Venezuela was an economically promising Latin American country that somehow failed to reach its potential, thus triggering its involvement with the International Monetary Fund (IMF). Venezuela was once the wealthiest country in Latin America, more accustomed to acting as a donor than as a recipient of foreign aid. The country's fall from grace cannot be traced to one single factor, instead a multitude of complex fiscal problems is to blame.
Venezuela once enjoyed the status of an upper-middle income country in the global hierarchy. In 1988, the country's gross domestic product (GDP) was approximately US$58 billion, or about US$3,100 per capita (Haggerty, 1993, p. 81). Blessed with an abundance of natural resources, Venezuela's relative prosperity ground to a halt during the 1980s. Previously spurred by handsome revenues from petroleum and the oil crisis during the 1970s, the Venezuelan economic bubble burst when oil prices tumbled during the 1980s, a downturn for which the country was ill-prepared: " . . . Venezuela squandered much of its newly found revenues through poor economic management, corruption, and over-ambitious development projects" (Haggerty, 1993, p. 128).
At one time, Venezuela's natural resources accounted for more oil reserves than any other nation in the Western Hemisphere. It was third only to Saudi Arabia and Iran as an exporter of oil and was the world's ninth largest oil producer (Haggerty, 1993, p. 81). Despite attempts to diversify its industrial base into aluminum, coal, iron, steel, and petro-chemicals, Venezuela's revenue structure exhibited an excessive dependence on oil revenues well into the late 1980s.
Due to the immense oil income generated by its reserves, the Venezuelan government generally maintained surpluses in its fiscal accounts until the mid-1980s. A global drop in oil prices, however, had resulted in a fiscal deficit by 1986. The initial fiscal deficit of 4 percent in 19...