Venezuela-Balance of Payments

As with its trade, Venezuela's balance of payments experienced wide swings in the 1980s after enormous success in the 1970s. These fluctuations, largely negative, depended primarily on the prevailing value of exports and the level of the country's foreign debt payments. As oil prices fell and interest rates soared in the early 1980s, international accounts recorded a massive deficit in 1982. Greater import protection in 1983 produced renewed balance-of-payments surpluses from 1983 to 1986. But as oil prices fell in 1986, overall payments turned highly negative, culminating in a US$4.7 billion shortfall in 1988. Besides oil price fluctuations, the balance of payments also suffered from huge capital outflows associated with annual, multibillion-dollar debt repayments and private capital flight precipitated by the deteriorating economy. As commercial banks turned away from issuing new loans to Latin America in the 1980s, the country faced a net outflow of capital, exacerbated by the fact that its high per capita income excluded it from multilateral financing.

The current account of the balance of payments moved into a deficit position as exports fell from 1986 to 1988 because of dwindling oil prices. Slightly higher oil prices in 1989 improved the current account again, but large drawdowns on the country's international reserves provided the economy little flexibility. After accruing a level of international reserves equal to that of the rest of Latin America combined in 1975, by 1990 the country's reserves were depleted to such an extent that they covered only a few months of imports. Aside from the large role of merchandise trade in the current account, net services and transfers represented a major drain in the 1980s. Deficits on the services and transfers portion of the current account were largely the result of steep interest payments on the foreign debt. Venezuelans' penchant for foreign travel and costly international freight and insurance expenses also caused the services and transfers deficit to exceed US$3 billion on average during the 1980s.

The capital account experienced large deficits for the first half of the 1980s, but improved after 1985 as new private investment and short-term financing offset some of the outflows of private capital and principal payments on the country's foreign debt. The reduction of capital-account deficits after 1985 was significant because the country could no longer rely on immense current account surpluses, as it had historically, to balance international payments. Despite this trend, average net capital outflows of roughly US$2 billion were registered from 1983 to 1988 as debt repayment proceeded and few new foreign loans were assumed. In 1986 the Japanese Export-Import Bank provided badly needed new monies for import financing, an infusion that also slowed capital outflows. By 1989 the IMF and World Bank also supplied large financial resources in support of the government's structural reforms and in an effort to improve its worsening international financial position.

As the country moved toward a more flexible position on foreign investment in the late 1980s, new inflows of direct foreign investment appeared after near stagnation in the early 1980s. From 1986 to 1989, foreign investment averaged US$300 million a year, an increase that eased the crunch on capital. In 1988 total foreign investment stood at US$2.2 billion; a little over half of this total was attributed to United States investors, followed by British, Swiss, and German investors. Analysts anticipated even greater private capital inflows associated with continuing debt-for-equity swaps. Nevertheless, through 1990 large sums of private Venezuelan capital remained overseas, insulated from the uncertainties of the local economy. During the 1970s and 1980s, more than US$34 billion in private capital left Venezuela, ranking it as one of the world's severest cases of capital flight.

Data as of December 1990