November 2, 2004
Venezuela: An economy that grows stronger each day

By Brazilian economist Luciano Wexel Severo
Published by Reportagem

"Two and a half years after the failed coup d'etat and three months after the recall that ratified Hugo Chávez as President until 2007, Venezuela seems to have consolidated the economical reactivation that started one year ago.

During the second semester of 2004, the GDP increased 13,6% compared to the same period last year, inflation dropped 4,8% and unemployment 3,6%. The private sector also showed an increase of 16,1%, while the public sector increased 5,9%. The higher growth rates were construction (28,2%), commercial activities (27,1%) and manufacturing (25,7%). Recovery started during the forth quarter of 2003, as a consequence of the effective nationalization of the state-owned oil company PDVSA and also due to currency exchange controls and price fixation of basic products.

The Minister of Planning and Development, Jorge Giordani, said "the national productive areas continue on a positive trend, with stability in exchange rates and increase in foreign reserves. Let's leave behind bad wishes from disaster prophets and forget their selfish interests". According to him, Venezuelan economy will have an average growth of 6% during the next two years, which is also the remaining period of President Hugo Chávez.

Unemployment rate is now the lowest in the last three years: in August, it was 14,2% of the economically active population, or 1.7 million people, with expectations for it to drop to 10% by the end of the year, together with a reduction in the informal sector. Inflation from January to August was 14,1% compared to 18,9% during the same period in 2003. On a yearly basis, prices increased 21,9%, compared to 30,4% last year. This helped food, clothing and electrical sales.

Manufacturing increased 53,9% during the first quarter and continued strong in areas of production such as vehicles, textiles and wooden products. Civil construction, which has a great impact on employment, increased 40,7% in this period.

During the first semester of 2004 manufacturing, commercial activities and construction accumulated variations of 37,9%, 34,9% and 33,6% respectively. Family consumption increased 4,2% in the fourth quarter of 2003, 7,9% in the first quarter of 2004 and 13,5% in the second quarter. But the country is still trying to recover from the failed coup d'etat and economical sabotage by business people related to external oil interests.

Venezuela submerged itself in a crisis from the beginning of 2002 to the end of 2003, during seven quarters the GDP dropped and both unemployment and inflation increased. According to the Ministry of Labour, the three months of national lockout brought serious problems in supplying food and other essential goods as well as destroying 750.000 employments. The price index that in 2001 varied 12,3% had increased by 31,2% at the end of 2002.
Continuous slumps in production were reflected in the levels of unemployment, income, prices and consumer behaviour.

According to the Minister of Finance, Tobías Nóbrega, even after three semesters of recovery, the GDP is still almost 14,5% below its expected value, provided there had been no attempts against the Venezuelan economy.

This economical recovery has silenced a government opposition that insisted on the idea of a "statistical rebound". Giordani says "we listen to death rattles of those who talk about a so called 'statistical rebound' and are unable to admit the ongoing recovery instead. When a ball is thrown to the sand, especially under these circumstances, it does not bounce back.

This is an alleged rebound in the Venezuelan productive sector, when in truth we had to survive attacks from those who aimed at destroying national oil production, and the whole country as well. Fortunately, reserve resources of the Venezuelan people made those suicidal attempts end up in the garbage can".

During the first seven months of the year, siderurgical production increased 13% and the government has been promoting metal-mechanic and automotive activities through a joint programme with China. The objective is to develop assembly plants to make buses, motorcycles, cars, trains and electrical outlets.

In order to support these and other projects, President Chávez's government is speeding up modernization of the hydro electrical central in Guri. Even though Venezuela has the greatest heavy oil reserve in the world, the sixth greatest of non-heavy oil and 3,6 billion cubic meters of proven reserves of natural gas, almost 70% of Venezuela's energy comes from hydro electrical reserves in Bolivar State, close to the border with Brazil.

The increase in agricultural production is also a priority. In Venezuela, agriculture was held back by oil related economy and it historically represents 5% of the GDP. This year, some states have already broken records in the production of beans, cotton, rice, corn, onions and milk. There are motivation schemes for the production of chicken, cattle, pigs and these conditions will allow the country to decrease import levels of these products.

Many of the areas of crop growing are rural properties organized in cooperatives, specially around the Social Programme "Vuelvan Caras". Some of them provide for "Mercal", the network of food and goods that has the purpose of controlling prices of basic products. Divestments and property regulations for unproductive land have been applied according to the terms of the Land Law of 2001. Nevertheless, there are a lot of owners involved who have benefited from the productive process.

It is very common to hear that President Chávez's government has benefited from high oil prices, but the reality is simpler than that. Up until September 2004, the average value of Venezuelan oil basket reached US$ 32,5 per barrel. On the other hand, amounts received by the current government due to oil exports are lower than the ones received by the five previous administrations.

This government has received 26% of the oil exports income received during the first period of Carlos Andrés Pérez (1974-79), 35% of the one received during Luis Herrera Campins' period (1974-89), 56% of the amount received by Jaime Lusinchi (1984-89), 49% of the amount received during the second period of Carlos Andrés Pérez (1989-93) and 85% of the amount received by Rafael Caldera (19944-98).

Supposing that oil prices remain in US$ 30 per barrel until the end of the year, in 2004 Venezuela will receive 60% of the oil income received in 1974, Nóbrega said. The president of PDVSA and ex- Secretary General of OPEC, Alí Rodríguez, said that, in order to receive the amounts received in 1974, each oil barrel would have to be worth US$73. It is also important to highlight the fact that by the beginning of 1999, one oil barrel was worth US$9, which is 303% less than a barrel of Coca Cola.

It is well known that since 1970 there has been a drop in the oil industry's fiscal contribution. These contributions represented 21,5% of the GDP during the first period of Carlos Andrés Pérez, 17,9% during the period of Campins, 11,3% during Lusinchi's government, 15,9% during the second period of Carlos Andrés Pérez and 9,3% during Caldera's administration.

In 1998, the year Chávez was elected, this indicator reached 5,5% of the GDP, the lowest in history. Chávez wanted to revert this situation, causing immediate reactions among compromised sectors, which led to the coup d'etat, the lockout and sabotages against economy.

Between 1999 and 2002, oil industry's fiscal contribution, in average, represented 8,9% of the GDP, with a tendency to go up. In October, one of the taxes applied to one of the oil companies that operate in the Faja del Orinoco was increased from 1% to 16,6% of the selling price per barrel. This action was based on the 1943 Hydrocarbons Law, which was in place during the "Oil Expansion" of the 90's, when concessions were made to companies like Exxon-Mobil, Chevron-Texaco, Total Fina and Cocono Philips.

"We are still dismantling the former appeasing and non-patriotic PDVSA, that used to make deals based on corporative interests. We are entering the real era of nationalisation of black gold. National sovereignty is a priority, instead of neo liberalism", Chávez said, at the time of that announcement.

Another important fact: between 1974 and 2004, Venezuelan population will grow from 12,3 million to 26 million. This means that oil income per capita today is lower. Even with lower oil incomes, this government (in real terms and per capita) has a public spending of 30% of the GDP, which is over the average of former governments. Chávez's government is well known for its investments in health, education, housing, safety and infrastructure at unprecedented levels. For the fist time, oil resources go directly to the gross of the population as part of a plan to defuse poverty generators. The 2001 Census showed that 63% of the population lives in poor villages or marginal areas. Chávez proposes the democratisation of capital in order to finance endogenous development areas, cooperatives, micro, small and medium businesses.

There are three mechanisms to lounge this plan: public investment, social programmes and private investments. PDVSA was turned into a weapon to fight against poverty using resources to cover basic needs of the population and promote programmes for professional training. Social programmes are not only ways to solve insufficiency problems in alimentary, analphabetism, unemployment and social exclusion areas. The idea is to incorporate into the productive sector, masses that have been historically excluded. This is done through a network of social programmes managed by the recently formed Ministry of Popular Economy. "Inclusion policies surpass the 'assistance approach' given by rentistical models. The objective is to create mechanisms to help overcome poverty, through permanent training, creation of jobs, defence of real salary and guarantees of public services that get better every day", explains the Minister Elías Jaua.

The third front is private investment, which represents 75% of the internal aggregate offer and is the core of gross capital generation in Venezuela. Mostly after winning the recall in August, Chávez has had important meetings with business people of different regions and productive sector, with the objective of collecting enough resources to form a national airline, a telecommunications company, the recovery of productive structures and agricultural plans.

These measures also seek to increase relations among Latin American countries in what Chávez calls the Bolivarian integration project. As an example, the recent inclusion of Venezuela in Mercosur and the different meetings held with governments and business people of Argentina, Brazil, Chile, Colombia and Uruguay. These actions have generated positive reviews, even from the International Monetary Fund (FMI), which calculates the increase in the Venezuelan GDP in more than 12% this year. At the same time, the last report by the Economical Commission for Latin America (CEPAL) ratifies that in 2004, Venezuelan economy will impulse the Latin American average. In this context, statements given by ministers in the economic sectors are even more optimistic and forecast a consistent growth of the GDP for the following two years".