The Big B – Solutions
Answer 1 –
1. Affordable living: The economy has large imbalances that will have to be adjusted. Therefore, the first thing I’ll ensure is that poor and working Venezuelans do not suffer from the adjustment. This means setting up a system to make sure that food, medicine, and other essentials are available at affordable prices. Venezuela also has funds to ensure that most citizens have access to necessities at affordable prices. So, it is definitely possible to set up a food-stamp-type system under which people are protected from price increases, and shortages are eliminated.
2. Official dollarization: Venezuela’s bolivar is low and its annual inflation rate is the world’s highest. Not surprisingly, Venezuelans get rid of their bolivars and replace them with U.S. dollars. So, Venezuela is, to a large extent, unofficially dollarized. To stop Venezuela’s death spiral, I’ll officially dump the Bolivar and officialise dollar. Official dollarization occurs when only the reserve currency is used and everything is repriced in terms of the reserve currency and hence individuals protect the purchasing power of their money income. So my government will officially recognize US Dollar as the official currency, eliminate the bolívar and thus eliminate the need for a central bank or other monetary authority. Countries that are officially dollarized produce lower, less variable inflation rates and higher, more stable economic growth rates than comparable countries with central banks that issue domestic currencies. Dollarization is a tested and true way to stabilize the economy. Stability might not be everything, but everything is nothing without stability.
To prevent booms and busts, I’ll allow full financial integration where there are no limits on the transfer of the dollars, either into or out of Venezuela and no limitations on foreign businesses operating within the country.
Dollarization Statute: A) The Banco Central de Venezuela (BCV) shall cease to issue Venezuelan bolivars.
B) Wages, prices, assets, and liabilities shall be converted from Venezuelan bolivars to U.S. dollars.
C) Nothing in this law shall prevent parties to a transaction from using any currency that is mutually agreeable.
D) Appointed committee of experts on technical issues connected with this law to recommend changes in regulations that may be necessary.
E) This law takes effect immediately upon publication.
3. Shifting towards a Capitalist Economy: Venezuela has a socialist economy meaning that the means of production are owned by the government. To prepare the shift towards the Capitalism, I’ll pursue for free market economy and free operation of capital markets. Therefore, shifting towards Capitalism where means of production are owned by private individuals. It is an automatic self-regulatory system motivated by self-interest of the individuals and regulated by competitions. Profit guides production in this kind of economy. In a capitalist economy
? Private property is allowed. All means of production like implements and machines etc. come under private property.
? Price mechanism: Prices are determined by interaction of demand and supply without interference of government or other external forces.
? Freedom of enterprise: everyone is independent to his means of production in any occupation of his choice.
? Sovereignty of consumer: The consumer, here, plays a vital role as the entire production pattern is based on desires and wishes and demands.
Why Capitalism? Capitalism ensures that an economy will produce the most desired products at an acceptable price. That’s because consumers will pay more for what they want the most. Businesses then provide what customers want to obtain the most profit. At the same time, they make their production as efficient as possible. This is because the companies that keep their costs low will receive more profit. And this all will help me to have what I want the most right now, capital. Foreign companies will settle and invest and government expenditure would decrease therefore defining Capitalism in Venezuela.
4. Adjust to lower international oil prices:
Adjusting to lower oil prices over the intermediate and longer run will mean diversifying the economy away from oil. This is beneficial for a country like Venezuela as they suffer from the “dutch disease”. They are neglecting the other potential sectors of their economy and that has an adverse effect on their development and well-being. With high rates of inflation, poverty and unemployment, every little step towards increasing the national income of country is beneficial. And that is why they need to adjust to the lower oil so that they focus on other revenue generating areas.
5. Eliminate dysfunctional price controls: Once these measures are taken, and consumers are protected from rising prices for essential goods, the government can begin to lift some of the dysfunctional price controls. Gasoline price increase is step in the right direction, but there are other price controls on food and household items that will need to be relaxed in order to eliminate shortages. This will save billions of dollars of foreign exchange lost to smuggling.
6. Encouragement of Entrepreneurship:
Entrepreneurs are important for any country. Their innovations will improve the standard of living and they create jobs.
They generate wealth which is added to the national income. They also create social change and may lead to community development. Venezuela is the perfect example of a country that is in need of employment and innovations. Human resources need to be utilised to the fullest and for that they need to be given business opportunities. The designs, innovations, services etc. of the entrepreneurs not only are profitable for the same but also may improve the standard of living of the people.
7. FDI: It is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It involves more than just capital investment and may include technology and provision of management as well. It benefits the host country. Their companies need the sophisticated investors’ funding and expertise to expand their international sales. Venezuela can prosper from this as the recipient businesses receive “best practices” management, accounting or legal guidance from their investors. They can incorporate the latest technology, operational practices and financing tools. By adopting these practices, they enhance their employees’ lifestyles. That raises the standard of living for more people in the recipient country. FDI rewards the best companies in any country. It reduces the influence of local governments over them. As the recipient company benefits from the investment, it can pay higher taxes. Also, it offsets the volatility created by “hot money.” That’s when short-term lenders and currency traders create an asset bubble. They invest lots of money all at once, then sell their investments just as fast.
That can create a boom-bust cycle that ruins economies and ends political regimes.
8. Increase in interest rates through the Federal Reserve: The Federal Reserve rate is the rate at which banks borrow money from the government, but, in order to make money, they must lend it at higher rates. So, when the Federal Reserve increases its interest rate, banks have no choice but to increase their rates as well. When banks increase their rates, less people want to borrow money because it costs more to do so while that money accrues at a higher interest. So, spending drops, prices drop and inflation slows.
9. Directly or indirectly reducing the money supply: Two examples of this include calling in debts that are owed to the government and increasing the interest paid on bonds so that more investors will buy them. The latter policy raises the exchange rate of the currency due to higher demand and, in turn, increases imports and decreases exports. Both of these policies will reduce the amount of money in circulation because the money will be going from banks, companies and investors pockets and into the government’s pocket where they can control what happens to it.
Answer 2 –
1922 was a turning point in the history of Venezuela. The blowout of the Barroso No. 2 well in Cabimas in that year marked the beginning of Venezuela’s modern history as a major producer. This discovery was worth the attention of the nation and the world. When this happened, Venezuela was already at a low point with a low GDP and depleting natural resources.
As the President, Juan Vicente Gómez, we have two paths in front us. Them being either rapid commercial exploitation of the resource and earn profits and add to the growth of the country or being precautious about it. Considering the examples of countries that have huge oil reserves, we know that too much of a good thing can also be hazardous. It can lead to conflicts and corruption around the resource which is not good for the country in the long run.
Taking in the pros and cons, we’d like not to rapidly sell oil and set limits to the number of barrels it will produce in a day and this is because we do not want to be in a situation where oil production controls our economy. Yes, it may be beneficial to go with the low by exporting and producing oil as much as the resource will allow but it would only bring short term profits. In a situation like this we need to consider all the long term effects on the country, not only on the ecosystem but also the social factors affecting lives of millions of Venezuelans. Rapid and excessive oil production will bring prosperity by increasing our imports but we fear it may lead to a ‘dutch disease’ and our failure of neglecting the other sectors of the economy. Moreover, we cannot allow sudden and huge amounts of FDI in the country by the oil companies as oil production affects not just the environment but also the lives of the people living the in area. Xenophobia is the fear and distrust of that which is perceived to be foreign or strange. Xenophobia can manifest itself in many ways involving the relations and perceptions of an ingroup towards an outgroup, including a fear of losing identity, suspicion of its activities, aggression, and desire to eliminate its presence to secure a presumed purity. We would like to keep aggression of the masses at minimum. A low exchange rate, a stabilization fund, careful investment of resource revenues (including in the country’s people), a ban on borrowing, and transparency (so citizens can at least see the money coming in and going out) is required to avert future crisis.
Answer 3 –
There are some natural resource rich prosperous countries like Australia, Botswana and Norway. Countries which have not been prosperous, like Angola and Sierra Leone, natural resources have been at the heart of violent conflicts with devastating effects for society. For example, Democratic Republic of Congo, it is the world’s largest producer of cobalt and one of the largest producer of industrial diamonds but at the same time, it has the world’s worst growth rate and the 8th lowest GDP per capita over last 40 years. Sierra Leone and Liberia are similar – they possess immense natural wealth, yet they are found among the worst performers both in terms of economic growth and GDP per capita. Countries such as Bolivia and Venezuela are not as extreme their resource wealth in terms of natural gas and oil respectively seem to have brought serious problems in terms of low growth, increased inequality and corruption. What brings the real skepticism on ownership of natural resources is that some of the world’s fastest growing economies over the past decades – such as Hong Kong,South Korea and Singapore – have no natural wealth the picture that emerges is that resources seem to be negative for development.
The economic explanation of the resources curse suggests that a resource generates additional wealth, which raises the prices of non-tradable goods, such as services. This, in turn, leads to real exchange rate appreciation and higher wages in the service sector. So, the resulting reallocation of capital and labor to the non-tradable sector and to the resource sector causes the manufacturing sector to contract (de-industrialization). Contraction of the manufacturing sector is not necessarily harmful but if manufacturing has a higher impact on human capital development, product quality improvements and on the development of new products, this development lowers long-run growth.
Increased volatility that comes with high resource dependence. In particular, it has been suggested that irreversible and long-term investments such as education decrease as volatility goes up. If human capital accumulation is important for long run growth this is yet another potential problem of resource wealth.
The impact of resources on development is heavily dependent on the institutional environment.
If the institutions provide good protection of property rights and are favorable to productive and entrepreneurial activities, natural resources are likely to benefit the economy by being a source of income, new investment opportunities, and of potential positive spillovers to the rest of the economy. However, if property rights are insecure and institutions are “grabber-friendly”, the resource windfall instead gives rise to rent-seeking, corruption and conflict, which have a negative effect on country’s development and growth.
In short, resources have different effects depending on the institutional environment. If institutions are good enough resources have a positive effect on economic outcomes, if institutions are bad, so are resources for development.
In resource-rich countries with bad institutions incentives become geared towards collecting revenue from the resources while in countries where institutions render such activities difficult resources contribute positively to growth. If a country’s institutions are bad, resources that are more valuable, more concentrated geographically, easier to transport etc. – such as gold or diamonds) are more “dangerous” for economic growth. The effect is reversed for good institutions – gold and diamonds do more good than less appropriable resources.
Moreover, resource-rich countries often do not pursue sustainable growth strategies. They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer.
Threat to democracy, conflict over access to resource rents gives rise to corrupt and undemocratic governments.
Briefly, the backdrops of being the owner of natural resources are:
? Resource-rich countries tend to have strong currencies, which hinder other exports;
? Because resource extraction often entails little job creation, unemployment rises;
? Volatile resource prices cause growth to be unstable, aided by international banks that rush in when commodity prices are high and rush out in the downturns.
? Political instability
Answer 4 –
Wetness is a physical condition of an object defined by being covered or saturated with water or another liquid. It is a state of being. Wetness necessitates saturation with some sort of liquid, be it water or any other. A liquid cannot be saturated or covered with itself, therefore it is not wet, but rather induces wetness upon physical contact.
A shirt becomes wet because the space between fibers becomes saturated with water. The water is trapped by physical compression and electrostatic means, suspended within the porous matrix of the cloth.
The hydrogen bonds between water molecules and those of other objects are the cause of wetness. Water, in the absence of any other molecules, is not wet. It is only through contact and thus electrostatic bonding that water causes wetness.
Water is not wet, it wets.