MACRO ECONOMIA VENEZOLANA 2004

The daily journal. Financial supplement.Venezuela. Macro-Economic Outlook. Venezuelan macroeconomics are unordinary, more now than ever. This country gifted location provides it with vast energy resources that position it between the wealthiest of the region. Even with production under spare capacity Venezuela should be a good economic performer given the 5 year long oil price boom, on the contrary its Economy is shocking and its perspectives are uncertain.The management of the economic policies is as appalling as the political transformation. There has been a tremendous fall in productive activity; Central Bank figures real GDP contraction of -9.24% last year, while private consultants’ figures can be as high as 16.7% in 2002 and 29% in 2003. The past two years GDP trend has been downward sloping. These sectors have been the most affected: -49.8% in Construction, -23.7% Commercial activity and a -20.5% in Manufacturing. The unemployment index for March is 4, 7 points higher than last years, averaging 19.8%, more astonishing if we consider that the regime is practicing a labor immobility law.Soft-Line Consultants (Banking specialists) calculate as of February 2003 a Total amount of deposits of Bs.30 billion 775 thousand million (72.68% yearly increase) quite disproportionate in comparison with the Total amount of Credits totallingBs.10 billion 71 thousand million (only just %13.99% yearly increase). Another outstanding figure is the 114,75% rise in the totting up of bonds and stocks investment counting for 17 billion 699 thousand million. This can be explained by large emissions of rentable government papers designed to restructure the internal debt (remember some of these are the only way to acquire US dollars). Therefore the Internal Debt figurers are overwhelming; Bs.2.164.139MM in 1998 while in 2003 was Bs.20.635.099MM. The total of Internal Debt has increase 790% in the last five years. On the other hand the External Debt has been reduced by a 6% to Bs.22.026MM. The stock market closed index close this week at 27000, it averaged 22.203 in 2003, trading few sharers but highest than ever. The banking and financial sector is more regulated everyday day decreasing its intermediation. Interest Rates are at a low (considering inflation) averaging 20% also explained by the tight control, the closing of the economy and the rise liquidity derived from the foreign exchange control. Since 1999 the Capital Account has reflected the capital flees, and the Current Account shows the cuts in oil production, though 2002 and 2003 have been better than 2001. Last year we had the at least double of the inflation than any other Latin-American country totaling 27.10% rate of inflation, followed by Uruguay with 10.19%. The indicators that remain positive due to regulation and control on currency exchange are the International Reserve funds and the Capital Markets given that there are no real foreign investment opportunities; but the FIEM (monetary stabilization fund) although it grew to a maximum in 2002 is once again at the lowest possible level, this fund was intended to cushion eventual oil price drops. To conjecture under which assumptions Chavez is basing his economic policies is a hopeless task. The US is the primary market for Venezuelan Oil, as long as Chavez remains fulfilling his quotas the Anti US rhetoric will be tolerated, so bilateral relations are still strong though clouded by chat talk. Even though his disastrous economic policies. If he is able to maintain oil production and resume it to higher levels once its price drops, he can be in for a long term, if he doesn’t become able the exit might be a violent one provoked by the extreme poverty. The hope remains in the total catastrophe of the economy withdrawing the radical Chavez supporters. Rehabilitating the economy Hill will be costly and lengthy.