VENEZUELA: Adjustment Going According to Plan

By Humberto Márquez Reprint | | Print |

Humberto Marquez

CARACAS, May 20 1996 (IPS) - The Venezuelan economy is “going according to the script” after neoliberalism was reimposed with a drastic adjustment programme a month ago, said Planning Minister Teodoro Petkoff Monday.

“We are in a bad way, but we’re going well,” he said Monday, adding that in his view the “inflationary leap” of April, May and June will be followed from July by “the second part of the film, that is, deceleration of the rate of price increases.

According to the US consultancy company Morgan Stanley, Venezuela, will close 1996 with inflation of 120 percent, the highest rate in Latin America and more than double the 1995 figure.

The local currency suffered linear devaluations of 70 percent in December and April, falling to a present low of 470 bolivars to the dollar, and it the US company predicted it will continue its plunge to around 701 to the dollar by the year’s end, and 981 by the end of next year.

“We are only waiting for them to tell us how many home runs Galarraga (a Latin American baseball player) will hit this season,” commented Petkoff ironically.

He said the economy was not merely numerology, and that some of Morgan Stanley’s data appear to date from before April and were therefore not correct for the present situation.

“It is dangerous for business, that people are being guided by figures which are not based on reality,” said the minister.

On April 15, after two years of erratic economic behaviour, seven incomplete programmes to reactivate production and fiscal discipline, and 21 months of controls, President Rafael Caldera went back onto the neoliberal path, bringing in a severe adjustment programme.

Petrol prices, under the State monopoly, rose to nearly six times their former value, the currency was devalued and exchange controls were lifted. Sales tax increased from 12.5 to 16.5 percent and prices, tariffs and interest rates were freed.

This was the second adjustment plan attempted by Venezuela in the last seven years, though the public have been watching their real earnings falling for the last 18.

The proposed objective of the measures is to reduce inflation, starting with reductions in the fiscal deficit – considered the motor of price increases.

This deficit totalled 5.6 percent of the Gross Domestic Product (GDP)in 1995, though Morgan Stanley estimated it was nearer to 8.4 percent, and would fall to between seven and eight points this year.

Were this the case, the debt would eat up a third of the budget, but the government assured that they planned to cut the rate to a mere two points this year.

Morgan Stanley said this was possible, but warned that investors needed to be given confidence in Venezuela, something they say will only be achieved if the nation remains strictly true to the adjustment programme with help from the International Monetary Fund (IMF).

Meanwhile, figures presented by Finance Minister Luis Matos contrasted strongly with the consultancy findings. He said inflation would stand at 95 percent for 1996, falling to a third of this amount in 1997.

Inflation in Venezuela went from 70 percent in 1994, to 56.7 percent in 1995, to 34 percent in January to April this year – meaning an annual rate of 85.6 percent – nearly three times the rate of Uruguay or Mexico, the other regional inflation kings.

During the first four months of 1996 prices rose at a rate of eight percent per month, and higher rates are expected for May and June. After this, if we can believe Petkoff, the “second half of the film” will start with falling prices.

His confidence stems from the fact that so far all has gone according to plan since Apr 15, “and when it has diverged from (the script) it has been for the better, as the dollar has been below the rate initially forecast.”

The initial estimates expected the dollar to remain at around 500 bolivars, will strong intervention expected from the Central Bank in order to maintain it at this level. However, for several weeks it has been sticking around the 465 to 475 level.

Nor has there been a strong leeching of reserves.

Some people had expected this to reach levels of between two to three billion dollars, but reserves have remained at around 9.9 billion dollars, and have even increased in some weeks.

Matos added that if the current situation persists Venezuela may even not have to use all of the 1.4 billion dollar loan approved by the IMF for this year in order to shore up reserves.

Meanwhile, the government, specialist companies like Morgan Stanley, the IMF and business organisations all agree there will be reductions in economic activity this year, except in the oil sector, which provides 25 percent of Gross Domestic Product (GDP).

But even though the petrol sector keeps booming the Venezuelan economy shrank by one percent in 1993, 3.3 percent in 1994, rose 2.2 percent in 1995 and is expected to fall by between zero and one percent, according to the government, and two percent according to other sources, in 1996.

Agriculture, manufacturing and construction have all seen severe reductions in investment, contracts and employment opportunities, though the bank said these sectors were still doing better than during the 1994 crisis.

Petkoff insisted that “Agenda Venezuela” must not falter, and he reiterated “we are in a bad way, but we’re going well.”