VENEZUELA-ECONOMY: Population Won’t Yet Feel Recovery

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Aug 21 1997 (IPS) - Venezuelans will not feel the effects of the economic recovery until the administration of Rafael Caldera hands over the reins of government in 1999, the government’s top economic official admitted.

Speaking with foreign correspondents, Finance Minister Luis Matos painted a promising outlook for the economy, which after a three-year recession is expected to show four percent Gross Domestic Product (GDP) growth this year and five percent in 1998, to level out at six percent in 1999.

But the minister acknowledged Wednesday that the only way Venezuela’s impoverished population would begin to feel the effects next year of the structural adjustments undertaken in 1996 would be if the government resorted to populist measures – for which the next administration would have to foot the bill.

Matos pointed out that this year the government began to push through structural reforms such as changes in the social security system, which – he added – would bring significant benefits in terms of pension funds and healthcare for workers.

But he added that before the end of its term, the government of Caldera (an independent Christian Democrat) would be able to do little in shrinking the informal economy, which by late June accounted for 48 percent of the economically active population.

He underlined, however, that on Feb. 2, 1999, Caldera would leave his successor a country enjoying political stability, a healthy economy and guaranteed high and steady growth with low inflation as of 1999, as well as a new social security system.

Matos also told the reporters that in 1998, the government would break the tradition of resorting to populist measures in election years. “There is no danger that the government will abandon its austerity programme,” he stressed.

Nevertheless, next year’s inflation rate will be modest, he promised – around 15 percent, down from this year’s projected 35 percent, and a far cry from the 1996 rate, which topped 103 percent.

Venezuela has more than lived up to the goals of the July 1996 stand-by accord signed with the International Monetary Fund (IMF), of which only 500 million of the 1.4 billion provided were used, Matos pointed out.

The government will sign another accord with the IMF in the next few months in order to maintain the international lending institution’s support, he added. That accord, possibly a “shadow” accord without fresh credit, will be focused on structural reforms of the state.

Matos said the country’s economic recovery has been backed by the return of investment, currently equivalent to seven percent of GDP. But he stressed that a figure of 20 percent would be needed, in order for Venezuela to grow at an 11 or 12 percent rate, like Indonesia, an emerging “tiger” economy.

The minister said the public sector will play a less and less important role in generating jobs and growth, which will mainly be left to private investment, channeled through the wide opening of the oil sector, the privatisation of public enterprises and the emergence of private pension funds.

Investment will also be fuelled by the recovery of the manufacturing sector, especially textiles and construction.

The second pillar of the steady six percent growth projected will be the oil sector, which currently accounts for 25 percent of GDP in Venezuela, or 70 billion dollars, said Matos.

In 1996, the state-run oil company Petroleos de Venezuela (PDVSA) launched an aggressive expansion plan. Half of the 60 billion dollars to be invested will come from abroad, with the aim of pushing productive capacity up to 6.5 million barrels a day.

But Matos categorically stated that at least under the current administration, PDVSA and its subsidiary Petroquimica Venezolana would not be privatised. The opening of the oil sector is based on strategic alliances which leave the industry under state control, he emphasised.

Thanks to exports and new investment in the oil sector, some 30 billion dollars will enter the country this year alone, the minister pointed out.

In consequence, Venezuela’s foreign reserves stood at more than 18 billion dollars by late last week, a historic record in this country of 22 million, and far higher even than the IMF’s strict demands.

Nevertheless, the government is getting ready to swell the foreign debt – which totals 29 billion dollars – modifying Matos’ initial project of reducing the debt capital through revenues from privatisation and oil windfall profits.

The government plans to cancel a large part of the debt accumulated in the process of the flexibilisation of the labour regime which got underway in February, through accords with foreign banks currently being negotiated. If that total – 14 billion dollars, or two percent of GDP – is transformed into foreign debt, annual debt servicing will double from the current three billion dollars – an unwelcome burden for the next administration.

But apart from the more than two billion dollars added to state coffers through new oilfields auctioned in June by PDVSA, an additional one billion dollars is expected to be brought in through privatisations – 300 million from the stock market placement of the last state-owned shares of the telephone company (CANTV), which began to be privatised in 1991, and 700 million from the sale of the Orinoco steelworks company (Sidor).