SPAIN: Economy Could Threaten Socialist Government’s Plans

By Tito Drago Reprint | | Print |

Tito Drago

MADRID, Sep 27 2004 (IPS) - Negative trends in some of the main sectors of the Spanish economy are threatening the government of Socialist Prime Minister José Luis González and its plans for increased social spending and foreign cooperation.

Tourism, the country’s most important industry, accounting for 12 percent of its GDP, is experiencing a steady decline in growth.

The number of people visiting Spain increased by an average of 7.1 percent annually during the five-year period ending in 2001, compared to a mere 1.9 percent growth rate in the first seven months of this year.

These and other troubling signs are already being reflected in public opinion, according to a survey conducted in June by the Spanish Confederation of Savings Banks.

Asked for their views on their own personal situation as well as the national economy, 67 percent predicted economic stagnation, 18 percent are expecting improvement, and 15 percent believe that things will get worse.

The survey, released last week, revealed that 83 percent of the respondents expect a rise in inflation of up to three percent this year, said the Confederation’s director of statistics, Angel Laborda.

Official forecasts for this country of 43 million point to a growth in GDP this year of three percent – barely 0.7 percent more than last year.

The difficulties facing the tourism industry stem from the adoption of the euro as the national currency, and the fact that a stronger euro has made visiting Spain more expensive for many foreign tourists, explained José Prieto, president of the Costa del Sol Hotel Owners Association.

The Costa del Sol, as Spain’s Mediterranean coastline is known, is the country’s leading destination for both Spanish and foreign tourists.

Another factor, said Prieto, is the increase in the construction of condominiums for sale or rent in high-tourism areas.

The promotion of real estate development has been more detrimental than beneficial, in his view. "Apartment blocks are springing up like weeds," he complained, "taking over the land and using it up, and choking out the plants that really bear fruit." In his analogy, those "fruit-bearing plants" are hotels, of course.

Last year, more than ten million tourists opted for accommodation in private homes, either staying with friends or relatives or renting from the owners, which led to a hotel vacancy rate of 15 percent, according to a report by Frontur, a tourism studies institute.

At the same time, the flow of foreign investment capital into Spain has continued to shrink. After a drop of 21 percent in 2002 and 16 percent in 2003, investment has already plunged more than 50 percent in just the first half of this year, said Foreign Trade Secretary-General Alfredo Bonet.

Bonet attributed this fall to the fact that major international corporations have been forced to liquidate their investment positions in Spain in order to attend to internal financial needs.

The end result is that there is now twice as much investment capital leaving Spain as there is coming in. Much of the overseas investment is on the part of the financial sector, where one of the biggest players is Banco Bilbao Vizcaya Argentaria (BBVA), Spain’s second-largest bank.

BBVA invested three billion euros (roughly 3.6 billion dollars) to purchase the shares it needed for a controlling interest in Bancomer, Mexico’s largest bank. This single transaction represented one half of total Spanish investment overseas in the first half of the year.

Spanish economist Xavier Sala-i-Martín, now a professor at Columbia University in the United States, believes his country is "running a serious risk of dying of success and ending up with zero (economic) growth, like Germany."

Spain’s problem is that it has not done enough to promote an economy based on innovation, and this will become more obvious if the necessary measures – for example, educators inculcating the need for innovation and creativity – are not taken, said the economist, winner of the King Juan Carlos Prize in Economics.

A wholly different explanation was offered by Cristóbal Montoro, the minister of finance under the previous administration who is currently a parliamentary deputy from the centre-right Popular Party.

Montoro noted that Spain has experienced ten consecutive years of economic growth, successfully weathering international and European crises. But that economic growth is threatened, he claimed, by the measures being adopted by Zapatero.

These include announcements of increased public spending and the scaling back of reforms aimed at increasing competitiveness.

Spain’s Socialist Party government has also been forced to contend with strikes, protests and tough opposition in another major industry, shipbuilding.

Foreign competition, particularly from Asia, has led to a considerable slowdown in this sector, prompting the government to contemplate the privatisation of its shipyards.

The trade unions that represent the 10,800 workers at Spain’s 10 state-owned shipyards continued to stage protests throughout last week, despite Zapatero ‘s pledge that they will not lose their jobs even if the privatisation goes through.

Last Thursday evening, union and government representatives reached an agreement to leave the privatisation plans "on hold" and begin negotiations to seek a solution.

In addition to Spain’s domestic troubles, there is the fear voiced by economists of all political stripes over the threat posed by a further rise in oil prices, which are already soaring due to the U.S.-led invasion of Iraq and the violent resistance to the subsequent foreign occupation.

Although the Spanish oil company Repsol YPF is the fifth largest in Europe, the fact remains that Spain is an oil-importing country, and if crude oil prices on the world market continue to increase, there are bound to be negative repercussions for the country’s economy.

Given all of these factors, Spanish opposition parties contend that it will be impossible for the government to fulfil its promises of increased public spending at home and greater cooperation for development abroad.

For its part, the government denies these claims, putting them down to simple party politics.