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Venezuela: Central Bank and PDVSA Figures in Contradiction

By Víctor Salmerón | El Universal

The Central Bank points out that the rally of the Gross Domestic Product in the first quarter of this year resulted from the rise in spending and the increase in investments.

Caracas, 25 May 2005 | Fueled by high oil prices, the wheels of the economy keep turning. Central Bank figures register an increment of 7.9% in the first quarter of 2005, which has GDP jumping to slightly above what it had reached in 1998, up until now, the best results in the last eight years.

Increased spending, not only public (8.5%), but also private (12.2%), as well as a rally in investments, explains the advance. Banco Central de Venezuela (BCV) reports that “the latest Government spending was brought about by the escalation in the services it renders, especially in matters of health and education.”

In the private sector the rebound in spending results from “the improvement in employment levels, the rally in credit financing, and from the greater benefits being delivered by the government to the homes, where the sale of subsidized products through Mercal stands out.”

Upon analyzing in detail the behavior of the different sectors, the Central Bank points out that non-petroleum activity advanced 9.3%, while the petroleum sector remained stagnant and registered a minimum growth of 1%.

The push coming from the non-petroleum sector of the economy contributed to a jump of 15.4% experienced by construction, while manufacturing grew 6.4%, commerce 17.8% and transportation 14.7%.

PDVSA's driving force does not show any signs of dynamism. The BCV report indicates that the petroleum public sector, which registered consecutive drops during the third and fourth quarters of 2004, only grew by 0.1%.

By contrast, private petroleum corporate activity advanced 4.1%, driven “mainly by investments and the starting up of new plants for crude oil improvement.”

Shopping Spree

The Venezuelan economy has fallen into a boom in imports, financed by a gush of petrodollars coming in as a result of the stellar leap in the price of crude.

While Chávez’s economic team speaks of “endogenous development,” figures reveal that purchases abroad, not associated with petroleum industry activity, add up to $4.635 billion in the first quarter of this year, the highest amount since 1997, and which surpasses by 57% that of same quarter in 2004.

Many Doubts

Given that the Central Bank assures that “the results appear to be solid and show a positive tendency in most of the sectors of the economy,” there is a consensus among analysts that the growth is being sustained by a jump in pubic spending, and that as soon as the price of oil blinks an eye, the rumbling will return.

Between 1999 and 2004 Government spending, financed mainly by volatile revenues from oil and the issuing of debt, has increased by 11 GDP points.

Alejandro Grisanti, director of Ecoanalítica, explains that “all economists who do not work for the Government agree that we are faced with the same model as that of the first administration of Carlos Andrés Pérez, with the aggravating circumstance that the private sector basically is only utilizing its already existing excess capacity; this is made evident by the low level of employment being generated in the formal sector of the economy.”

He immediately added that according to figures from the National Statistics Institute (INE) between March 2004 and March 2005 the private sector created only 195,000 jobs, an insignificant number in a country where double-digit unemployment continues and more than 4 million Venezuelans eke out a living on the sidewalks of the informal economy.

“According to our calculations, in order to reduce the informal economy from 50 to 30% and have unemployment at 7% it is necessary to create 7 million jobs in the next ten years, and this gives us an estimate of how far we are from having adequate growth,” explained Alejandro Grisanti.

Translation by W.K.

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