January 3, 2006
Interview with Armando León, member of the Board of Directors of the Venezuelan Central Bank

(El Mundo) - "In order to talk about the Venezuelan economic scenario, we called Armando León, member of the Board of Directors of the Venezuelan Central Bank, who said the national economy has entered a 'long term growing process, unless we make mistakes from the past'.

By definition, Venezuelan economy is conditioned by the fate of oil prices and these are not expected to drop any time soon. However, with all the motivation this implies, Armando Leon says the greatest boost in Venezuelan economy in 2006 will not come from the oil sector. The economy grew 9.4% in 2005 (...)

'This phenomenon which started at the end of 2003 is a long term process. These nine quarters of non-stop growth of the GDP seem to be just the beginning and the Venezuelan economy has entered a spiral growing period with high social participation as well. This could be prolonged for five more years, unless we incur in mistakes from the past and the process is reverted due to lack of trust from investors and economic agents'.

-What mistakes?

Until now, Venezuelan laws and its constitutional frame have favoured the creation of a new type of investor, a new society of owners that could maintain this growth. However, these sectors could show a parasite dependency on the government and its investments.

The injection of capital from the government is important in order to boost the economy, but small businesses and co-operatives cannot be tied to the government's actions.

-You talk about a new type of investor and owner. Does this mean a replacement of the usual actors?

I think we need to harmonize the coexistence between small and large investors, as well as between small and large owners. This plan failed in the past.

The existence of some does not imply the extinction of others, the way it happened in Venezuela before, when big companies swallowed the initiatives of those who started businesses at a smaller scale.

-More business people and more variety in the production.

Yes. It is a chance for the economy to keep on diversifying and stop depending on the oil sector. The latter is unacceptable, as demonstrated in the results from 2004 and 2005. This past year, non-oil related sectors grew 10.3%, which means the production is being diversified.

-Where, specifically, is that growth?

It is clearly shown in the results of 2005 where the manufacturing sector grew 8.7%, commerce and services grew 19.9% and the construction sector, related to large projects, grew 20.1%. There are other not less relevant sectors that also registered growth.

However, the most important thing is the fact that these results were achieved with inflation levels below the expected for last year, estimated in 15%. We closed the year with inflation of 14.4%, much less than in 2004, when it was 19.2%.

-Where will we be growing in 2006?

The strength of economic growth will be in non-oil related sectors. We can see this reflected in the large amounts of money moved by many companies within the currency exchange controls, as well as in the contributions they make to the Inland Revenue.

-What will be the amount of dollars available in CADIVI (foreign currency control system) for the private sector this year?

It could be 9 billion dollars. Last year the amount was around 7 billion dollars, which shows the administration of the foreign currency control system is very efficient and companies have show dynamism.

-Why so optimistic?

It is forecasted that large investment projects, especially in the infrastructure sector, which were being carried out during 2005, will continue this year. If the government allows this to flow without any problems, we will have the chance to have the goal of 5% growth as the starting point during 2006. This year will have much more than oil production. That, I know.

-Is the picture still good when you look at employment and inflation?

Elimination of employment is easy and its creation is a process. That is why I think if the investment flow in construction projects continues, unemployment will keep below 10%.

-What about the prices?

If there are no adjustments in the exchange rate and considering the dollar's alternative market continues to be stable, there is a possibility to keep the Consumer Price Index under control and have it close the year 2006 at 10%. Besides, there could be a larger offer if there is more economical activity, allowing prices to drop. If the exchange rate is maintained, this would give the government space and opportunity to be flexible, as it has been until now with exchange rates, control over prices and improvement of the competitive market.

-Which sectors will grow this year?

There is no doubt that the construction sector related to large scale projects and housing policies. Other sectors will be the financial, metal-mechanic, chemical, and petro-chemical ones. Telecommunications will grow too.

-What about the people's stomach?

The food sector will also grow because there has been a recovery in consumption, mostly in the private sector. Improvements in families' incomes have materialized in their daily purchases, due to a recovery in employment and the provision of resources by social programmes (...)".