnez Alberto Bastardo Traduced by Guerdy Mompoint

1. Introduction
Since its establishment as a nation-State in 1830, the Bolivarian Republic of Venezuela has experienced several political models whose objective is to promote the expansion and incorporation of the national economy into the regional and world trade. In this historical process, Venezuela has applied economic policies aimed at favoring schemes of commercial exchange, economic cooperation, economic integration, globalization and / or promotion of political integration. Given the fact that the principal aim of this paper is to analyze the development of the economic integration on behalf of Venezuela, it is necessary to conceptually clarify what the above mentioned integration means, and by following those authors footsteps such as Balassa and Vachino1, this process involves the elimination of the barriers or discriminations regarding the economic transactions between the countries in order to facilitate the exchanges, thus taking advantage of the comparative advantages, political coincidences and geographical proximity. Simultaneously, the countries coordinate and unify policies on the basis of creating a bloc or supranational instance (like the European Union or UNASUR). Since colonial times, the Venezuelan economy was shaped on the basis of the international division of labor and the interests of the dominant powers of the
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As for economic integration it is recommended t read: Belassa, Bela (1964). Theory of the Economic Integration, Mexico: Publishing house Uteha. Vacchino, Juan. (1981). Regional Economic integration. Caracas: Central University of Venezuela, Faculty of Law and Political Sciences.

moment and has the characteristics of a mono-exporting and single product economy. At that point, the countrys production headed exclusively for the Spanish Empire. Venezuela being already an independent State, the national economy was very linked to Great Britain, Germany, France and the United States, relying on fundamental products such as coffee and cocoa which sustained the economy. Later, the discovery of important petroleum deposits in Venezuela in the early 20th century brought about a change from an agricultural economy to a petroleumbased economy dominated by the British, Dutch and American interests. However, due to important returns based upon oil revenue, the diversification of the national economy was not achieved. Rather, the role of Venezuela as a mono-producer was strengthened; being the first oil exporter of the world until 1949. This paper is divided into two parts. The first part explains the background of the economic integration raised by Venezuela, on the basis of the structure of its economy, the international system and the dominant political interests during a period going from 1821 to 1999, when Hugo Chvez Fras became the President of the Republic. In this context, it is observed that from 1830 to 1900, when the economic liberalism was dominant, the fundamental aim was to export the agricultural products which were in hands of the domestic private sector, which means that the international trade that Venezuela was promoting was stimulated by the national bourgeoisie. From 1900 to 1945, the national economy dominated by oil linked itself to the big centers of power of the world and became an energy periphery. Therefore, there were no conditions for an economic integration process encompassing the neighboring countries. From the Second World war until 1970, the economic policy is focused on be incorporated the international economic structure in order to subsequently allow for the implementation of the import substitution policies between the 60 and 70 following the approach to the dependency theory2 and the Economic
2

Commission

for

Latin

America

(CEPAL),

which

led

to

To study the Dependency Theory, it is recommended to read: Cardoso, F. and Falleto E. (1978). Dependency and Development in Latin America. Mexico: Century Twenty-one Publishers.

development :"from the inside", protecting the national industry via high tariffs on imported products, and gave the impetus to public investment in the countries of the region. That was the scenario where Venezuela acceded to the Andean Pact in 1973, which is an integration bloc, founded in 19693. In the 80 ', with the arrival of the conservative governments of Reagan in the United States and Teacher in Great Britain, the economic neo-liberalism expanded in the world and, particularly in Latin America, where a shift in several countries of the region is observed as to the so called development: " from the outside ". In this context, the regional integration processes were minimized. Then in the 90 ', neoliberalism was strongly applied in the region by the International Monetary Fund (IMF) and the World Bank (WB) and was supported by right-wing political elites. The regional integration schemes practically disappeared through neo-liberalism, and in the case of Venezuela the entry into the globalized economy was promoted by eliminating tariff barriers and introducing flexibility into the tax schemes, but not on the basis of strengthening a space or integrated regional bloc, but to favor the inflow of revenue of the transnational capital. In the second part of this work, the most highlightened elements of the integration strategy developed by the Bolivarian Government between 1999 and 2011, as well as the tours and strategic proposals which -under the leadership of the President Chvez- neutralized the economic intervention of the United States in the region through the Free Trade Area of the Americas (FTAA), principally with the creation of the Bolivarian Alliance for the Peoples of Our America (ALBA), the departure of Venezuela from the Andean Community and its subsequent acceptance into MERCOSUR (currently in process of ratification), the departure of Venezuela from the Group of Three (Colombia, Mexico and Venezuela), the impetus given to the creation of todays Union of South American Nations (UNASUR) and the support of Venezuela for the establishment of the Community of Latin-American and Caribbean States (CELAC).
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The Andean Pact was created in 1969 through the signing of the Cartagena Agreement, being the founding countries: Bolivia, Chile, Colombia, Peru and Ecuador.

2.

History (1830-1999)

The integration process of Venezuela with regard to Latin America went through its first test between 1821 and 1830, with the creation of the Great Colombia composed of the colonial territories that achieved their independence from Spain (those territories are now recognized as the Republics of Colombia, Venezuela, Ecuador and Panama), based upon the fact that the strategic aim of this union pointed to the political and military cohesion in order to face the world powers in case of a possible attempt at re-colonization and at exercising sovereignty over the above mentioned territories. Therefore, the political aspect prevailed over the economic aspect. After this first attempt at integration, in the course of the 19th century and the first half of the 20th century, the current Bolivarian Republic of Venezuela had very little sovereign presence on the international stage, due to the internal process of consolidation of the National State, the constant changes within the political system, as well as to the unrestricted obedience to the mandates of the North American foreign policy. In the framework of the world economic configuration, in the inter-war period (1919-1945), when the United States imposed itself as a hegemonic power, leveraged on political and economic liberalism, Venezuela entered a new phase of its trading process with Latin America and the world. Later, during the post-war period (1945-1970), the international economic relations were reconstructed and a strong trend to the interconnectedness of markets was unfolding and, at the same time, the basis of the organization of the current world trade system was laid down, as a result of the Bretton Woods Agreements in 1944, which gave birth -in the course of same year- to the creation of the World Bank (WB) and to the International Monetary Fund (IMF), as well as to the General Agreement on Tariffs and Trade (GATT) in 1947. In light of this context, Venezuela playing its peripheral

role and complying with the guidelines which the United States of North America was dictating in terms of economic cooperation, implemented an economic cooperation policy based on the principles of liberalization, privatization, deregulation and free trade promoted by WB, the IMF and the GATT (currently WTO). In this regard, the first initiatives that Venezuela undertook with regards to economic integration took place in 1960, with its incorporation into the Latin American Free Trade Association (LAFTA) between 1960-1980, when the signatory countries committed themselves to creating a free-trade area through a gradual elimination process of all the restrictions, quotas and trade levies between the member states. This scheme is replaced in 1980 and is in force up to now within the Latin-American Integration Association (ALADI) with the aim of creating a common market by means of a series of flexible and differentiated multilateral initiatives in accordance with the level of development of each country between the countries of the region and of enabling integration or negotiation with countries outside the area. Likewise, it is important to mention that a regional economic strategy was promoted between the 60s and 70s by following the orientations of the Economic Commission for Latin America and the Caribbean (ECLAC), based upon the so called model of industrialization by import substitution (ISI), which was favoring the growth "from the inside", relying on protectionist policies and the impetus of the state investments. This model will be the basis for the economic integration schemes raised in the region and will prevail as an approach to political economy until mid 90s. Parallel to these free trade and integration initiatives, Venezuela entered into the first sub-regional economic integration mechanism between 1969 and 2006 when it acceded to the Andean Pact (currently Andean Community), which sought to consolidated as a customs union that would help to stimulate the development of

the member countries. Hence, Venezuela and Colombia established an important commercial pole in the 90. As far as in the 90s, as a result of the application of the neoliberal model, Venezuela entered into an free trade agreement with Colombia and Mexico, named the Group of Three, in 1995. In this context, the United States of America tried to undermine the existing regional schemes through FTAA (CAN and MERCOSUR) with a view to favoring free trade. These economic integration processes were articulated through the coordination of strategies in the framework of the Organization of American States (OAS), following principally the guidelines imposed upon by the United States of America. These structural adjustment policies provoked inside Venezuela high indexes of inequality, poverty, inflation and unemployment; and consequently, a political model which is unsustainable. These factors contributed as of as 1999- to the accession to power of the President, Hugo Chvez Fras. The Bolivarian Government brought about a comprehensive change of the strategy regarding the regional economic integration by favoring the Latin-American and Caribbean integration and the political ideal of integration is resumed under State control with a vision which is more political than economic.

3.

Implementation of the Regional Integration Strategy of the Bolivarian Republic of Venezuela (1999 - 2011)

With the arrival of the President Chvez at the Head of State level in 1999, the Bolivarian Republic of Venezuela initiated a new stage of its international relations, where it began to develop regional integration initiatives which broke with the

former schemes that have been established by the international powers since the 70s, building on the rapprochement and the political integration between the countries of the region, in order to subsequently promote the economic integration on the basis of solidarity, reciprocity and the coordination of complementarities. The former cooperation initiatives as the CAN, the Group of Three and the ALADI, constituted the existing international cooperation mechanisms in the region, based principally on cooperation in the economic field, and especially on the reduction of the commercial restrictions to promote the free flow of goods and services. In this context, the political integration as well as the social field is placed on the backburner when it comes to the relationship of cooperation, favoring the interests of the big multinationals to the detriment of the national and regional production factors. Against this backdrop, the Government of the President Chvez started the first phase in regional partnership (1999-2004), maintaining the participation of Venezuela in the CAN and the Group of Three, as well as in what ensures the continuation of the scheme that attached more importance to the search for the economic integration of the region than to political integration and where the Venezuelan economy was exposed to the possible impacts of the commercial triangulation of some of the members of these initiatives, through the Free Trade Agreement (FTA) with the United States of America.

In context with the above, the Bolivarian Republic of Venezuela sees a need to evaluate its participation in the CAN, as well as in the Group of Three, and begins to encourage regional integration initiatives. This is how in 2004, and in light of the accession to the power of the progressive Governments in Latin America, a second phase in the regional partnership of Venezuela kicked off (2004-2011), with the constitution of the Bolivarian Alliance for the Peoples of Our America (ALBA), as a

containment strategy against the FTAA initiative (Free Trade Agreement for the Americas), promoted from and on the basis of the interests of the United States of America, and as an entity parallel to the CAN and to the Group of Three. The constitution of ALBA in 2006 caused Venezuela to distance itself from the CAN as well from the Group of Three, initiate the search for the integration of the peoples of the region, and reach full sovereignty. In 2006, the Venezuelan Government requests its entry into the Common Market of the South (MERCOSUR) in order to adhere to its regulatory trading framework, a trading area where Venezuela constitutes a power balance in opposition to Brazil - Argentinean bloc. Nevertheless, owing to the Paraguayan Parliaments refusal to approve Venezuelas accession to MERCOSUR, Venezuela has not been ratified as a full member to date. In this second phase, and under the new regional integration scheme promoted by Venezuela, the State became a key player within the cooperation relationship, assuming the leadership in the integration process and thereby ensuring the protection of the national interests. Likewise, and taking advantage of the wide range of hydrocarbon resources with which Venezuela is endowed, as well as other countries of the region, the development of the integration processes in the field of energy is leveraged as an integrating element instead of a factor for power. Within this framework and under these terms, Venezuela encourages the integration initiative, that is, UNASUR (Union of South American Nations), intended to strengthen the region so that it may face the exogenous forces. Also, Venezuela promotes the setting up of PetroCaribe which, based upon the energy cooperation, serves also as a platform for the integration of Latin America and the Caribbean, as well as to the strengthening of the position of Venezuela in the Caribbean region. In the particular case of ALBA, the ideological concept behind this initiative is what makes the great difference compared with the former integration schemes, as it

fosters the union of the peoples on the basis of humanist values, productive integration, special and differentiated treatment, complementarity and respect for the sovereignty, thus standing in confrontation with the neoliberal precepts of free trade, where the participation of the State is reduced and the hegemony of the international powers is favored as well as transnational companies to the detriment of the peoples. The modality of ALBA integration takes place through the agreement in relation to the Peoples Trade Treaty (TCP)4, as a counterproposal to the FTA, and by means of the Grand-national Projects and Enterprises, taking into consideration the potential of each country and also addressing the most urgent social needs of the population. One of the most relevant aspects of ALBA where the major success of the initiative lies, is precisely based upon the impetus of the Grand-national5 Projects and Enterprises, especially in the areas of Finance through the constitution of the ALBA Bank; Education through literacy and the post-literacy programs; Food through the agro-food companies; Tourism through social tourism; and Culture through ALBA Cultural Fund; among others. The political integration between the countries comprising ALBA is what has made this integration scheme possible where in addition to coordinating policies and stances- there is a progress towards the process of substitution of the dollar as the currency exchange, through the construction of a monetary area by means of the establishment of the Unit of Common Account SUCRE (Unitary Regional
4

Treaty on exchange of goods and services to meet the needs of the peoples, which are sustained on the principles of solidarity, reciprocity, transfer of technology, use of the advantages of each country, resource saving and including credit agreements to facilitate the payments and collections (source: www.alianzabolivariana.org).
5

The concept of Grand-national Enterprises emerges in opposition to the transnational companies. Therefore, its economic dynamism will be orientated in favour of the production of goods and services for the satisfaction of the human needs, breaking with the logic of profit and capital accumulation (source: www.alianzabolivariana.org).

Compensation System) and of a Clearing and Settlement House. On the other hand, UNASUR is a different integration scheme of great importance in the region, within which Venezuela has actively participated. This regional integration initiative was shaped in 2004, when the Presidents of South America implemented the Community of South American Nations, in order to consolidate a regional scheme for the coordination of the State policies. Nevertheless, it was in 2008 when the Constituent Treaty of UNASUR was subscribed, by establishing this scheme as a containment bloc vis--vis the external interests to the South American subcontinent. Governing principles of the union are ratified: unrestricted respect to sovereignty, integrity and inviolability of the territory of the States, selfdetermination of the peoples, solidarity, among others, on the basis of energy and financial integration. Under these guidelines, UNASUR constitutes two important platforms technical political for the regional integration: South American Energy Council (CES in Spanish) and the South American Economy and Finance Council (CSEF in Spanish). Both institutions serve as the engines for the South American integration process. On the one hand, the CES under the Chairmanship of Venezuela, leverages the integration of the South American peoples on the basis of the wide range of natural resources with which they are endowed in order to guarantee the regional energy safety; on the other hand, the newly constituted CSEF shields the region from the effects that come from the crisis-stricken economies of The United States of America and Europe, which could jeopardize the economic growth of the South American countries. Finally, it is important to point out the impetus that was given by Venezuela to the Latin American and Caribbean Summit (CALC), or as it will be known as of the end of 2011: Community of Latin-American and Caribbean States (CELAC), which in spite of being an initiative promoted by Brazil in 2008- has been revived by Venezuela in order to turn it into a regional bloc and face the deployment of the

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United States inside the Organization of American States (OAS). Simultaneously, it is intended to boost the Venezuelan integration approaches that have been addressed in other sub-regional forums such as ALBA, PETROCARIBE and UNASUR.

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