The danger that renewed political instability poses for the economy is clear. In the first quarter of this year, economic output declined by 29%, following a two-month strike called by businesses and the trade unions. The strike was an attempt to force Chávez from office and had a major effect on the oil industry, the country's principal export earner and source of government revenue.
The finance ministry is busy tapping the international capital markets and drawing up next year's budget. The ministry is forecasting that the central government deficit will be about 3% of GDP, thanks to a non-oil deficit of around 10.6% of GDP. Oil revenues bring in around 80% of the country's export revenues and provide the government with around half its income. Oil export revenues are likely to be around US$22bn this year, but are vulnerable to any increase in oil production from Iraq. The Oficina Nacional de Presupuesto recognises that such dependence on oil is unhealthy. It argues, in its budget submission, that a fiscal reform to broaden the government's sources of income should be a priority.
The 2004 budget envisages government spending of between 18.2% and 21.4% of GDP. It calls for borrowing to be between 7.8% of GDP (if oil prices are high and economic growth is low) and 9.6% (if oil prices fall, and growth is stronger).
In 2003
Even the government recognises that this will be a year to forget. Although the oil has started to flow again after a two-month hiatus in December and January, the government is forecasting that the economy will contract by at least 10% this year. This is a more optimistic view than that of the IMF, which is forecasting a 17% contraction. The government is also forecasting 30% inflation and 20% unemployment. The government blames the opposition to President Chávez for the economic crisis. Yet, the latest economic statistics point to an economy that is continuing to implode. The chief customs officer said that imports in the first seven months of the year were 45.3% down on the same period of 2002. Separately, the car industry said that car output in June was less than half that of June 2002. Car production and sales are pitiful. The industry has built only 14,088 cars in the first six months of the year. Sales are running at about half last year's level: in the first six months of 2003, a total of 27,246 cars were sold.
Officially, the government is expecting the rate of contraction in the economy to halve, to around 15%, in the second quarter.
The big question for the economy is what is happening to oil production and what will happen to oil prices next year, especially if Iraqi oil production is allowed to increase. In Venezuela, oil production appears to have dipped in July by about 60,000bpd. The government claims that production is holding up at 3.1mbpd, but the opposition-supporting Gente del Petroleo claim that output was down to 2.63mbpd. The Gente claim that the government is having difficulty restarting production in and around Lake Maracaibo. Exports are running at about 2.13mbpd. The average export oil price in the first seven months of the year is US$25.7 per barrel.
What alarms economists is that the poor economic performance has occurred when oil prices have been strong. The average oil price so far this year is well above the US$18 forecast in the budget. The government is confident that oil prices, which provide about half its income, will hold up in 2004, and is forecasting growth of between 4% and 5% next year.
Unemployment
The unemployment rate reached 19.2% in May, according to figures released by the national statistics institute. The figure means that 2.3m people are now unemployed out of a potential workforce of 11.9m. The total population of Venezuela is 23m. May's unemployment rate is just 0.1% higher than in April, but is 3.9% higher than the same month last year. Current predictions are that the unemployment rate will hit between 22% and 25% by year-end. Although the government introduced legal measures in April 2002 to prevent companies from making redundancies (and extended them, on 15 July 2003, to January 2004), 540,000 people lost their jobs between May 2002 and May 2003.
Local economists expect unemployment to rise more quickly in the second half of the year. Few economists see domestic industry picking up. This is because the government's exchange control system, Cadivi, is still making it difficult for companies to import.
* Cadivi claims that it is processing its first applications from foreign investors to pay dollar dividends and import new technology. Cadivi has applications of just under US$90m to process. Separately, Cadivi said that it had received applications for US$526m to make foreign debt payments: it had approved US$217m and paid out US$180m. Among the hardest hit by the exchange controls have been Colombian exporters: Cadivi has approved only 25% of their applications (or US$134m) and paid out only US$71m.
End of preview - This article contains approximately 934 words.
Subscribers: Log in now to read the full article
Not a Subscriber?
Choose from one of the following options
