Economics & Finance
Venezuela’s recovery from Latin America’s longest slump gaining momentum
Venezuela’s gross domestic product expanded at the quickest pace in almost three years in the first quarter as government spending backed by higher oil prices helped the economy emerge from Latin America’s longest recession faster than expected. The country’s GDP rose 4.5% in the first three months of the year from the same period in 2010, the central bank said today in an e-mailed statement. Growth was more than twice as fast as the 1.7% median estimate of eight economists surveyed by Bloomberg. The rise in the price of oil to the highest level since 2008 has increased Venezuela’s revenue even as its oil sector contracted. First-quarter growth was the fastest since the 7.2% expansion posted in the second quarter of 2008 and should bolster President Hugo Chavez’s popularity ahead of next year’s elections, said Finance Minister Jorge Giordani. “Venezuela is turning the page and is in recovery,” Giordani said today during a press conference in Caracas. “Growth will contribute to President Chavez’s leadership in the 2012 elections.” Venezuela will grow more slowly this year than any other major economy in Latin America, according to the International Monetary Fund. Venezuela’s economy will expand 1.8% in 2011 compared with an average of 4.8% in South America, the IMF said in its World Economic Output report. (Bloomberg, 05-17-2011; http://www.bloomberg.com/news/2011-05-17/venezuela-s-recovery-from-latin-america-s-longest-slump-gaining-momentum.html)
Domestic demand rises; oil falls and construction plunges
Imports rose 22% in the first three months of the year, boosting internal demand as more foreign currency was made available to businesses through the Foreign Exchange Board, known as Cadivi, and the central bank administered currency market, known as Sitme, according to a central bank report released today.
Leading the first-quarter jump in growth, commerce expanded 10.4% in the January-through-March period from a year earlier while manufacturing rose 7.6%. However, the construction sector shank 7.7% even as Chavez launched a campaign to eradicate Venezuela’s housing deficit of 2 million homes. Oil, the main driver of Venezuela’s economy, declined 1.8%. Venezuela posted a current account surplus of U$D7.5 billion in the first quarter, the central bank said. The capital account posted a deficit of U$D10.5 billion in the first three months of the year, according to the central bank. (Bloomberg, 05-17-2011; http://www.bloomberg.com/news/2011-05-17/venezuela-s-recovery-from-latin-america-s-longest-slump-gaining-momentum.html)
The government now controls 32% of imports
Direct public sector imports increased 24% to settle at U$D 3.045 billion in order to meet a 3.7% rise in consumption in the first quarter. The State has also increased its control over foreign purchases. Government share of total imports has grown to 32% all imports, from 19% during the first quarter of 2007. Central Bank President has said: "It is important to underline the gradual changes in the composition of Venezuelan imports toward the public sector, as they have increased for each of five consecutive years". More information in Spanish. More information in Spanish. (El Universal, 05-20-2011; http://www.eluniversal.com/2011/05/20/el-gobierno-pasa-a-controlar-32-de-las-importaciones.shtml)
Public spending loses ability to boost Venezuelan economy
Determined to promote economic growth, the Venezuelan government has used windfall oil prices to boost spending. While successfully implemented in the recent past, this formula no longer yields the same results.
In the first quarter, Venezuela's public spending -after inflation- rose 10.4% and hit the highest level for any first quarter since 1998. However, the Venezuelan economy grew only 4.5%, far below the substantial growth rates of 8% and 9% recorded in 2005-2007. Alejandro Grisanti, an analyst at Barclays Capital, a British investment firm, said that "clearly, as the private sector has been cornered, public spending is generating less economic growth." (El Universal, 05-19-2011; http://english.eluniversal.com/2011/05/19/public-spending-loses-ability-to-boost-venezuelan-economy.shtml)
Venezuela offers the worst business climate in Latin America
Business climate in Latin America fell 5.6% in April 2011, the same level as April 2010, according to the index prepared by the Brazilian Center for Economic Studies Getulio Vargas Foundation (FGV). The so-called Economic Climate Index (ECI) in Latin America -which in July 2010 reached 6.0, its highest level ever- had declined to 5.8 in January 2011 and maintained a downward trend in April, according to a study prepared by the FGV and the Institute for Economic Studies (IFO) of the University of Munich (Germany). The deterioration of the business climate in Latin America in April is due to lower economic expectations for the next few months. Chile leads the ranking, followed by Ecuador, Bolivia and Venezuela as the countries with the worst economic climate in Latin America. (El Universal, 05-19-2011; http://english.eluniversal.com/2011/05/19/venezuela-with-the-worst-business-climate-in-latin-america.shtml)
INE: Venezuela's unemployment remains at 8.1% in April
Venezuela's unemployment rate in April 2011 (8.1%) remained virtually the same as the same period last year (8.2%), according to the National Statistics Institute (INE). The number of people unsuccessfully looking for a job in Venezuela was 1,070,128 in April. The joblessness rate remains much higher among young people. In the age group of 15-24, the unemployment rate stands at 16.8%. People employed in the formal sector of the economy have increased, according to the official data disclosed by INE. (El Universal, 05-18-2011; http://english.eluniversal.com/2011/05/18/ine-venezuelas-unemployment-remains-at-81-percent-in-april.shtml)
Venezuelan government guarantees supply of basic food items
Iván Gil, the Vice-Minister of Agro-productive and Agrifood Circuits, Ministry of Agriculture and Lands, said that the Venezuelan government’s supply of basic food items is enough to meet domestic demand. "We can assure the country that production and supply indexes show that we are able to meet (Venezuelan) people's food demand," he said. (El Universal, 05-17-2011; http://english.eluniversal.com/2011/05/17/venezuelan-govnt-guarantees-supply-of-basic-food-items.shtml)
Venezuela checks Cargill warehouse amid shortages
Venezuelan officials and soldiers inspected a warehouse of U.S. agribusiness giant Cargill Inc on Wednesday as part of a crackdown on alleged hoarding and price-gouging with foodstuffs. During his 12 years in power, President Hugo Chavez's socialist government has had fractious ties with private business, nationalizing swathes of the economy and in the last two years increasingly eyeing the food and agriculture sectors. With Venezuelans complaining of oil, flour, meat and other shortages in recent days, Chavez over the weekend urged ministers to hunt speculators and said he would have no hesitation in expropriating any companies found guilty. (Reuters, 05-18-2011; http://www.reuters.com/article/2011/05/18/venezuela-cargill-idUSN1827990720110518)
Gold production at Venezuela’s state-owned CVG-MINERVEN dropped to 1.7 tons in 2010, from 4 tons estimated, due to financing difficulties in repowering its plants; according to the company president. The gold producing company, and other basic industries, have been hit by a series of labor disputes and problems with technological adaptation. MINERVEN president Luis Herrera, said that in the short term Bs 300 million (U$D 70 million) are required to again reach production levels of 4 tons of gold. "We are in talks with the Central Bank of Venezuela to activate operations because it has been difficult to get financing from private and public banks ", said Herrera. More information in Spanish. (Ultimas Noticias; http://www.ultimasnoticias.com.ve/Noticias/Actualidad/Reuters--Minerven-se-hunde.aspx)
Government penalty policies fail to curb rising prices
As inflation in Venezuela continues to gain ground, authorities blame higher prices on speculation and have resorted to laws and penalties to deal with skyrocketing prices. However, this strategy has failed to curb inflation.
Venezuelan authorities optimistically estimated this year’s inflation in 2011 at 23%, the highest in Latin America.
Last weekend, President Hugo Chávez threatened major private food distribution channels involved in speculation and hoarding with a partial takeover by workers and community councils. (El Universal, 05-17-2011; http://english.eluniversal.com/2011/05/17/governments-policy-of-penalties-and-laws-fails-to-curb-rising-prices.shtml)
The following brief is a synthesis of the news as reported by a variety of media sources. As such, the views and opinions expressed do not necessarily reflect those of Duarte Vivas & Asociados and The Selinger Group.