Weekly Report - 13 January 2004

VENEZUELA | Central bank autonomy at stake. President Hugo Chávez has turned to bluster, accompanied by street demonstrations by his followers, in an attempt to press the central bank into lending the executive US$1bn from its international reserves (currently US$21.3bn) in order to finance agricultural development. He has been pursuing this aim since last November, and is now threatening to take the case before the supreme court if the bank's board of directors does not `at least sit down to discuss the matter' by 15 January. The central bank has reiterated its position that the constitution specifically bars it from making such a loan (it actually bars it from lending to support deficit spending, and from lending directly to businesses).

The bank says it can, however, increase the lending capacity of the banking system via rediscounts. The government had toyed with this option, with new legislation forcing the banks to increase their lending to agricultural activities — but recent developments suggest that it has chosen to put pressure on the central bank instead. The opposition says this provides a new example of Chávez 's `autocratic disregard for the law'.

PERU | `De-dollarising' the economy. Central bank president Javier Silva Ruete is determined to reduce further the degree of dollarisation of bank deposits this year, after having succeeded in bringing it down to 63% by the end of 2003. He also says he expects foreign direct investment to surpass US$2bn, which would entail a 5.6% increase on 2003. More than half of this target appears ensured by two projects: the development of the Camisea gas deposits (US$847m) and that of the Alto Chicama gold mine (US$340m).

Silva Ruete's economic growth target for this year is 4%. This would repeat the performance of 2003 (when, says Silva Ruete, `we could have grown by one point more had we not had so much political noise'). His only fear for this year is more of the same. `The economy,' he says, `is closely linked to politics, and consequently, if the media, the statements and the analytic centres start underlining negative situations, this will discourage or delay some investments.'