Venezuela experienced economic challenges for many years due to poor governance and inappropriate economic policies. First, the governmentâs decision to increase the loyalty charged to oil companies was a poor decision that led to the withdrawal of investors, lowering the national income. According to Chugunov et al. (2021), a nationâs economic development rests on its resource endowment and utilization procedures, including exploration and business interactions with external investors. In this case, Venezuela failed to effectively utilize its oil resources since its exploration declined after investorsâ withdrawal. Second, the government mismanaged the national oil company by employing non-professional political affiliates, worsening the countryâs economic situation.
The International Monetary Fund (IMF) is among the key financial bodies aiding countries in economic crises. Venezuela failed to obtain help from the IMF due to its dysfunctional government, social-political issues, and financial instability. The IMF considers governmental recognition before allocating funds to any nation, a test Venezuela failed (Hill, 2021). Dollarization entails a governmentâs acknowledgment of the dollar as its medium of exchange, either fully or alongside the domestic currency (Park & Son, 2022). Since Venezuelaâs currency was rendered worthless due to its high inflation levels, it would be challenging for other nations to engage in economic exchange with Venezuela, making dollarization the best solution for economic recovery.
Venezuela needs to adopt full dollarization since its currency is not useful for local and international business. To achieve this, the government needs to give up its ability to control monetary policies to the U.S. Federal Reserve. This implies that issues such as money supply will be outside the governmentâs control. In addition to dollarization, Venezuela may achieve economic stability by improving its fiscal and monetary policies to attract investors (Hill, 2021). More resources should be allocated to infrastructural development instead of funding social programs.
References
Chugunov, I., Pasichnyi, M., Koroviy, V., Kaneva, T., & Nikitishin, A. (2021). Fiscal and monetary policy of economic development.European Journal of Sustainable Development, 10(1), 42-42. Web.
Hill, C. (2021). International business: Competing in the global marketplace (13th ed.). McGraw Hill.
Park, H., & Son, J. C. (2022). Dollarization, inflation and foreign exchange markets: A crossâcountry analysis. International Journal of Finance & Economics, 27(3), 2724-2736. Web.