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DEVELOPMENT BULLETIN-VENEZUELA: Crash of Oil Prices reezes Economy, Heats Up Unrest

Estrella Gutierrez

CARACAS, Jun 20 1998 (IPS) - The crash of oil prices has frozen Venezuela’s economy and heated up labour protests and social unrest, which in turn are nourishing the possibility of a vote against the political system in December.

Public school teachers, doctors and other health practitioners participated in a “taking of Caracas” Thursday, demanding, among other things, higher wages.

Six million primary and secondary students have been out of school since Wednesday due to a 72-hour teachers strike, doctors and nurses are threatening a similar measure, and radiologists and laboratory workers have already walked out.

While the protesters marched through downtown Caracas and other cities, Labour Minister Maria Bernardoni urged public employees to understand that the country is highly dependent on oil and that revenues in that sector have dropped around five billion dollars this year.

This week, the price of the barrel of Venezuelan oil sunk to 8.43 dollars – close to what it cost 30 years ago when, paradoxically, today’s President Rafael Caldera was also on his way out, during his first term.

Never since then has the price of Venezuelan crude sunk so low, not even in 1986, when oil prices suffered their worst global crisis since the 1973 oil embargo pushed prices up in a spiral that did not taper off until 1983.

One political consequence of the socioeconomic deterioration fuelled by the debacle of oil prices is that an overwhelming majority of voters want a radical change in the way the country is run, a trend that favours presidential candidate and former coup- leader Hugo Chavez.

The latest opinion polls show that 82 percent of the population wants the Dec. 6 electins to bring profound changes to Venezuela’s democratic system, compared to 63 percent in January.

Front-runner Chavez, who has gathered together allies from the extreme left and right, says he would dissolve Congress and create a Constituent Assembly to “re-found” the republic, recentralise the country and revise the judicial system.

Chavez’ lead in the polls has widened in inverse proportion to the fall in revenues and the government’s incapacity to use “petro-dollars” to ease the social tension caused by the increasing instability of jobs, the collapse of services, and the rise in corruption and crime.

This year’s budget was initially based on a price of 15.50 dollars per barrel, a figure that now stands at 13 dollars after two downward revisions but is still too high, given that the average price for the year currently stands at 11.17 dollars.

In 1996, Venezuela sold its cocktail of crude oils for 18.39 dollars a barrel, and for 16.32 dollars in 1997. Oil accounts for 40 percent of the country’s budget, 77 percent of foreign-exchange and 22 percent of Gross Domestic Product.

On Wednesday, the Council of Ministers issued an unusual communique, explaining that in the first five months of the year fiscal revenues dropped 2.5 billion dollars, which meant the need for extreme austerity in spending.

In a signal for all unions of civil servants planning to go on strike, such as court employees, the Council of Ministers told teachers and doctors that no wage raises were possible this year, and that the only increase in income would come through so-called “wage-ification” from additional bonds.

Carlos Borges, acting president of the Venezuelan Workers Central and leader of the public sector’s 1.2 million employees, warned the government Thursday that labour “is close to collapse.”

He said the government must realise that the country was on the verge of “an uncontrollable escalation of conflict that would threaten democratic order” if some wage demands were not addressed.

According to government figures,70 percent of families in Venezuela live in poverty, while the oil crisis reverted the fall in unemployment, which currently afflicts 13 percent of the nine million economically active persons in Venezuela, which has a population of 23 million.

More than 60 percent of workers earn the minimum salary, meanwhile, the only wage set by the government, which has stood at around 184 dollars a month since May – almost half of the estimated cost of the basic consumer basket.

The Caldera administration hoped to close the last year of its term with six percent economic growth, inflation contained at around 25 percent, and bullish investment due to the opening of the oil sector to foreign companies, which was not discouraged by the crash in prices.

But in the wake of the drop in oil prices, official statistics released this week project that the non-oil economy will be pushed to the brink of a recession, inflation will be lucky if it is contained at 35 percent, and the fiscal deficit will climb to 3.5 percent if the government fails to find fresh resources – and fast.

Congress blocked the possibility Wednesday of increasing revenues by raising the sales tax, while efforts to privatise aluminum production and the electricity sector have run up against obstacles.

Planning Minister Teodoro Petkoff said Thursday that Venezuela suffered a cataclysm this year caused by uncontrollable external factors, such as the mildest northern hemisphere winter this century and the Asian crisis.

Amidst the rise in social and political tension and the diminished economic activity, the government finally received the hoped-for news Thursday that the International Monetary Fund (IMF) approved a “shadow accord” for supervising the local economy, which does not entail disbursements.

But the accord sets difficult inflationary and fiscal deficit objectives, and has apparently arrived too late to neutralise the negative impact on external and internal economic operators caused by the disorder triggered by the sinking of oil prices.

Investment banks, financial operators and credit-rating agencies have issued a flood of recommendations that investment in Venezuela be frozen until the results of the elections are in, because Chavez is campaigning on a vague economic platform, based on state controls.

 
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