Andean Group - November 2006 (ISSN 1741-4466)

The government is forecasting that the economy will grow 9% this year and by at least 6% in 2007. The finance minister, Nelson Merentes, is budgeting on inflation coming in at below 12% in 2007. This year inflation looks like exceeding 15%. The government had originally budgeted on inflation of 10% in 2006, but increased this target to 12% at the end of September.

The 2007 budget is equivalent to 32.7% of GDP. Merentes claimed that the government would not overdepend on oil revenues to finance spending in 2007. The government is budgeting on an average oil price of US$29 a barrel in 2007. Currently Venezuelan oil is fetching US$49 a barrel. The average price for the first 10 months of the year has been US$58 a barrel. The export price of Venezuelan oil has fallen by almost a third in the past three months.

Despite this, the government is bringing forward the Christmas bonus for public sector employees to November. This is just before voters decide whether to give President Hugo Chávez another six years. The bonus is the equivalent of three months' pay. The cost of this largesse is likely to be around US$3bn.

The financial sector is benefiting from the boom. In the third quarter, banks' profits rose by 22% (year-on-year) and bad loans were extraordinarily low at less than 2% of total loans. Only Chile's banks have made fewer dud loans.

Inflation: In October inflation improved to 0.7 %, less than half the 1.9% rate recorded in September. This brought the 10-month rate to 13.4%. The 12-month rate is 15.5 % already above the 2005 rate of 14.4% .