World Bank Document

RESTRICTED CA5 I~~~~~~~~~~~~~~~~~~~~~~~~~~~~Vol. 'I

This report was prepared for Public Disclosure Authorized use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION Public Disclosure Authorized

CU:RRENT ECONOMIC POSITION

A NTTh TD C!.T3L-e-C! 1L A-' X L' A.. .L .J

VENEZUELA

(in seven volumes) Public Disclosure Authorized

VOLUME I

MAIN REPORT

October 12, 1970 Public Disclosure Authorized

_entral America and Caribbean Department CURRENCY EQUIVALENTS

Basic rate US$1 = 4.50 Bolivares (Bs.) Bs.1 = US cents 22.22 Petroleum export proceeds: US$1 = 4.40 B-livares (Bs.) Bs.1 - US cents 22.73 Petroleum imDorts: US$1 = 4.48 Bolivares (Bs.) Bs.1 = US cents 22.32 TABLE OF CONTENTS

?_ge No.

BASIC DATA

MAY~

SUMMARY AND CONCLUSIONS ...... i

I. INTRODUCTION .

II. ECONOMIC GROWTH ...... , .1

Recent Trends ...... l. . 1 Petroleum ...... 2 Growth and Employment ...... 4

III. DEMIRLPMENT STRATEGY ...... 6

Mailn FA(tnra- ...... -6... 6 Regional Development . 7 The- Cnore RPe n .---- Industrial Policy . . . 11 A.yrcu,vl tuwri I PolrI r .* ..6 s . a. .*o . .4 s s ...... *

iv. SECTOR PROGRVMS ., .... . 1.3

Tourism ... 16 Agriculture-..18 Industry . 19 Trar.sport-ation...... 21 Electric Power .. .23 Communications . 25 Education ... 26

Hea:Lth and Sanitation ...... 29 Sum.i..ing "p... 31

V. nli_L'outrUT NTMAMr'V 32

Current Siftu-ati-on ...... Strtuctural Problems .33

Tax Reform .. 36 LUU.LLc Deb:& . PaRe No.

VI. EXTERNAL PAYMENTS ...... 40

Reserve Position ...... 40 The Current Account ...... 41 Capital Flows ...... 43

VII. CREDITWORTHINESS ...... 44

STATISTICAL APPENDIX

This report is based on the findings of a mission wnich visited Venezuela in February-March 1970. The mission was composed of Messrs. Hans 0. Schmitt (Chief), Richard M. Bird (consultant, public finance), John Foster (petroleum), Edward P. Holland (balance of payments), Takehisa lizuka (tourism), Richard K. Johanson (education), Alexandre Nowicki (industry), Augusto Odone (tourism), Miguel Schloss (investment officer), Anthony Stapleton (agriculture), and Lowdon Wingo (consultant regional and urban development). BASIC DATA

Area 352,150, sq. miles

Population, 1970 ('(O 10,399

Growth Rate, 1961-1970 average 3.6% per annum Density r squre-- -l (1 970) 29O rsr

1 oAt 1 oAR t oA

'n r,N -'4.- /~~~~~~~~- 1. '74n 1~,ov,.ovv 1. ,v)

ree v uap -LucL ~.D.j L4,sI 7 14 ,01)7 L4,7WJ) Per Capita (US$) 1,060 1,o86 1,090

GDP, current; market prices (Bs. million) 47,631 51,224 53,0440

Growth Rate (percent) 7.1 7.5 3.5 Real Growth (percent) 5.14 5-7 3-5

Sectoral Contribution (percent) 100.0 100.0 100.0 Petroleum and Refining 21.0 20.0 '19.0 Agriculture 7.0 7.0 7.0 Mamufacturing 17.0 18.0 'I 8.0 Construction 6.0 6.0 6.0 Transport and Communications 4.0 14.0 14.0 Public Administration 8.o 8.0 8.0 Other 37.0 37.0 38.0

Percent of GDP (current market prices)

Gross Fixed Investment 16.8 19.1 19.0 Private (10.0) (12.4) (11 .8) Public ( 6.8) ( 6.7) ( 7.2) Changes in Stocks 1.14 1.1 1.4 Gross National S,avings 17.9 18.3 n.a. Private 11.8 13.0 n.a. Public 6.1 5.3 6.5 Public S-ector Current Revenues 214.8 22.8 23.1 Public Sector Current Expenditure 16.2 16.3 16.4

Public Secto:r Operat:ionsiBs. million)

Investment l4,o88 4,576 5,528 Savings 4,023 4,0o45 3,1483 '-avings/Investment Gap (Percent of Investment, 1.6 11.6 37.0 Internal Borrowing (net)_/ -307 167 1,515 External Financing (net) 372 3614 530

1/ Includes other capital receipts. 1967 1968 1969

Resource Gap as Percent of Investment -39.2 -24.6 -18.4

Money and Prices

Money Supply (Bs. million) 5,199 5,482 5,869 Liquidity Ratio (Money: GNP, percent) 11.8 11.5 11.9 Demand Deposits (Bs. million) 3,387 3,508 3,806 Time and Savings Deposits (Bs. million) 3,161 3,522 3,905 Cost of Living Index 99.2 101.48 103.75 Annual Change (percent) - 2.4 2.2 Average Annual Change (1964-69) - 1.6 -

Balance of Payments (million US$)

Exports of Goods 2,534 2,526 2,545 Imports of Goods -1,370 -1,581 -1,624 Non-factor Services and Transfers - 378 - 492 - 483 Resource Gap + 786 + 453 + 438 Net Investment Income - 648 - 687 - 689 Current Account Balance 138 - 234 - 251 Long-Term Capital (net) - 26 335 200 Private - 109 254 82 Public 83 81 118 Short-Term Capital (net) 1 9 10 Errors and Omissions - 11 - 56 52 Change in Reserves (- = increase) - 102 - 54 - 11

Commodity Concentration of Exports (Percent)

Petroleum 93.5 93.4 91.2 Tron 14.7 4.1 6.0

Exter.nal zhih Debht (mi11ion US$)

Total nebt Outsta.nding (end of period) 502,153 520,069 6614,278 of which Disbursed only 328,808 398,497 514,279 Debt Se-r=,ice Rat.io Average 1965-1968 (percent) ------1.9-

Foreign Exchange Reserves, net (million US$) 855 908 908

Relation to imports (percent) 62.4 57.4 55.9

IBRD Operations (as of December 31, 1969) Disbursed Committed kTnousands 'u'Sj 111UI 2,91 1967 1Q(R 1Q6q

INTe+ T.i Ue'eaA.J USJt$ 71 70 86

,quota 250.., 2%f1/ Drawings Outstanding No Drawings

International Relations

Member of Latin American Free Trade Association andu Uo.-Or-acl.n1 Ue r Orflufno JtlU±nLlO

1/ Venezuela applied for increase to $340 million.

VENEZUELA - di •- s (MAP C)F N ID R TH E R N R E G I O N)

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SUMMARY AND CONCLUSIONS

1. Rapid economic expansion over the last three decades, largely based on petroleum exports, has brought the Venezuelan GNP to some US$11 billion, or to over $1,100 on a per capita basis, despite a rate of population increase that averaged 3.6 per annum over the last ten years. In 1968, petroleum accounted for 93 percent of gross export proceeds, 63 percent of fisca.L revenues, and 1.9 percent of GDP. Crude production increased by over 4.0 percent per annum from 1958 to 1964, but by only 1.2 percent per annum from 1964 to 1968. The reasons for the decline include a policy decision by the Venezuelan authorities ten years ago to discourage further exploration under the concession system, and also of increased competition in world markets from new low-cost producers elsewhere. Production declined in 1969; unsettled conditions in North Africa and the Middle East brought a recovery in 1970. The authorities expect expansion still to average 2.5 percent yearly in 1970-74; on t:he basis that U.S. nolicv will nermit preferred access for Venezuelan exports to its sheltered markets; that secondary recovery techniques will increan nrndouction from existing fieldqs and that newi exploration will again be! initiated under recently authorized service contract arrangementq.

2. Sluggish growth in the nptronlium indtitryv renquire that greater importance than in the past be attached to other productive sectors iE stagnation of the Pernnnm i9 tn hp avoided. Alternative an,,rtn nf growth remain narrowly circumscribed, however. Still ample exchange earnings from nPetrn1pi. make pnsasihle cheap im .prta of widea rnge of angooAd wth4ch would otherwise be produced at home, without the possibility of the d:Ls- 4 4 r-----n1I,'oA lnhnr---- or forcefnv^a being.cv, reab-obedalarho4nA inv, thet-- increasingly74,ipvnaa nqelir^n,,14f-sv capi-al inter.l3v petroleum industry itself. Money wages are relatively high, partly as a result of staFndards set by the petrolewo.m sector. Under free trade conditions, the flow of domestic resources would thus be limited to sectors producing m.ainly ,.on=tra%ded goods, as in services andu construction where labor productivity is typically lower still than in import-competing agriculture or industry. Incom.e from serviULces iCs unlrVJLLI.ik.e Lyto rise at all unGlesa. wages rise in other employments first. Tariffs and subsidies have therefore hoon uled boteh incre-ae4toi ou,put p me,an aswe 1 1 a - in... 4-,o - _, %hjJh j,V i&AVt_W\laWF 00Ws. 8 W 00 %S w U 0 V .Lflfl ..flfl distribution. Such intervention has thus far been oriented to foster:Lng import substitution. Tt neeAs lr. ufuure to b Ce bSroaAeneA to incluAe the promotion of exports as well.

3. The primary result of intervention has been a rapid rise over the r.ufa2C t urIing fror, 10 -percer. .GLlast- L. --W' o decalesUI.U1 ofLt LUAIW`h Oita&share C ofmaU u ALLUL L ir.II6 LuL%7.11GDP LUM LV CLL;LLL.t ir.L&& 1950 to 18 percent in 1969. Industrialization has been associated with a rap' rcs of .,.e popuat.o in to-.s o -ore -.han '2,500 GpLUJ FjJ------O L U.1&L.L O.UU1ion LI VU±.LatUL1L L UL.WXIb Ut 11101 C LH1AL 4L,J'JU inhabitants roughly doubled during each decade from 1941 to 1961, while the rural population increaseud by less than 10 percent over the period as a whole, with the result that a nation that was two-thirds rural in 1941 became two-thirds urban 'in less than a generation. With urbanization has come geographic concentration. A Core Region can be identified as - ii -

including the Federal District and the adjoining states of Aragua. Cara- bobo, and Miranda, that together account for 2.4 percent of the national area. Roughly 70 percent of the nation's industrial production originates in this region; three-quarters of all industrial employment is found here; and about a third of the total population is contained in it. The Census authorities expect that with continued economic growth the Core Region's share of the population will rise to 42 percent, or to 5.5 million people by 1980. Their forecasts imply a reduction in the rural nonulation by 10-15 percent over the next decade.

4. The most immediate prospects for expansion of exports center on steel and petrochemicals, both highly capital-intensive industries based on natural resources outside the Core Region. Additional export potential also exists in a range of intermediate and finished goods, in- cludina nrnopesps foods, hpveraage and toharco; rlothing and fnotwpar, chemical products and some metallic products. For these, investment and employment arp likelv eo continup to conrentratp in the Core Region. The early advantages achieved here through the availability of comple- mentarv induiqtrip4 and services overhead facilities; a trained labor force, and ready markets are very difficult to overcome. Accelerating produc1tIt4ivity growth here, whr it- is already, conmparatively high, promises to put a wider range of Venezuelan production on an interna- 4 4 4 l nn. ,Aol 4- 9 ,, hnc4ac tji-n n1t-w rr%tAxm rw%14~4ooQnn p anQio A prime objective of development policy will therefore be to create in the Core Region the kind of ,na*rnnnl4 an infroasrutre on which a fully modern industrial complex can be constructed. Such investments

WoULd hO Cavelo b complemLentedUe by a system of 4ndustrJal incer 4.ves ..ore oriented towards export promotion than is the case at present.

5. A public investment program to cover the period 1970-74 is still in preparat'lon. 'lke authorities hI'ave su'umLtiteUUto Congress a. ExtraorUdi- nary Investment Program consisting of a list of individual projects for which external borrowing authority is required over the next two to three years. This program should be viewed as an interim and partial component of the full 1970-74 public investment program. A minimum aim would be to define a program consistent with maintaining the historical rate of GDP of some 5 percent, and with the fiscal constraints that a slow growth or the petroleum industry imposes, as well as with the momentum of projects already under construction or in the pipeline whose interruption would prove costly. The Report outlines a possible program, not necessarily the only one, that would meet these criteria. In an overall public investment program of some Bs. 26,300 million, fixed public investment for the 1970-74 period would reach Bs. 20,500 million, compared with Bs. 16,500 million for the preceding five-year period. Major economies are proposed in health, power and transportation outside Caracas where past advances have been notable and where a more rigorous definition of priorities will now be necessary. Major advances are recommended for industry and urban development including urban transportation, and to a lesser extent for education. - iii -

6. The binding constraint on the size of the public investment program is the amount of financing likely to be available. With nearly two-thirds of Central Government current revenues deriving from the petro-- leum sector, and with petroleum production increasing only slowly, revenues cannot be expected to increase with development needs. The authorities are now planning to submit new fiscal proposals to the legislature with the budget for 1971. Their precise content has not yet been made public. In the absence of fiscal reform, public savings are unlikely to exceed Bs. 15,700 million over the 1970-74 period, or finance more than 60 percent of the overall public investment program proposed. The Report outlines a set of possible fiscal measures that would raise this proportion to a more manageable 80 percent, by yielding an additional Bs. 5,000 million over the period. The unused taxable capacity of Venezuela remains ample, at least in economic terms. Central Government current non-petro- leumn revenues in 1969 were lower in per capita terms than they had been ten years before. They now amount to only 7.5 percent of non-petroleum GDP. The reforms proposed in the Report would raise this figure to 10 percent by 1974, still one of the lowest ratios among developing countries.

7. A gap of some Bs. 5,500 million will remain to be financed by borrowing. Atbout Bs. 1,500 million can probably be covered by net borrowing in the domestic market without expanding total domestic credit excessively or unduly restricting the credit available to the private sector. There remain some Bs. 4,100 million net that must be covered by borrowing abroad, up from some Bs. 1,270 million in the previous five-year period. In relation to total public investment, the increase would be from just short of 6 percent to just over 15 percent. Given the lead time required for project preparation and negotiation, the pace at which development lending can be accelerated is limited. In consequence, the authorities have already borrowed for budgetary support from commercial banks abroad Bs. 385 million in 1969 and Bs. 450 million in 1970. To avoid raisinR this kind of borrowing to excessive amounts, a very rapid increase in proiect preparation has had to be assumed. Some of it has already begun; it should be further accelerated in the context of a comprehensive borrowing program, prepared in close cooperation with the major lending agencies. Ihe Extraordinary Investment Program now before Congress can serve as an initial basis.

8. Pressure on the balance of payments can be expected to mount with a rate of growth of national product and of imports in excess of the expected rate of expansion in petroleum exports. On balance, gross export earnings (less net payments on services) available to finance commodity imports are unlikely to increase by more than 3.5 percent annually on average over the next 4-5 years. If GDP is to continue increasing at some 5 percent annually, therefore, accelerated foreign investment and lending will be required. Despite new tax reforms and continuing credit restraint the cumulative current account deficit may be expected to deteriorate from US$25O million in 1965-1969 to US$1,600 million in 1970-74. The chief oroblem in halance of payments management for the medium-tarm. therefore; is to find ways of attracting foreign capital in sufficient amounts to cover - 4i -

the gap. With continued political and monetary stability, and the favorable effect of new petroleum exploration under service contJracts, someDIJ&U$600S mi-.L lion on petroleum account may reasonably be expected, with an additional

U9$250U million oL non-petroleum prlvate invest,,.ent over the 190-70.4 periodJ.

9. Ine reiiiaifLnLg externar1. gap, toLUe Li.ledU by public borrowing, is of the order of US$780 million, with a comparable fiscal gap of US$900 million (Bs. 4,100 mill' on) after fiscal1leASures have been taken. Vene- zuela's capacity to service additional external debt remains ample. The total external debt outstanding carmie tU UO$U64 rillion including unids- bursed at the end of 1969. The service on it came to as little as $51 million, equal to 6.5 percent of public sector current account saviags, or less than 3 percent of exports net of factor income payments. Given the terms likely to be available to Venezuela, the increase in the debt service burden need not exceed 10 percent of net exports over the next 4-5 years. Though no precision is possible in judgments of this kind, the Venezuelan authorities agree that an increase in the debt service ratio from 3 to 10 percent in less than five years is the maximum consistent with maintenance of Venezuela's excellent international credit rating. The investment program proposed in this Report, ana the financing gap, have been limited with this in mind. A tax reform appears to be essential to its realization, therefore, and a concentration on export expansion to its effectiveness. I. INTRODUCTION

1. Venezuela occupies a territory of 352,150 square miles trontin,g a 1,750 mile coastline connecting Lake Maracaibo on the Caribbean Sea with the Orinoco Delta on the Atlantic Ocean. Just over 10 million inhabitant's bring the population density to less than 29 per square mile. Rapid economic expansion over the last three decades, largely based on the petroleum industry, has brought the GNP to some $11 billion, or to nearly $1,100 on a per capita basis, despite a rate of population increase of 3.6 percent per annum. The population in towns of more than 2,500 inhabitants roughly doubled each decade from 1941 to 1961, while the rural population increased by less than 10 percent over the period as a whole, with the result that a nation two-thirds rural in 1941 became two-thirds urban in less than a generation. The key element in this development has been the Core Region stretching from Caracas through Valencia to Puerto Cabello. In 1941, it contained a quarter of the population, by 1961 a third, and is estimated to have reached 35 percent in 1970.

2. Venezuela has had represenLtative government continuously since 1958. Three consecutive democratic elections have been held. President Romulo Betancourt (1959-1964) of the Democratic Action Party (AD) was the first popularly elected president in Venezuelan history to complete his term of office. President Raul Leoni (1964-1968), also of the AD, was the first chief of state to accomplish a peaceful transfer of power to an opposition candidate. President Rafael Caldera of the Social Christian Party (COPEI) took office on March 11. 1969. The margin by which he won election was very narrow and the AD retained an edge in Congress, with 85 deputies against COPEI's 75. The mobilization of legislative support for government policies has sometimes become a difficult process, therefore, particularly in view of the splintering among the remaining 54 deputies in Cong1ress. The two major parties have nevertheless been able to organize workcing arrangements on a case-by-case basis to ensure the continued functioning of democratic institutions.

II. ECONOMIC GROWTH

Recent Trends

3. Over the last five years, the growth of real GDP averaged 4.5 percent ner year; comnared with a nonulation inereane of 3-6 nprepnt. Gross National Product in 1969 reached a level of US$11 billion equivalent:, the total nonulation an estimated 10.04 million. restiltiny in a per canita product of nearly $1,100 at the going exchange rate. The growth rate of real GDP dropnpd to 135 nprrent in 1969, from 5.h and 5.7 percent respcr- tively in 1967 and 1968 (Appendix Table 2.2). The major reason for the slnowdwn is fndie in an 0.3 nperont AflinA 4n the nrnAodutIon nf cvrve petroleum following rapid increases in response to the Middle East crisis of 1967. Subsidiary factors include (i) stagnation in the construction -AUSnds-r fl-lv4-. bursta of public sector activit-y at the t?l1 of the election campaign of 1968; and (ii) a sharp increase in man-days lost in strikes, from some 15,000 4i 198 t-o over 1 M411ion in 1969. 1/ Activi4y in the manufacturing sector was particularly affected.

4. Gross domestic investment slowed down to an increase of less than 5atpercent in 1609, after a 19 per.entl leap fo.nward the year before (Appendix Table 2.1). It remained slightly higher as a proportion of GDPl than the traditional 19=201 percent. P3ublie fixed i1nvestr,.e nt no rmally %.JVJC LLiL LiI LI ~UJ. L.LIL AJ. L.LJ±' LOIL LL ' .LL LA.ACU LV LLik. U £ L -Ld accounts for just over a third of the total. Domestic savings have con- tinuea to rise, but at a dirm,inishing rate. The foreign trade surplus shrank, the growth of exports being outpaced by that of imports. During 1964-68, national savLngs increaseu uy only 4.5 perLet annuaLly, anu in 1969 they may have fallen slightly. Their proportion to GNP declined from 21.9 percent in 1965 to an estimated 18.7 percent Ln 1969. Business savings have accounted for 44 percent of the total over the last five years, public savings for about 40 percent, with personal savings contributing tne residual. The flow of savings must be strengthened in future, if economic growtn is to De sustalnea at past rates.

5. Despite the narrowing balance of payments surplus and the associated decline in the gross savings ratio, there has been a rapid development of financial markets within Venezuela. The money supply has increased at some 8-9 percent annually in recent years compared with GNP growth of only 5 percent; yet for most ot the past decade prices rose only Just over one percent per year. The willingness of the general public to hold increasing amounts of financial assets, including also mortgage bonds and claims of non-bank financial intermediaries, continues apace (Appendix Table 6.2). Only fairly recently did the cost of living index for the metropolitan area of Caracas begin to show some slight acceleration, to 2.8 percent in 1968 and 3.0 percent in 1969, largely due to rising import prices (Appendix Table 6.4). Further pressure on prices may be expected from the cost side. In the course of 1969, government and private industry granted increases in wages and salaries of 6-15 percent. Nevertheless, though high, these do not, on past performance, presage price increases of the same order.

Petroleum

6. Petroleum still accounts for 93 percent of export earnings, with 3.6 million b/d of crude produced in 1968. A slowdown in its rate of expansion has been one major element in the narrowing trade surplus. The rate of increase in crude production averaged 4.1 percent annually in 1958-64, but dropped to 1.2 percent in 1964-68 (Appendix Table 8.2). The slowdown has been due in part to a policy decision by the Venezuelan

1/ Ministry of Labor data. - 3 -

authorities ten years ago to discourage further exploration under the concession system, and also to increased competition in world markets from new low-cost producers elsewhere. Production declined by 0.3 percent in 1969. A recovery in 1970 was facilitated by a hardening of freight rates due to unsettled conditions in North Africa and the Middle East which have made Venezuelan crude oil prices relatively attractive landed in Niorthwest Europe. The authorities hope that expansion will average 2.5 percent in 1970-74, on the expectation that secondary recovery techniques may raise the recovery factor from 20 to 30 percent, that exploration will again accelerate on the basis of service contracts to be negotiated later this year, and that future changes in U.S. policy will permit an acceleration of Venezuelan exports to this sheltered market.

7. The last concessions were granted in 1956-57. However, some 80 percent of production comes from concessions which were granted in 1943-44 and will expire in 1983-85. The state-owned Corporacion Venezolana del Petroleo (CV?) was established in 1960 to increase the nation's operational and financial participation in the petroleum industry. CVP's direct contribution to crude production and exports has remained minimal. It was planned from the outset that it should contract out certain services to private companies. CVP first invited offers in 1967, to explore for and produce oil on five blocs of 50,000 ha. each in South Lake Maracaibo. The main features of the authorized service contracts are: (i) an exploration period of 3 years; (ii) if oil is found, the contractor chooses 10 percent of the area for exploitation, CVP another 10 percent, the contractor the third 10 percent, the remainder reverting to CVP; (iii) a production period of 20 years at the end of which all installations revert to CVP totally amortized; (iv) the contractor sells 10 percent of production from his retained area to CVP at cost; and (v) pays royalties plus all excess pro-- fits above a certain maximum to the State. Congressional ratification wcls obtained this year, and final bids are expected shortly. The long delay since 1960 has already caused exploratory drilling to decline. Proven reserves of recoverable oil fell from 16.7 vears production in 1960 to 11.3 years in 1969 (Appendix Table 8.1).

8. In the context of the concession system, revenues from petroletm account for 67 percent of total public revenues (Appendix Table 5.4). The chief petroleum taxes are royalties and income tax which, in roughly equal proportions, now account for 68 percent of pre-tax company profits, a ratio that has risen over the years from 59 percent two decades earlier. The changes in the share of oil profits accruing to Venezuela have been affected not only by changes in tax rates - the most important took place in 1958 and 1967 - but also by changes in the pricing system used to comDute the income tax base - moving from market to reference prices in 1967 - and by changes in the comnosition of outnut. While relatively high nroduction costs make thie burden of taxation on the petroleum companies a fairly heavy one; as a nronortion of nre-tax nrnfots Venezueplan nil taxsc are rnoghiv comparable to those imposed in competitor countries. For production under service rnntracts, the pronortion of new revenuettn tvable incTme is expected to rise to 85 percent. 9. In 1969 Venezuela was still the world's largest single exporter of oil, but its share of world exports has fallen steadily over the last decade from 30 to 15 percent. In 1959 the United States introduced manda- tory import controls, modified in 1963, limiting crude imports east of the Rockies to a ceiling of 12.2 percent of estimated domestic production 1/ of oil and natural gas liquids. Estimated imports from Canada and Mexico are subtracted to determine overseas imports. Among overseas suppliers, however, Venezuela has progressively lost ground. While Venezuelan production has stagnated, alternative supplies have increased dramatically. African and Middle Eastern sources have provided increasingly serious competition on the basis of lower recovery costs, lower sulphur content, and progressively declining transport costs in large tankers. In consequence, realized prices for Venezuelan exports of crude oil and refined products have fallen nearly every year since their peak during the Suez crisis of 1957. Venezuelan exports to Europe, despite a growth in Euro- pean consumption of 9.3 percent annually, have been declininR by 5.3 percent per year since 1964. Exports - mainly of special products - have increased to Japan; exports to South America on the other hand have also been falling (Appendix Table 8.3).

10. The prospects for the Venezuelan petroleum industry depend both on domestic nolicv issues and on market develonments outside Venezuela's control. If Venezuela is to increase crude production by even 2.5 percent annually during 1970-74, its exports would need to grow by an average 85,000 b/d each year. North American markets take just over 60 percent of Venezuelan oil exnorts now, and would need to absorb an average increase of 110,000 b/d yearly if Venezuela's other markets continue to decline at asmp 4 nprrent nor annim.. Thi cncreaRe would he of the order nf 465 nprcent per annum, which is the same as the combined annual growth rate of oil imnrtsr to tIhe Uinitedt States and Canada over the laqt five vesrs Thi a Qnai8 feasible provided that (i) Venezuelan crude can remain competitive with African and Middle Eastern crudes on. a cost basis; avid t-ha (41) UYAer.zue1na derived residual fuel oil can meet new sulphur content restrictions in the 1JSC 1rket. h…aneGea4or- tl p tnnf an o ver..11 95 annual1 expansion of petroleum exports would seem to be achievable in view of the good start already unde, ay in 1070.

Growthl tuu E,.1pFloyiukL.

;1. The prospective expansion of petroleum exports is still Alow with the import requirements of growth in the rest of the economy. The share of petroleum in GDP declined from 23 to 19 percent over the last fiive years; that of manufacturing increased from less than 16 to 18 percent; progressive urbanization boosted construction, transport and co-munications, and other services from 50 to 55 percent; while agriculture and mining barely held their own at 7 and 1 percent respectively. Very little of this growth has

1/ Before 1963 estimated domestic demand, rather than production was the base. - 5 -

thus far conitributed to easing the pressure on the trade surplus, however. As a percent of total exports, the contribution of agriculture all but remained constant at 1.5 percent; that of industry increased from negligible amounts to nearly 1 percent (Appendix Table 3.2). Import substitution was noticeable in consumer goods, but offset by relative increases in the requirements of indtstry for capital goods and raw materials (Appendix Table 3.3.). On the past performance, therefore, a slow growth of petroleum exports restricts the capacity of the rest of the economy to grow at acceptable rates without increasing risk to the balance of payments.

12. A diminishing rate of GDP growth would have repercussions also on employment. Jobs filled increased by an average of 4.0 percent annually between 1950 and 1957 and by only 3.2 percent between 1957 and 1967. Un- employment does not appear to have been particularly severe thus far, reported at 6 percent of the labor force in 1950 and 8 percent in 1969. Un-- deremployment in the countryside may have diminished due to acreage expan-- sion in excess of the rise in agricultural population, but open unemploy- ment in the major urban centers has at times reached 20 percent of the labor force. Changes in the relative contribution of various economic sectors to employment reflect a continued process of urbanization. Be- tween the 1961 census and 1967-68 samnle surveys, the share of the labor force in agriculture has diminished from 35 to 29 percent. Industry increased itf share from 12 to 13 nercent and ronstruction from 4 to 6. The largest gain, however, was in commerce which increased its share from 13 to 17 nercent. Shifts in the remaining stfetnrs including services. appear to have been marginal.

13. Maintaining the momentum of growth is essential in the future an in the nasl- in view of the fact that the ponplation is still inc-reas- ing at 3.6 percent yearly, a rate that is unlikely to fall below 3.2 percent over the next few years. The last 'enssia was tanken in 1961 and showed the birth rate rising from 43 in 1950 to 46 per thousand in 1960, while the death rate fell from 11 to 7. As a result, the net natuval increase rose from 32 to 39 per thousand. Migration from abroad averaged well over 30-000 per year during this periodi, pushing the nnni,al population growth rate to over 4 percent per annum by 1960. Since then, evi- dence from sample surveys suggesta thAt the rate of poprulation exnpna81n has begun to albate. The death rate appears to have stabilized around 7.2 ner thonisanA a rA the h4rth rt to have dropped off to 43.4. StartiAg with the situation in 1960, a 10 percent increase in the death rate every decade an the average age of the population rises once more, and a 10 percent decrease in the birth rate as urbanization continues apace, would drop the rate of nopruilati4n growth cls percent in the seveties. - 6 -

III. DEVELOPMENT STRATEGY

Main Factors

14. Slow growth in the petroleum industry requires that greater importance than in the past be attached to other productive sectors if stagnation of the economy is to be avoided. Alternative sources of growth remain narrowly circumscribed, however. Still ample exchange earnings from petroleum make possible cheap imports of a wide range of goods which would otherwise be produced at home, without the possiblity of the displaced labor force being reabsorbed in the capital-intensive petroleum industry itself. Money wages are relatively high, partly as a result of standards set by the petroleum sector. Under free trade conditions, the flow of domestic resources would thus be limited to sectors producing largely non-traded goods, as in services and construction, where productivity is typically lower still than in import-competing industry or agruculture. Over time, income from services is unlikely to rise at all unless productivity and output in other branches of the economy rises first. Both efficiency and distributional considerations, therefore, have long since led Venezuelan Governments towards intervention. This intervention has thus far been oriented to fostering import substitution. It needs in future to be reoriented to the promotion of exports as well.

15. The primary result of intervention has been a rapid increase over the last two decades of the share of manufacturing in GDP from 10 percent in 1950 to 18 percent in 1969. Domestic industry started from a very low base. Value added in industry in 1950 barely exceeded half the international average of countries with similar population and per capita income levels, but rose to nearly 80 percent in 1969. Despite protection, industrial efficiencv does not appear to be unduly low. Industrial prices in Venezuela, though still on average some 27 percent above the equivalent f.o.b. nrices in world markets, lie only some 18 nercent above domestic prices in the United States, West Germany, or Japan (Appendix Table). Inflated profits resulting from excessive industrial concentration in narrow markets may account for about half the differential; at an esti- matAed 25 nercnrt n fixed canital they seem- tn he amnna the highest in the world. 1/ The rest is largely due to the fact that the comparison is mAdo at an oexhanng rate that rpflerts the nverwhelming nredominance of the petroleum industry as a source of foreign exchange.

16. Industrialization has been associated with a rapid process of urbanization in 191 only about one-third onf t-he population reside ir. towns and cities of 2,500 or more; by 1961 this proportion had increased to t-wo-hLlthrds, and. for 19S7n itsq.. es-8 .teA that three-quarters of the population has become urban. The key element in this development has

1/ See Volume VI, Industry. - 7 -

been the growth of the Core Region, defined here as including the Federal District ancd the adjoining states of Aragua, Carabobo, and Miranda, and including the cities of Caracas, Maracay, Valencia and Puerto Cabello. Roughly 70 percent of the nationts industrial production originates in this region; three cluarters of all industrial employment is found here; and about a third of the total population is contained in it (Appendix Table 1.1). The Cernsus authorities expect that its share of the popula- lation will rise to 42 percent, or to 5.5 million people by 1980. They project the urban population as a whole to grow by 4.4 percent annually over the next decade, implying a reduction of the rural population by 10-15 percent. This seems a reasonable prospect if the pace of industrialization is maintained.

Regional Development

17. The concentration of economic development in the Core Region has given rise to two problems in particular. They are (i) a high degree of congestion particularly in the valley of Caracas itself, and (ii) the intensification of regional differences in income. Thus in 1967 the income per head in Caracas was calculated at $1,600 equivalent, compared to a low of $320 equivalent in the states of Sucre and Nueva Esparta to the east. Concerned with these regional income disparities, the authorities have recently subdivided the country into eight development regions, with a branch of thie national planning office (CORDIPLAN) to be established in each. RegiLonal development corporations are to be created in each, three of which already exist, one in Zulia, the other in the Andes, and the third in the Northeast. Moreover, the government-owned development finance company (CVF) has newly established six branches outside Caracas to decentralize credit. These institutional innovations have not yet been matched by a clearly defined regional development strategy, though the Government is aware of the importance of relating them to national development priorities. In particular, the social orientation of the measures would be very short-sighted indeed if it militated against efficiency considerations at a time when export promotion has become an essential condition for long-term growth.

18. The potentialities of regional development are exhibited by the Corporacion Venezolana de Guayana (CVG), a public institution established ten vpars ago to managp the eronomic devlonpment nf thp G.uayana region centered on the confluence of the Orinoco and the Caroni Rivers. The CVC has hbppn ahlp tn canitalize on three ma4nr advantages= They are (i) a superb resource base of iron ore and hydroelectric potential, (ii) pxrPll1pnt mAnAQPmpnt immtinp t-n Rhr-r,an nnlif-irn1 nrvaaawroc :nA (iii) continuous transfers of some Bs. '250 million annually from the national budgeit- Thiin the CV's has been able to construct one of the world's largest hydroelectric facilities, a promising steel industry, and -in officiont- ilim1nrn, smeltier, Aroinid a cty4thee, of A4, in n4., 1 as grown to one of 140,000 in ten years. As a catalyst for a more brcFdly based repiona'l development, however, the CVr- has met w4th three m ajor - 8 -

obstacles. First, the region is sparsely settled, and the prospects for broadAly b-aseA agri4cultural developm,ent even 4n the Orinoco D'elta are kl u a u a5L LJ. ~ ~ 16JL L A.& LWZ1 %JL±LJ6 J.L r limited as suitable soils are scarce. Second, bulk transport costs of

n te ruLeUdiate goodus t o LtIL,e Caracas metropolt4Lan area rareL-y mIake. u lore than 4 percent of the finished product price. The cost advantage for secoULuary .Lndustry to 'Locate iLn thiIe G'Luaya.a 'Ls therefore 'low. A1nU LIIILU, labor is not notably cheaper in the Guayana inasmuch as unions are power-

ful there and negotiate contracts on a natiHonal DSis.

17. Tne basic natura'l resources of thle Guayana reglon - notably iron ore and cheap power - continue to offer a major opportunity for export diversification. A similar prospect could be developed with petrochemicals in the Maracaibo region, assuming sound management is ensured. A new petrochemical compiex is now planned to constitute the ieading industry in a new town of some 300,000 at El Tablazo across the Bay from Maracaibo. Thne construction phase of the complex itself woula provide peaK employment to some 17,500 workers, but within 4 years after the beginning of construction the industry is unlikely to require more tnan 1,900. As a catalyst for secondary industry, therefore, little more can be expected from it than from the petroleum industry itself. Even in 1963, Defore tne siowdown in petroleum, output of intermediate goods, food products, and clothing was lower per capita in the Maracaibo region tnan for the country as a whole, suggesting net imports from other parts of the country. High wages for a relatively small labor torce tavors the importation rather than the local manufacture of industrial goods, as a matter of consumer preference as well as for lack of scale to keep production costs down. The justification for large new investments in housing and urban infrastructure, therefore, remains to be demonstrated in this case.

The Core Region

20. A legitimate concern with the economic exploitation of natural resources in outlying regions should not deflect attention from opportunities for further development in the Core Region. The early advantages achieved here through the availability of complementary industries and services, overhead facilities, a trained labor force, and ready markets are very difficult to match elsewhere. It follows that the further development and maintenance of an adequate economic and social infrastructure in the Core Region will probably have a substantially higher marginal social return than similar investments in hinterland centers can offer. Accelerating productivity growth here promises to put Venezuelan industrial production on an internationally competitive basis earlier than alternative policies can ensure. A prime objective of development policy should therefore be to create in the Core Region the kind of metropolitan infrastructure on which a fully modern industrial complex can be constructed. -9-

21I The com.petitive avnaeo h oeRgo.oe te eln ~.L. ±I~ LLI.p1±.L 4 UVCZULt1?5C U] LAIC %,.L=L V.Cr,±LULL UV=L WL.&L=L L-ErXG.1J3fl in the country can be measured by the growth of employment in its various sectors, a-ier isolating from each the effects of national growth in general, and of the chance mix of growth and declining industries w.L &I.Lhin it ..L.e dlfference bUetween thle actuadl increment iLn eUployment, and what it would have been if only growth and mix effects had been operative, can be summeu over aili sectors to yield either a pos'iive or a negative total for each region. Regions with positive sums w:Lll ihave shown competitive gains, those with negative sums, losses, over tne period for which the calculation is made. The results over the two decades from 1941 to 1961 are summarized in tne table below. Tne over- whelming predominance of the Core Region, and within it of manufacturing. is readily apparent. So is the decline over all sectors in the Mountain States, with their excess farm population moving down to the foothills; the rest on to the Core Region in the North. Tnere is little reason to believe that these trends have altered since. 1/

22. Thie principal problem of development for the Core Region is to devise policies to deal with the rapid intensification of congestion in the capital city of Caracas. Situated in a narrow valley 900 meters above the sea, its population has grown from 694,000 in 1950 to over 2 million, reaching a density of 200 per hectare in 1969. Current estimates for the population in 1990 range from 4 million to 5.5 million. Urban infrastructure costs per unit increase of population in Caracas have been estimated to reach nearly double the average for the 37 largest cities. More than half the total is required for housing and land; the rest includes water, sewerage, power, education, health and roads. The increase in density has been reflected in a rising share of the populaticn living in apartment buildings (from 12 percent in 1950 to 40 percent in 1966); and a rapid increase of rancho (shanty town) dwellers (at 13 percent annually over the 1950-1966 period) along the steeper slopes of the valley. The city itself has already virtually exhausted its supply of developable land, defined as land with a slope of less than 40 percent and otherwise unimpaired.

1/ For an explanation of the method employed, see Appendix Table 1.3 - 10 -

COMPETITIVE GAINS AND LOSSES IN EMPLOYMENT, 1941-60 /1

Agri- Manuf. and Trade and Public culture Construction Services Utilities Total

1. CORE REGION -37,047 99,560 5,342 56,552 124,407

2. WEST COAST 15,472 -13,309 5,765 -7,553 375

3. EAST COAST 19,011 -38,029 -9,100 -23,581 -51,699

4. FOOTHILLS 30,494 2,376 2,414 -1404 33,880

5. MOUNTAINS -32,405 -50,517 -8,190 -22,973 -114,085

6. SOUTH 4,473 -81 3,772 -1.040 7,142

TOTAL /2 0 0 0 0 0

NOTE: 1. Federal District, Aragua, Carabobo, and Miranda; 2. Zulia and Falcon; 3. Guarico, Sucre, Anzoategui, Monagas, Nueva Esparta, Delta Amacuro, and D. Federales; 4. Barinas, Cojides, Portuguesa; 5. Merida, Tachira, Trujillo, Lara, Yaracuy; 6. Apure, Bolivar, Amazonas.

/1 Includes only those changes not attributable to national growth or industrial composition. /2 Totals may not add due to rounding.

23. Caracas occupies one end of an economic axis that extends through Maracay and Valencia to Puerto Cabello and Moron. Infrastructure along its entire reach is required to produce the kind of metropolitan complex envisioned. For Caracas itself. a two-pronged approach seems to be called for. First, the construction of a subway system is required to reduce the pressure of surface traffic on the limited space available. Second, the development of satellite towns, particularly in the valley of El Tuy Medio, should be nromoted to accommodate a necessary population oversnill to adjacent areas. Plans are in an advanced state of readiness for both proJects= Their imnlementation should be associated; however, with an increasing utilization of land taxation, special assessments, and user charges to suponnrt the inrrpasinglv costlv npiblir servires of thp cities, and with better regulation of the use of scarce land resources than is now in fnor Wit-hnvit : ,1p4ihPrnft- nnlirv nf rhnrgying fnmr thp Prrnnnm-r- costs of urbanization, rational development of the kind required is hardly possible. -. 11i -

24. Maintaining the momentum of growth in the Core Region requires the compleamntary exp70irtta4 tor.t o^f natural r-esource potenial in the hinterland as well. Thus the expansion of hydroelectric power generation

in the Guayana r-gi f-r t ana-as- a oa he raa so -rea aonti - to -* be a priority investment. Similarly the expansion of steel production, 4 alsao in the G-uayana, can provi de .oim-ort-a ir.4puts.. to the o- of th ~ fl*~~ ~ .. L4 JLtJV..~ LFJjJJL GLL .LILjJU&L0 IJV LLW~ULLLA .J Lfl* Core Region as well as an addition to the export potential of the country 00la a .. 1ka,h .d-41 ..... 4. .. . - - __ I.1&. - 1 I J -'I -3- . &-- -as aw- I*. *ole utiJGllzatlonU.L.e oL' LaILuLr.al gs LIII LfrIo, Uthe i.LWfiUed, e:iLLJheL to be exported in liquid form and/or as an input to an expanded petrochemical complex should also be welcoumed in principle. Major stretches of coastline offer iexcellent resources for tourist development. Specific agriculltura,LG~LA~ULULG,L p0t=ential,pUL~L L.L. LUL'OZX_1 CAM11PA.L iLLO lvsokpoucinL.LVUt$LU1U 1LOUUU%LLOL iU.LU9blhudb.L U~_ exploited wherever it exists, to supply the metropolitan population and i.Lts process:Lr.gLInustrLes. These opportunrities cannot bIe reLlCeu Uon, however, to provide independent bases for sustained growth of the national ¶J economy, or to cres;:e r,ore th'LaLiLted --i J opportunities- . _ -- ior_ new- - - employment- - ~- - - - of a rapidly rising population.

Industrial Policy

25. A major test for the success of any development strategy in Venezuela, is whetner it leads to increased industrial exports. Till now, such exports account for less than one percent of total foreign exchange earnings. There exists unused export potential in three lines of industrial activity: (i) the processing of natural resources; (ii) production of hign quality consumer goods; and (iii) the processing of agricultural products. The best prospects for the medium term are found under the first heading. Production of steel from locally mined ore is well under way in the Guayana region; the utilization of cheap electricity for processing imported alumina has just begun in the Guayana also; the utilization of natural gas for exports of petrochemicals is in an advanced stage of preparation; and plans are under way for the export of liquified gas also. Al: the same time, however, greater emphasis than in the past should be given to more labor-intensive consumer goods production. Abun- dant foreign exchange has hitherto permitted - and high wages have encouraged - importing modern manufacturing equipment in many branches, and the country's head start in design as well as equipment could also be exploited. Finally, though agricultural prices are generally high in Venezuela, food processing can probably still be done competitively based on the same modern manufacturing plant already in existence.

26. A shift in the emphasis of public policy is required, however, before this potential can be exploited. Past policy has concentrated on import substitution, using import quotas more than tariffs. The tariff system consisted of specific duties in 1939 when rates were fixed on 170 items in a Commercial Treaty with the United States. Since the treaty applied mainly to consumer and capital goods, however, nominal duties on raw materials still exceed 70 percent in ad valorem terms compared with an incidence in 1969 of some 15 percent for the system as a whole before exemptions. Against this background, industrial promotion has taken three forms in Venezuela. First, licenses are required on - 12 -

imports of goods locally produced to guarantee markets to domestic producers. Secondly. qualified annlicants mav receive duty exemntions nn imports of raw materials and other inputs. And third, successful applicants gain automatic access to the state develonment finance company (CVF). Eligibility depends on several criteria, of which the capacity of the danmptir mnrkpt i8 crucial. Once it has been filledj as for nrocessed foods, textiles and electrical equipment, eligibility ceases.

27. For the immediate future, three kinds of measures would seem to conas4titute a miniImu,m nr.ornam renuire.A for eonnrt -ro,mot-ionn First exporters should be automatically eligible for drawbacks on duties pai,d onimported component. Exemptions ar.e 4 ,dlyaplie4dA for 4i.port substitution; there is no reason therefore why they should not be granted to exporters aO well. Secondly, export credit facilities shoulA bC in*ro= duced. At present, the main source of credit for exporters are the com- me_LaL _anks W` charg the _quian_ 1 ,a* . .4o1 Aperen L Lf. on c*rAs ro lle over twice, compared with considerably lower rates paid for equivalent facilities buy exporters fro". ddevelope Ucountries. T,he C'11in addition extended Bs. 11.8 million to exporters in 1969. However, its facilities are available only for exports of capital goods too LAFTA markets, and the bulk of the 1969 total was therefore taken up by a single borrower. Finally, a "lat a' valorem SubSi4y to inAuStrial and srcta exporters could be advocated to offset handicaps attributable to the effects of an exchange rate primarily dete,lined bLIy the we-cgs... of the petroleur, .ndus- try in the balance of payments. To finance such a subsidy appropriate adujustments on thlle revenue sLUde woul.d of course aGlso bJe requiLreUl.

Agricultural Policy

28. An acceierateo process of industrialization for e-xpore would help to withdraw population from uneconomic occupations in the rural hinterland. Despite an apparent abundance of land in Venezuela, most agriculture is practiced under considerable limitations of soils, topography, and climate. wnere conditions of soii and topography do offer agricultural potential, as in parts of the southern piedmont and south of Lake Maracaibo, significant investment in irrigation and drainage is often necessary to bring land into production. Although the use of machinery, fertilizers, and other inputs has increased rapidly in recent years, this increase has been largely restricted to the production of rice and industrial crops and has required heavy government subsidization through price support, credit, and irrigation programs (Appendix Table 7.4). The capital-output ratio is officially estimated to have been as high as 7 in agriculture as compared to only 3 for the rest of the economy excluding petroleum. Central Bank data also suggest that the annual rate of return on fixed investment, excluding land, averaged around 7.5 percent in agriculture, compared with 17.5 percent for the rest of the non-petroleum economy. - 13 -

29. Despite a massive movement off the land, however, some 29 percent of thJe labor force wr still1 employed in agriculture 4n 1069. Public policy in the past has had to reflect its social importance. Thus, th.e A-:iCUltural and livestock BaL., (Bn1 hADas extenuded4 s- credits ~ C15U .Lt. g-a a. Ant AI.L V mOLULUOl %. -I%, *a CtLSUCAas to.k-so-ano-al C ffl-8 at rates of 3.6 percent to both peasant and commercial farmers. Annual public expe.nd.ILture on irrigation and dtraiLnage ihas grv..w from Bs. 62 million to E>s. 226 million over the decade of the fifties. Price support program1s ilavh Ueeln operated UUy WAS an1U tLIAU LLn'LLy U-L DVevelUIUmIn 'Lor rice, maize, coffee, cocoa, beans, potatoes, cotton, sisal and milk. Mlore Ltilan .4 IU.±.LUlon Ihlectares of publlic ariU privaLe larLdIU, fi.nally, have been redistributed to more than 160,000 families who previously lacked viable farms and whose social situation has thus been changed in a major way. The economic benefits of most of these programs, however, have Deen limited. Thus, only one-third of the population resettied by the agrarian reform were officially reported to have been materially better off five years later. Tne BAP found less tnan 20 percent of its loans recoverable in 1965, and reportedly has not been able to improve its portfolio since. And price supports have produced unsaleable surpluses of rice, while feed prices have until recently been held down by subsidized imports of wheat.

30. More people have been absorbed into gainfui employment in the towns and cities than in agricultural activities despite the sizeable programs in the countryside. As migration to the towns continues, the pressure for socially oriented programs in agriculture is likely to diminish also. It will be possible, therefore, to shift the emphasis in agricultural policy progressively to promoting the economic productiorL of a few spe,-ialized crops for urban and industrial consumption. The authorities have begun this process in the field of agricultural credit by separating social from economic programs. The BAP's commercial portfolio is now to be lodged together with other commercial programs in a new institution, the Agricultural Development Bank (BDA). In the! agrarian reform program the emphasis is to shift to consolidation: an Integrated Agricultural Development Program (PRIDA), partly financed by the Inter-American Bank, is to coordinate feeder roads, irrigation, credit, silo construction, extension, research, and training in four areas of the country.. Further clarification of priorities is required in the livestock sector, in cereals policy, and in the management of hydraulic resiources. Preparatory work has begun in these as well.

IV. SECTOR PROGRAMS

31. The last comprehensive development plan for the public sector covered the years 1965-6. Pub.1c f.xeA i..vestm..ent reached BsJ.12,31 million over this period, equivalent to 7 percent of GDP and 35 percent of gross domestic investm.ent. Its allocation gave priority to -… communications (31 percent), public health (12 percent) and housing (12 percent)N. A lesser em..phasis was given to agriculture (0L percentr.t) , industro - 14 -

(7 percent) and electric power (9 percent). Education received only 6 percent of fixed capital expenditures, but increased its share of total public expenditures (including transfers) from 14 percent in 1960 to 19 percent in 1968 and 1969. Overall, public fixed investment reached 90 percent of targets set in the plan. Sectoral targets were surpassed in roads and power. in housing and education. Shortfalls occurred in industry with the postponement of a sheet-rolling mill and delays with petrochemical proiects, and in agriculture due to deficiencies in proiect preparation.

FIXED PUBLIC INVESTMENT (Bs. millions current prices)

1965 1966 1967 1968 Total 1969 1965-68 Prelim.

Agriculture 226 303 354 339 1,222 351 Mining & hydrocarbons 25 24 74 119 242 146 Electricity & gas 285 334 230 313 1,162 327 Manufacturing 108 300 225 222 855 302 Transport & Communication 868 904 886 1,125 3,783 1,822 Education 149 165 206 203 723 182 Public Health 282 460 456 335 1,533 494 Housing 187 425 458 465 1,535 522 Other 326 300 327 310 1,263 279

TOTAL 2,456 3,215 3,216 3,431 12,318 4,425

32. The new Government began in its first year in office to formulate a new development program. Meanwhile the Congress passed the ordinary budget for 1970 and has received for approval an Extraordinary Investment Program (Appendix table 4.3) consisting of a list of individual projects for which external borrowing authority is required over the next three years. This program should be viewed as an interim and partial component of the forthcoming public investment program, which is still in preparation and for which the planning authorities have begun to collect comprehensive investment proposals from the various executing agencies in the public sector. The planning process may be considerably assisted by the end of 1972 when it should benefit from fresh census results and from a substantial revision of the national accounts. Meanwhile the Government is initiating a reorganization of public administration in the hope of improving its effectiveness as a development tool.

33. To meet the country's medium and long-term development needs, an investment program for the next five years would have to place primary emphasis on expanding the export base, drawing as much of new employment a8S npossbh1e in thim direction (Chanter II). In order not to dissinate scarce - 15 -

resources, efforts will have to be fairly narrowly concentrated on accelerating industrial development, particularly in the Core Region (Chapter III). To be viable at all, however, any program will have to reflect the fiscal stringency that has already forced a reduction by one-fifth in the capital expenditures and transfers budgeted by the Central Government for 1970 compared with 1969 (Chapter V). A minimum aim, then, is to define an investment program consistent with maintaining the historical rate of GDP growth of some 5 percent, and with the momentum of projects already under construction or in the pipeline whose interruption would prove costly. Wlat follows in thiLs chapter is not necessarily the only program that would meet these criteria, nor is it necessarily the program which the Government will adopt. Nevertheless, given the urgency of the situation, it can serve to illustrate what a reasonable investment program might entail, given a sector-by-sector examination of possibilities and requirements.

Petroleum

34. The major problem facing the Venezuelan authorities is to find alternative sources of foreign exchange earnings besides petroleum. inasmuch as even on favorable assumptions, the growth of Venezuelan petroleum production is unlikely to exceed 2-3 percent annually in the next 4-5 years. It is necessary, nevertheless, to ensure that the petroleum industry does grow at its maximum feasible rate, inasmuch as it still accounts for 93 percent of gross export earnings and pays 63 percent of fiscal revenues. The Government has decided that the primarv means to stimulate such expansion in the long run is to be the service contract. Public investment by CVP is likely to continue to nlav a relatively minor role, comnared to private investment, in determining the future course of petroleum production. Over the 1965-69 period; CVP capital exoenditures amounted to Bs. 520 million. About 32 percernt of this amount was covered from internal resources including current account: savings2 and depnreclation allowance;! some 6 npercent from government subsidies; the rest was borrowed from commercial banks. CVP's rate of return on fixerl asePtR has been -R nperrcent- in rerent vpars

35. For 1970-74, the prospects for sharply increased current account savings and depreciation allowances are good, and though public subsidies are likely to decline ln total amount- borrowing could be inereased sufficiently to raise fixed investment in priority projects to perhaps Bs. 1,300 million in 1970-74- In 1969; C(vP nrndtuced some '31,000 hid of cruide still less than one percent of Venezuelan output. Based on presently known recoverable reserves frnm its existing fiplda- flVP'S developnmPnt nronno1s foresee production of about 120,000 b/d by 1974. The company plans to drill exnloration wel ls in thp Barinn8 hb8ifn durino 1970-72, Weat Zulia during 1971, and at Boscan where reserves of 500 million barrels of heavy asphaltic crude are though.t to ha r,eovrabl. Tn ad4i4 tion, rup expects to expand its refining facilities at Moron from 19,000 BPSD (barrels per stream day) to 3n nnn RPSD. Ate lot onenAAI itA4nni iemf.ery4 4s 141ealy to be cons tructed, one to process ]3oscan crude primarily for aromatics and gasoline under a 4 service contrac!: arrangement, or ele -nofthr . 1 re*firer,e 4 . under study for Puerto La Cruz. CVP is also studying the possibility of installing a ca-tal-tic reformr at Moron to produce G3otn glre - 16 -

36. CVP now obtains natural gas unused by concessionaires at no exnensn other than gathering and Renarating costs. Tts first natural gas pipeline was built in 1961. It is now building another line from Anaco to Puerto Ordnaz, to supply a nrivatelv-ownpd iron hrinuipttp developmlnt in the Guayana region, the line to be financed in part from commercial bank borrowing Adomctirally and ahronadl GVP ils also construrtlnga ninpeline system to bring natural gas to the proposed petrochemical complex at El Tablazo nn the anatorfl shore of Lake Maracalbo. Shell participated in the first stage of this project as a means of settling tax arrears. For the second stage of the El Tablazo pipeline CVP is now seeking long-term financing. A possible development of liquid natural gas (LNG) exports offers excellent prospects but requires careful preparation. CVP in December 1969 signed an agreement with the Philadelphia Gas Works of the United States to investigate the fe4asibility of a project to e-rort 400 mil11 i nn cf A 0f LNG. A prr4oet to export 350-450 million cfd from the Lake Maracaibo fields is under discussion betaween CD3P anA rreole Petrolem Corpoantio4n, u,,t-4nformntio4n on ie remans scarce.

Tourism

37. The uncertain prospects of the petroleum industry have reinforced the in.terest of th,fe Venezuelfar authorities in tourism as a potenrtial source of foreign exchange and of employment opportunities. At present, Venezuela registers a deficit on tourism accounrt. Some 41,4 14lin are being spen by Venezuelan tourists abroad and $46 million by foreign visitors in Venezuela, compared wJith total imposa.. of gos and serviees of 2_ billion in 1969. Though unlikely to make a major impact over the next few years, tLle cou.ry's tourist potentiall Aeserves to be better utilized than it now is. The major bottleneck is lack of appropriate accommodation. Of 1,390 hotels registered in the country, only about 100 are considered suitable for domestic vacational tourism, the rest appear to be unattractive for any but small local business traffic in terums of the serv'ces and corm- fort offered. Only a dozen of the country's top hotels may be regarded as suitable for international tourism. Two more are to be added shortly, one on the coast just north of Caracas; the other in Caracas itself.

38. In 1969, some 108,000 foreign tourists visited Venezuela (Appendix table 8.8). Of these arrivals, 53 percent originated in North America, 2i percent in Europe, 14 percent in Latin America, and 13 percent elsewhere. As a whole, foreign tourism increased at an average growth rate of 22.5 percent annually in 1961-1969. An increasing number of business visitors is mainly responsible for this remarkable expansion, the second highest in South America. A number of holiday makers were also attracted, beginning in 1964, when new accommodations were built to international standards on the coast and promotion initiated abroad. In 1969, vacationers were estimated to account for about one-quarter of total tourist traffic. A fresh impetus to vacational tourism was given in late 1969 when some of the first class hotels in and near Caracas combined with three international tour operators and the national airline (VIASA) to launch on the U.S. market a winter program of package tours to Venezuela, based on inclusive group tariff (IGT) rates. The results have proved highly successful. - 17 -

39. For pleasure-motivated tourism Venezuela has the disadvantage. compared witlh neighboring Colombia or Ecuador, of higher prices and fewer nointg of outstanding rcultuiral and historical interest. It does have, however, a stronger organization to offer, a better infrastructure base, and other advantages derivina from wealthier economic conditions. Vene- zuela's tourist potential is mainly found along its 3,000 kms. of Caribbean coast- in or near the canptal; in the Andes range- and in the iungles south of the Orinoco. All of these areas appear to be developable for domestic and to a lesser extent fnr intra-regional touri sm. Only certain tracts along the coast are, however, likely to attract a significant number of hnliday makers from overseas. Some past misallocation of resources will have to be overcome even here. Thus, while there appears to be substantial excess canacit- for tourism on Margalrita Island in the East, the coastal strip between Los Caracas and HIiguerote on the central littoral remains ui rt-iua lly srn1-rllf-hoei despite its outstandin- hbanhes , fanvorabl rlimate, and exotic vegetation.

40. Tourism development will in the future be the responsibility of a new publc institution, the Corporacion Nacional de Turismo (GNT)N Until recently, public policy in the tourist sector was the responsibility of the Corporac.o-n Unezolana de Fomento (C's) and the Corporac40n Naci onal de Hoteles y Turismo (CONAHOTU), under the general guidance of the Direccion de Turismo of the Ministry of Development. The DilrecC4on will in the future be merged with CONAHOTU in the new organization, which will also have authorit o rev.iw F A. A . --Is,------.411 #J 1- _h_- A -4-1.-. kV Capital expenditures on tourism have been a minor component of public invest- ..ent in the past. Fc;r TITJAUTJYr they average 'Is. 1.9 m4114on over the last five years, compared with Bs. 5.8 million in the 1955-69 period, with 70 percent taken up biy f. Uixedinvestr,,ent. I-s h,ot e'ls areI- typically manageAu b' leading international chains. CVF's capital expenditure on tourism averaged BS. 16.2 million in 1968-69, up fror, an average of Bs. 12.3 m4llIon over the last decade, with 8 percent taken up by fixed capital formation and 62 percent by credit prograL… , tLeerest in other capital transactions.

41. The ONT has as it4. ini.l al task theUIor.,ulat4on o f a -tours-t section in a new national development plan that is still in preparation. N,o the - se'st.tLi U.ofp iconsideralions L& %AU L JL.ULO cIL~com.pele S.'or U L priority.iL A. Ly J.1in U~dete.r,,ining LC. L11LLIf, L&Ia .LJClocation .AJi of future public investment in this field; first, the attraction of foreign tourismU wLhichLs ' toUleikly 'a-vor thle "Clentral L Zittoral",andU secondu, the political weight that can be attachied to geographic dispersions, which may divert an appreciable proportion of investmIIenIt to Margarita Island-U 'or_ the construction of an international airport and an expansion of seaport c A tl e~- T OS … Lacil,"LtiLes. A ajor effort a'Long the L s Caracas-Higuerote coast, which LU attract international tourists would command the highest priority, will be costly Ln terms of its road, sewerage, electric power and other infrastructure requirements. Apart from these, fixed investments in hotel facilities as such will need to be in the order of Bs. o-7 million annuali.y in 1970-74, to which some Bs. 30 million a year in credit progrms may be added. - 18 -

Agriculture

A_A4 /t). Sfi .AC1A grcltrU LLS=LXA&C 531.1Kproid V v I U. sth*1^ 111aJmajor 3&wov sources IA&of 4xporot& LO< hmLU_-_uk _c_A fis IJC± UULLL 6 v1 cOt.fl.;:> countries that lack petroleum. In Venezuela, agricultural products, princi-

pally coffe,cocoa~, rIce and sugar, .O.a up less thaLn 2prcent ofL ex poAULL earnings (Appendix table 3.2). Considerable government expenditures on creditUJ. lprograms, technica.l assistance and guaranteed prlces, lave not been sufficient to overcome cost disadvantages in the production of cocoa and coffee. BUoUth have stagnat ed(Alover t1he past decaude. Go v e,.,c,-,,entt------LU expand rice production have had more success, turning Venezuela from a net

.Lmporter tLo a net expVortLer oVeL LtLhAl siA yearL, bUL UoLLy uy guaraInteidng a price to growers nearly 40 percent above international levels. Hoping for eventual ir,provem,ents 'in--- Ilce, the Goerm reanen2,00tosa J13. ~ VI L .Ad LVL& 1~& LPJLJp.L %..= 6II= VUVJVLLR.IItLL i LVdLaLL11U £LU ,VUU LUIWb at the end of 1969. Sugar prices were also high, and exports therefore restricted to the preferential U.S. mar.rket in which Venezuela is seeking a larger quota. Better prospects may be found, not in these traditional categories, but rather w'LtL selectLLve high=valued products for twiericai andu European markets. A beginning has been made withi melons and tomatoes, but their contribution to foreign exchange earni'Lrgs will remaLLin smail over the foreseeable future.

43. The main contribution of agriculture to exports will have to be throug'h supplyingi =APULL LCoUUOLL±$thLeL 13 LAZ %re Region. with agricultural inputs. The immediate focus, therefore, will continue to be as in the past on import substLitULtIoI WiLt'll nLth UUIIestLcL 1iar.eL. Va±ue auu'e nas rlsen on this basis at a rate of 5.1 percent annualy since 1964, compared with population growth at 3.16 percent (Appendix table 2.2). in response to government programs in credit, technical assistance, agrarian reform and resettlement, the greatest increases were achieved in dairy produce, pouitry, sesame, rice and sugar cane (Appendix table 7.1). Venezuela remains a major importer of beef, dairy products, and cereals, and of some oil seeds, but with the exception of cattle breeding, in part to replace contraband Colom- bian imports, markets for significant increases in domestic production will depend on a lowering of production costs. Particularly for crops that enter into costs of production in animal husbandry, price supports can have a deleterious net effect on agricultural production as a whole.

44. Public policy toward agriculture has thus far been heavily oriented towards social goals. Public expenditures in agriculture have been high, increasing at an average annual rate of 7 percent over the past ten years and reaching Bs. 973 million in 1969. Three agencies besides the Ministry of Agriculture (MAC) are involved. The Ministry of Public Works (MOP) is responsible for irrigation works. Of 65,000 hectares of land covered since 1960, however, less than half are actually in production. The Agricultural and Livestock Bank (BAP) is responsible for credit and price support programs - its interest rates are as low as 3.6 percent, however, and loan recovery no higher than 20 percent. Finally, the National Agrarian Institute (IAN) administers a land reform program through which 160,000 families have been resettled on four million hectares at a cost of Bs. 1,900 million, but only about one-third of its beneficiaries are reported to have improved their material welfare. - 19 -

45. For the future, the Government's emphasis in agricultural pol:icy is likely to shift towards consolidation and rationalization. A high priority program is shortly to be initiated to improve the productivity nti Pffiripnev of 111 anrarian rofnorm snttlements in four senarate regions of the country. At a total cost of Bs. 816 million including Bs. 338 million from thea Tntr-amprit-nn Dvuelopment BRank. the program is to nrovide expanded credit, extension, irrigation, training and research facilities, and corrnmmunit y pro,rnmc. At- t-ho snac time the RAP is now to nPAr ialize in servicing low-income farmers only, while its commercial portfolio is to be managed by a new Aav-cultural Development Bank (BT)A). The HTA is alizo preparing an urgent credit program for commercial livestock development, for which external financing is be-in sought.6-lall A land reclamation project in the Orinoco Delta is also under study. Other possible projec:ts include anin,al health and marketing progas, reclamaton projectsouth of Lake Maracaibo, and irrigation expansion in the piedmont regions.

46. The social importance of agriculture has been declining. the

movement of population off the lland has alreadyA, the-u -roo - - o thie rural in the total population from 46 percent in 1951 to 33 percent in "I60 an'1 to an estimated 21 percent in 19701. Th"e urgency of pri4,arily, *L- *1VS JJ as IU CLI ~ LL~CCl U U~II . L I -,I . .I- U.15.) 55 .-I -- socially oriented expenditures in agriculture hias correspondingly diminished relative lo urblar, nee's. Tlhe trend In migrallon andu Invrestme-l, has followed L.L.L iLUL LI U . U It CII .1 l L L ..SI-L LU I V I5 I . IO. economic cr:iteria quite faithfully. Though individual projects can be found

thLsat yield ain accepLtable return, for Lthe storLasL L.,a w i e average no mnore than 7-8 percent, compared witlh about 20-25 percent in industry

outside Lt: petrCLoUleum ectorU. it moreI U.Lslc ri UiLiL1J dLLIJLL.1PJJ.L. 9_ CtLttVII criteria to public expenditures in agriculture will permit a stabilization of tLIe totaL over thle next few years. IArminimium program, Lncluding 'LandU reform consolidationI, will probably require fixed investments of up to Bs. 1,662 million in 1970-74 compared w'th Bs. 1,573 million in 1965-69, and credit programs totalling Bs. 1,600 million compared with Bs. 1,500 in the earlier period.

Indus try

47. ManufacturXIng must play a central role in a developmrent strateL y that accepts a continued rapid rate of urbanization as given, but aims at orienting the metropolitan labor force at least partially t0wa-rus export, rather than local construction and services. Over the last five years, value added in manufacturing increased at an average 7-8 percent annually, its contribution to GDP rising from 16 percent to 18 percent (Appendix table 2.2). The proportion of manufacturing in totai employment concurrently rose from 12 percent in 1961 to 13 percent in 1968. The Core Reg:Lon including Caracas, Valencia and Puerto Cabello aiready empioyed 48 percent of the industrial labor force in 1950, a proportion that increased to 71 percent in 1966. Virtually all of this development has tnus far been for the domestic market, however. Industrial exports included steel products and crude aluminum processed from imported alumina, both from the G;uayanak region, as well as incidental sales of other products such as cement and chemicals. All told they still accounted for less than one percent of total export earnings. - 20 -

48. The most immediate prospects for expansion of industrial exports center on steel and petrochemicals, both highly capital-intensive industries based on natural resources outside the Core Region. In both lines public enterprise has been dominant from the outset, in an effort to safeguard a high degree of national ownership despite the large and lumpy investment required. Future expansion in steel is built on a recent improvement in the condition of Siderurgica del Orinoco C.A. (SIDOR), a subsidiary of the Corporacion Venezolana de Guayana (CVG), the public agency responsible for development in the Guayana region. Initial misjudgments on the choice of technology and the product mix together with excessive original plant costs led to considerable losses, which were only recently overcome by means of: (i) a reorganization of management; (ii) a change in the product mix; (iii) an increase in the volume of output; and (iv) a rise in world market prices for steel products. The company is now able to meet world market prices on a number of products. It earns net profits on sales of 6 percent, though its return on investment is still of the order of only 2 percent. Its current expansion plans include a new flat products plant that will materially improve the industry's earning capacity; and somewhat later an expansion of basic iron and steel-making capacity to match the expansion in processing. Both ventures are likely to merit international financial support. Total investment over the 1970-74 period to implement them is likely to reach Bs. 1,423 million. 1/

49. The Instituto Venezolano Petroquimico (IVP) does not, as yet, show a similar improvement to SIDOR. Technology in the Moron complex was already obsolete at the time of its installation in 1963, and now brings the cost of its ammonia and urea output to 75 percent above the world market equivalent, despite the ample and cheap natural gas resources available. Work is now proceeding on the creation of a second complex at El Tablazo on Lake Maracaibo at a total cost of Bs. 801 million. The basic conditions for this complex are once more excellent: given low natural resource costs, it should be possible to produce both ammonia and urea at about a third below the world market price. The way in which the project has been launched is, however, open to serious criticism. IVP has in fact entered into contracts for procurement and financing of equipment which will raise the cost of the first El Tablazo Dlant far above what could have been achieved on the basis of competitive bidding. At the same time, questions have been raised about a nronpoed nroduct mix heavilv concentrated on urea. Bv 1972. the combined output of urea of both the El Tablazo and Moron complexes as planned will aenerate an Pxnnrtable surnlus of 900,000 tons. According to offirial statistics, the whole of Central and South America consumed in 1968-69 only 2,30 0,00 tons nf uirea only 40 nprcent of which was imnorted, nnd ovpr- investment has already depressed the world market for nitrogenous fertilizer.

1/ If there should be further developments in the technology of iron ore reduction based on the use of natural gas, Venezuela might be well placed to embark on a much larger expansion of basic steel production for export than is at present contemplated, but it is too early to say what this might involve in the way of additional investment. 50. Ovier the longer run the manufacturing development of the Core region will !;coa vial ini-anytruh -.1oe..n tatiipte U .LJ.t~~C-*#C &LtJL V.4. La.C .. . L,,C 3LUVO A. &&ILLCL&Lt PCXl. Lf.4 .... p u o ..* 4 LJ 4 L t the credit and guarantee operations of the Corporacion Venezolana de Fomento (Ct; a pub:Lic corporatiLon und'er the genera1lCsprvso o h -4it..o Development. Over the last decade, the CVF has channeled some 45 percent of i;8s resourcesi to 'Lndn;sr-ye 'Lt accou-unted' for an estimlatted -70 percent ofL all credits and guarantees exteaded to industry by public credit institutions .1 1117%,to .... - iL 1790. I'vr s ~~A4operations e2UlU1t a niumberL oi distinctive characteristic,: (i) the main portion of its operations is in the form of guarantees: 75 percent in 1968-69 compared with i2 percent In long-term crediLts from its owI resources; (ii) it charges interest at some 8.5 percent compared with rates in excess of i percent rrom private sources; and (iii) it depends very heavily on government funds: though its recovery ratio is about 90 percent, current revenues barely cover current expenditures. A sizeable proportion of its disbursements, about 72 percent in 1969, are earmarked by the Govern- ment for special programs mainly in electric power, leaving a very narrow margin of discretion to the CVF. Investors who are granted import protec-- tion by the Ministry of Development receive priority access to CvF, a practice that tends to discourage independent project appraisal or promo- tional activities by the institution itself.

51. Public credits to industry may be expected to rise to Bs. 230 mil-- lion in 1970-74 compared with about Bs. 150 million in 1965-69. To advance the credit program from its traditional emphasis on import substitution to a progressively greater export orientation will not necessarily require any immediate chanige in the products to be promoted. Those lines that have already, if only sporadically, begun to export are quite traditional: processed foods, beverages and tobacco, clothing and footwear, chemical produtcts and some metallic products. The change in emphasis does require, however, a substantial modification of the incentive policies of the government and a considerable effort with institution building in the credit field. On both, a beginning has been made. The CVF has participated with IFC, the Shell Oil Company, and private interests in Venezuela in the creation of C.A. Venezolano de Desarrollo (CAVENDES), a development finance company that seeks to fill a major gap in the provision of long-term credit to industry, which has just: negotiated its second loan from IFC, and is in process of negotiating a second line of credit from the IDB. The Ministry of development has initiated a review of its industrial and protective policies (Chapter III), which if vigorously implemented may help to give them a more i;outward-looking" cast than they have had in the past.

Transportation

52. Owing to the concentration of population and economic activity in the Core Region, where topography would make rail and water transportation difficult and expensive while gasoline prices remain tmcommonly low, 1/ highways have provided the principal means of internal movement in Venezuela

1/ United~The taxL4~ L.WUYJ.i,3US$.0 --- L mpl6.LAAJllgalonconpred. e %L/IPILJILU W.LLIAwitI1 aa- Lfo.r% - U$TtypicalUexa .15 rinLLICIle United States, for example. - 22 -

accounting for 70 percent of freight and 90 percent of passenger traffic. The present highway network consists of over 39,600 km. of which 18,000 km. were paved, 14,900 km. gravelled and 6,700 km. earth (Appendix Table 8.9). There are also 14,200 km. of good-weather roads built by agencies other than the Ministry of Public Works. While the overall length of the network increased by 40 percent in the last ten years, the length of paved highways has more than doubled. In 1969, Venezuela had about 736,100 motor vehicles, of which 70 percent were passenger cars, 27 percent trucks, and 3 percent buses (Appendix Table 8.9). About 30 percent of all vehicles were concentrated in Caracas where 20 percent of the population is located. During the last ten years, the vehicle fleet has grown by 9 percent a year, passenger cars by 10 percent and trucks by 7 percent. The ratio of population to motor vehicles is about 14 to 1, higher than Mexico or Brazil, comparable to Argentina and lower than in Spain. The ratio of vehicles to km. of road is 19 to 1, lower than Mexico or Brazil and comparable to Argentina.

53. Due to the predominance of highways in the internal transport system, there are no problems of intermodal transport coordination at present. Venezuela has only one railway line in operation, the 174 km. Puerto Cabello- Barquisimeto line. This was to have been the beginning of a national railway network but the idea has since been abandoned and there are no present plans to extend the system. Most major seaports seem adequate to meet anticipated demand, including those in Lake Maracaibo and the Orinoco River, excepting only Puerto Cabello where expansion is presently being carried out. Airports together handle some 1.4 million passengers a year and 40,000 tons of cargo. About two-thirds of the passengers coming from abroad use the Maiquetia International Airport (Caracas). Internal air transport is relatively well developed. However, Maiquetia Airport is already operating at near capacity, and expansion will become necessary in the near future if it is to serve adequately the rapidly growing needs of the metronolitan area and of tourism. Both passenger and cargo traffic have been forecast to rise at 11 percent yearly. A new international aiport on Margarita Island is also planned, but its construction should wait until its economic justification has been better established than it is now.

54. Further investments in ground transports will have to be carefully planned. With present trends in internal migration and in the standard of living, vehicular trafficr in the Core Region is likelv to increase by at least 15 percent annually. The most pressing problem is in the city of Caracas itself. Confined in a long, narrow mountain valley, the rapid economic and demographic growth of the city has produced badly congested traffic conditions in spite of the expansion of the urba.n expressway system. The progressive increase in congestion costs is likely to impair the econo- miC4c vi.4ab 1i4i ty of the met oo irtli-ta a rea unlessa- (J) realistic uer harges for transport and other public services are combined with land taxation to reflect 'he social coss-o urbanization; (44) aAA4itiocns t-o thIe East-Wes- highway system bypassing Caracas are put in place; (iii) the demand for surl'ace transport is reduuced by construction of a mass t'ransikt system iLn Caracas that is now in an advanced stage of preparation; and (iv) population and economic activity are diverted into overspill areas to the south and east of the city by development of one or more satellite cities. - 23 -

55. As a result mainly of very low gasoline taxes, road user contribu- tions in Venezuela total much less than the costs which could reasonably be charged. In 1969 tolls, taxes in fuel and lubricants, license fees and other vehicle taxes together totalled Bs. 220 million, significantly more! than maintenance expenditures alone but less than the sum of maintenance and capital charges on the stock of investment in roads combined. In the absence of competing modes of transport, increased charges are not at present required for transport coordination. The construction of a metro in Caracas would change this situation and strengthen the argument in favor of raising road user charges in the city. The Government is engaging consultants for a study of road user charges in Caracas, and the results should provide some guidelines for action. Land betterment charges should also be considered. For example, despite some increase in road user charges, the proposed subway might have to charge fares that would do little more than cover operating costs if it is to compete with surface transport. A subsidy to the subway' out of general taxation would meet with political opposition on the ground that it implied partial subsidization of the prosperous Core Region by the considerably poorer hinterland. Even though Venezuela's revenue structure casts doubt on this proposition, the need to recapture some of the indirect benefits remains. A good part of the benefits are likely to be reflected in changes in land values. Both user charges and betterment taxes would add to congestion costs actually paid, and thus help to induce marginal enterprises and households to relocate to proposed overspill areas outside the major urban centers, improving locational efficiency.

56. Failure to increase revenues will have a direct impact on the size of the investnent program that can be financed. Investment in transport accounted for 26 percent of public fixed investment in 1965-68, averaging some Bs. 900 million annually. For 1970-74 the annual average may well have to be reduced. The combination of fiscal stringency and the expected rapid growth of the Core Region will require a more careful articulation and enforcement of national priorities in several respects. First, greater discipline will be required in relating works executed to national priorities: fully one-fourth of all highway expenditures were for projects outside the 1965-68 national development plan. Second, there has been considerable in- difference by the transport authorities to financial constraints: an excess of commitments over budget authorizations for roads has for some years been the major source of the Government's sizeable floating debt (Appendix Table 5.2). Third. responsibility for maintenance on 50 percent of the national network is the responsibility of government agencies other than the Ministry of Public Works which handles all construction. This may make coordination more difficult than it needs to be.

Electric Power

57. Energy supply increased at an average annual rate of 10 percent over the last decade. The sunnlv of energv now annroximates 12-000 (ljH a year, placing Venezuela at the top among Latin American countries on a per capita basis (ApDendix Table 8.10lo Total lnstallpd ranarity annrnxiTates 3,000 MW. Some 530 IW of the total is held directly by users, nearly all of - 24 -

it in captive plants of the petroleum sector. Public power was mainly supplied by privately-owned companies a decade ago, but is now shared about evenly between them and government agencies at the municipal and federal level. The most important enterprises are (i) Electrificacion del Caroni C.A. (EDELCA), a subsidiary of the Guayana Corporation that accounts for 550 MW and, apart from serving the Guayana market directly, provides bulk power for utilities in the eastern and central regions; (ii) C.A. de Admin- istracion y Fomento Electrico (CADAFE), a government-owned agency with a generating capacity of 930 tM1 that supplies outside the Maracay-Valencia market primarily smaller municipalities and rural areas; (iii) C.A. Elec- tricidad de Caracas, a wholly-Venezuelan private company operating a 660 MW system to supply Caracas and its environs; and (iv) two Canadian-owned enterprises serving Mlaracaibo and Barquisimeto.

58. Except for the EDELCA hydroelectric plant on the Caroni, which has received considerable IBRD financing, most of the rest of the country is served from smaller steam plants, gas units, or isolated diesel units. From its incention in 1963. the lustification for EDELCA's Guri Dam was linked to the inclusion of the Caracas load in the market to be served. To facilitate the necessary interconnection, La Electricidad de Caracas agreed to have its 50 cycle system converted to the national frequency standard of 60 cycles at government expense, an operation that is expected to be completed by late 1970. Based upon this conversion, CADAFE and La Electriridad have agreed to cease the acquisition of generating canacitv in the east-central market area, and to purchase power from EDELCA until the first stagp 2,06S MW ranaritv of Gurn is comnletelv absorbed- nrobablv about 1980. Adding a 240 1W hydro-plant for CADAFE in the west, an average annual incre"as in inctallpd rapacity of S.6 nprrent in 1969-1974 will nprmit an increase in national energy sales of about 11 percent annually, a rate considered sufficient ton .mset-exnpected demannd.

The three-party interconnection anreement is predicated on the continuous expansion of Guri until its ten project units are complete. Three units of 175 ! are presentfly in operation, and seven more of 220 M each are planned. EDELCA proposes to purchase all additional generating units in the ir,edliate future, to capitalize on gains from standardization and bulk buying, but with phased delivery and payments stretched over the

entLreUtentire 196-8 deivre770 Avery period.per'LoLU. The.LL1 totalLILa investmentLLVWOULL cost.IJLL.J for LUJI.197=7 -wul come to Bs. 375 million. Parallel with this expansion in the interconnected system, CADArE p n Lato extendiALU .aLservi.e Y .LILU LULa.L eas of the western region. But its plans to supply an 8.6 percent growth of

demand there in 1970-74 may bie unduly higllh r.--- t I 1h -k C- AIEN A UWLI financial condition and of priority requirements in the Core Region. If a 6 percent rate were chosern for the western part of the country as more consistent with growth projected for the interconnected system, a Bs. 670 million investment program for the next rive years would appear to be more realistic for it than the Bs. 800 million currently proposed. Econo- mies of scale could be achieved by integrating various isolated systems in the West with the interconnected system of the East and Center. All told, public investment in power could probably be reduced from Bs. 1,490 million in 1965-69 to some Bs. 1,100 million over the next five years, a welcome savings on fiscal grounds. - 25 -

60. Until very recently the Venezuelan power sector has operated in a relatively unconstrained environment. Concession areas, regulating agencies, and tariff rules were not established or defined, leaving the supply and price of power to be determined largely by local considerations. A new regulation entered into force at the start of this year, however, dividing the country into four regions and specifying an industrial and a residential tariff for CADAFE in each of them. The combined increase in industrial and reduction in residential tariffs results in a net reduction in CADAFE's revenue from power sales of about one percent. There is a probable gain from the change in that it creates a system easier to administer than CADAFE's previous 120 different tariffs. Nevertheless, CADAFE already depends on government subsidies for about 30 percent of its investment expenditures, and any extension of regulatory powers should take into account that CADAFE's present rate of return of between 2 and 3 percent is insufficient to permit adequate future expansion of the systemn.

Communications

61. Progress in telecommunications has also been noteworthy in the recent past: during the last five years alone the number of telephones increased from 283,000 to 372,000, or an increase in telephone density from 3.2 to 3.8 per hundred population (Appendix Table 8.11). The institution responsible for the telephone and telex system is the Compania Anonima Nacional Telefonos de Venezuela (CANTV), a government-owned autonomous institution. CANTV has formulated a program to increase the number of telephones in operation from 372,000 in 1969 to 770,000 in 1974, and telex subscribers from 1,600 to 2,700. Achievement of this expansion would raise the telephone density from 3.8 to about 6.4 per hundred population. This density would go some way towards meeting a substantial unsatisfied demand. It would alsc, meet mcost requirements in Caracas and incorporate towns of at least 2,000 inhabitants into a national direct dialing system. The cost of this high priority expansion program including telex lines is Bs, 1,32.5 million for 1970-74.

62. CANTV's recent expansion, partly financed by a Bank loan, has been associated with considerable administrative and financial improvement. New statutes that ensured the employment of qualified personnel provided the basis for a steady increase in the rate of return. The Company continues. however, to experience technical difficulties in maintenance, operat:ion and staff arising from the existence of five different switching systens in Caracas alone, and seven in all of Venezuela. Some standardization is clearly desirable and is taken account of in CANTV's program.

63. Expansion of postal and telegraphic services will add Bs. 34 million to the 1970-74 investment Drogram. Domestic telegranh service is the responsibility of the Ministry of Communications. International telegraph was until recently performed by two nrivate companies. but on expiry of their contracts in 1969 the service was provisionally taken over by the - 26 -

local government airline (Aerospostal). Discussions are now under way within the Government on a proposal to set un a new autonomouLs institution along the lines of CANTV to manage both the international and domestic telegraph service.a Howevepr for siich an incstlitituion to hp finanncillv viable, nicIh - institutions, which use 40 percent of domestic facilities, should be required to pay tarlffa for servircs receivpd. The very low tariffs charged for the domestic service already are the major reason for a ratio of expenses to income of 6 to 1. A siMi1ar prohblm exists in the pnstal services where the ratio is 2 to 1, a situation that could be improved not only by requiring public institutions to pay charges, but also by introduc4ng s tre n-ers and postal zones to increase efficiency.

Education

64. During the last decade the educational system in Venezuela made r.ot-lae gains. E nroll.,ents 4in U0- 0 - c-rim.a - -os 55 t, secondary level enrollments more than doubled, and enrollments in higher eucat40.on startin.g from a 'Lowerbase, tripredA,fApedA4 Tabl 8.13). A- a result, a better balance in the educational pyramid was achieved. In 1960, f ample,n A86. percent o f n1 en-rn1 moent Sawasconcenntrated e nAt t o rh i m.-r level, with only 12 percent at the secondary level and 2 percent at the tertlary. lorrespo….ing percentages in 19690 were 78 percent, 10 percent and 3 percent respectively. Higher ratios of enrollment to population were also achieved. I.n1l969, 77 percent of thJLe priLmarLy and 24 percent ol te secondary age groups were enrolled, compared with 70 and 12 percent, res- pectLvely, ten years earlier. The increased priority given to education during the 1960's is also reflected in government expenditures on education. They rose from 14 percent in 1960 to 19 percent of the national budget in 1969. As a share of GNP, educational expenditures increased from 3.0 to 3.9 percent.

65. The heavy demands on the educational system of rapid urban and industrial development strategy require further rapid progress along two lines in particular. The first relates to the relevance of the skills imparted. Higher education continues to show a bias towards traditionial occupations: humanities, law and medicine comprised over 71 percent of thie output of the Central University in 1968. Petroleum, metallurgical, mecha- nical and electrical engineers made up less than 15 percent of engineering graduates. As a rule, each engineer needs from two to seven supporting technicians, but in 1970 only 53 such technicians are expected to graduate, compared with 1,000 engineers. A similar imbalance exists in secondary education where the sciences tend to be underemphasized. Neither in secondary nor in higher education do employers play an appreciable role in the deter- mination of curricula. They do so only outside the formal educational system in the National Institute for Cooperative Education (INCE), a highly effective institute for vocational training, and in the Institute for Ad- vanced Studies in Administration (IESA), a rapidly expanding graduate school of business. - 27 -

66. A second weakness in Venezuelan education at all levels is its low efficiency. Less than 40 percent of initial enrollments graduated from academic secondary schools between 1963 and 1968. Corresponding coDI- pletion rates for the university were 25 percent. The uniformly high wastage rates raise the cost of producing graduates and reduce the outpul: of the system. Compating actual costs with "perfect efficiency" costs - i.e. costs ineurred If the dronout rate were zero - the differential due to inefficiency of the system ranges from $460 per graduate in primary education to $1j175 in secondary, and nearly S74;000 ner acience graduate at the Central University. These calculations do not take into account the general ohbolectence of curricula offered even for those who do graduate.

67. Though its nlans sti1l remain tentative, the Government is making extensive efforts to solve its most pressing educational problems. The authorities now plan by IQ75 to enrnll R0,0o0 more st-udents at the first. 157,000 at the second, and 49,000 at the third levels of education. Con- cur,rently sacondary eduxatiion is oeing restructured, extending compulsory general education three years and deferring technical specialization until the second c cle. Curri,cu-ls at all levels ar heing revised And tested in experimental schools. A less restrictive examination system is being introduced to red::ce r.eedless dropout an re-etitiLon. The authorities are con- ducting a manpower study to provide a basis for a long-range forecast of human resource requirem,ents. Aticipat-4-g its results, the Government already plans to build three new polytechnic institutes to reduce the extre..e shortage of sub-professional techinicians. Regi onal -o-yea- colleges are also under study as part of a long-term process of decentralization which_, 4n its fi stresses ad...in4strative integration of various WIlJIf , .515. L% A. L rstL L stage,_ C. G kACLL . .L 4... L_A.V .1L ~ A 6 .e..* levels of supervision in each of eight regions. A research program intends providle to LI)~5.L'VLUC theLIIC Uabas's ±L 1.)'or A.ULLLfurther .U devel'opm.ent~.IjIILL'.4 of theI~CCLLI system.u

68). Addin.UU.g up varioLus~ jJ.L~plans and proposals, 4.fixed invest,..ent in. edua= tional facilities could well rise to Bs. 1,360 million in 1970-74, or almost -2 ~~ ~ ~ ~ ~ 0 A .i. … double thle toLtaL expendLiture f'or 1965-68. In Ui.n'LL.LULuii program, on the oLt hier hand, that takes account of the reorganization of secondary education, the expansion of polytechni.al inst tutes, the creation. of agiculural ain-- ing centers, and some university expiansion, could reduce this total to leas than Bs. 1,200 for the next five years. The effectiveness oC such a program depends, however, on an adequate response to (i) the need for closer atten- tI'ion Lo Lhe cost i.mLplfcations of. edUucatiLona.L refoLUm anLU expansion; (ii./ thrie need to impose more rLgorous conditions on university enrollments so as to ensure hiLLghler cor,pletiLon rates; ).LL.L/LLLte needU Lo providue f'or an iLncrease in the supply of qual:Lfied secondary teachers; (iv) the need to offer additional in;:entives 'or private e'tication so as to increase its contri- UU"O .L II ..A L.LL. 0 A.1) 5 LVL r- UUC±L LU. C L A.LL L LC 1.UAL .1 bution alongside the public schools; (v) the need to mobilize greater employer participationr in curriculum plannring, particularly at the secondary level; and (vi) the need to develop more accurate and continuous information on current conditionsUin the 'Labuormarklet as a basis or manpower planning and vocational, guidance. - 28 -

LUUD ,-L,UaL. U'rLU L V0-,L%Jment

69. A developr..ent straegy that 'a'-es account uL a rapiu uroanizaLion process needs to pay close attention to the housing requirements associated .Lt Li. L UUrUar Iuousiing prograrLiis hL'ave bUeen swamped bUy tihe population influx to the cities, while rural programs have been able to concentrate on im- prov'ng the existLng hoousing stock. The annual increuments in the demand for urban housing are approaching 90,000. Housing construction by the public and the organized private sectors co-mbined produced a record 35,000 units in 1969. Of a total 1,500,000 units required to house the urban populat'on in 1968, only a l'ttle over 800,000 were available at standards officially deemed acceptable, leaving a deficit of some 700,000 units, di- vided about equally among househoids doubled up and households ilving in substandard dwellings. About one-third of total urban housing demand is concentrated in Caracas, wnere population inflow and rising lana values due to congestion have forced perhaps one-fourth of the population to erect ranchos on the steep slopes surrounding tne city. Rancno construction probably adds more units annually to the urban housing stock than the government and the conventional housing industry combined.

70. To accommodate a population overspilLl from Caracas, neighboring areas are beginning to be developed spontaneously, especially in the Guatire- Guarenas valley to the east. A tentative master plan also exists in the Ministry of Public Works for the development of a new urban complex in the Tuy valley to the south, to contain a population of 1.3 million in twenty years. As a start, development of a satellite city of 400,000 may be desirable on 6,900 ha. already expropriated at Santa Teresa with a good access road to Caracas already in place. Work on urban infrastructure could start fairly early there. However, for longer-range developments the master plan as it now stands provides an inadequate basis. It has not been clearly related to expected developments elsewhere in the region: its population projections for Tuy, for example, are substantially higher than those of the Municipal Office of Urban Planning (OMPU) in Caracas. Also, the pressing housing requirements of lower income groups are given inadequate consider- ation: a gross density of only 50 persons per ha. is foreseen compared with 200 per ha. in Caracas. To coordinate the development of satellite cities in a proper regional context, a single, strong development corporation will probably have to be established first.

71. The present Government is calling for the construction of 500,000 additional housing units nation-wide over the next five years, 109,000 of them to be classified as rural. Some 181,000 urban units are to be financed by the private sector. Direct construction of the remaining 210,000 urban units would still be beyond the financial capacity of the public sector. Government transfers to the Banco Obrero, its main agent for housing, were already cut by roughly two-thirds in the 1970 budget. A shift from middle to lower-income housing, however, is to permit direct construction of about 85,000 units still over the 1970-74 period. The construction of an additional 113,000 low-income dwelling units on a self-help basis is to be promoted throuQh the nrovision of urban infrastructure mainly in rancho areas. FUNDA- COMUN, a fund to assist local government, is directly and indirectly to account - 29 -

for the remaining 12,000 units. The total cost to the public sector is thought to be in the order of Bs. 3,250 million. Given competing demands on Venezuela's fiscal resources, however, such a rate of investment may be clif- ficult to support. A total of about Bs. 2,500 million will very likely have to be considered as a ceiling for housing over the 1970-74 period.

72. Within the lower expenditure ceiling, the Banco Obrero could further reduce its direct construction to 61,000 units, and shift emphasis even more than it already intends to urban and community facilities programs. These programs were initiated in the spring of 1969 to improve housing and upgrade public services in existing rancho areas, and to develop "reception areas" arotnd the more rapidly growing cities. The reception areas are to be sites where land is acquired and subdivided into parcels, and in which basic public services have been installed. Lots would be assigned to applicants meeting income qualifications, who would be allowed to construct their own dwelling units on them. Public investment would be required for community infrastructure but, for the rest, heavy reliance would have to be placed on the response of ranchlo dwellers themselves. The visible improvements over time in the older ranchos - as well as similar experiences in the shanty towns of other Latin American countries - suggest that this is a reasonable risk. To anticipate construction of 120,000 "improved" dwelling units in existing rancho areas and another 126,000 new units in reception areas, does not appear to be far out of line. Together with remaining direct public construction, these programs could meet nearly 80 percent of the anticipated growth in urban demand.

73. Apart from the Banco Obrero, public agencies active in the lhousing field include the Corporacion Venezolana de Guayana (CVG) which operates mainly in Ciudad Guayana; and FUNDACOMUN. which attracts private as well as public funds to finance self-helf housing projects in various cities; particularly Barquisimeto. Thouah both are snecial nurnose nro- grams, they exert an appreciable impact ancl should receive every encourage- ment- Mos t of the remainder of the urban hotLsing demand will have to he met by the private sector alone. The Government expects 181,000 new units from it. a target that will require more than a trinling of outnut over the next five years (Appendix Table 8.12). Given past performance, this seems an unlikely develonment even with a nrogram!i recentlv expandedc of tax concessions on income from new housing and dividends from saving and loan shares= The rural housing program., which is to supply 109,000 units at a possible cost to the Government of Bs. 751 million, seems more rea- listir and ronrieitent with the 1970 budget. Less than I0 percent of this target would compensate for net-growth in demand; about a third may be for newlv connstr,utPed housiinc, iuntier repei-f-tlampnt schemesa

Helth andanit-hat-aion A .r -~-A~-A 1-4 -eulaoe

71. uNonorh aonA1y.Aa hQa¶'e Improved c^onserably In Pa7nnd,..al - over the last thirty years. The death rate has decreased from over 18 per thousand in 1'3 I..l han 7 in 1968*. The reduction in infant mortality has been particularly notable. Life expectancy at birth has in consequence increased from 48 in 1941. to Uabout 6' ir, 1968, not far beo the - 30 -

71 years reached in the most developed countries (Appendix Table 8.14). Improved diagnosis has reduced the number of deaths from unknown causes from 48 percent in 1950 to 25 percent in 1968. Like more developedl countries, Venezuela finds the main causes of death to be heart disease and cancer. Enteritis and diarrheic diseases, however, still rank third for the population as a whole and first for the 1-4 age bracket. The decline in the birth rate has not as yet caught up sufficiently witlh thle decrease in death rates to reduce the rate of population growth below 3.6 percent. The State does not officially sponsor family planning. Some private study groups seek to disseminate relevant information, and family planning clinics are tolerated in a number of public hospitals. The effort is too small, however, to promise a noticeable impact in the foreseeable future.

75. The supply of water and sewerage facilities is the responsibility, in the main, of the Instituto Nacional de Obras Sanitarias (INOS), which in 1969 served 77 percent of the population with water and 41 percent with sewerage facilities. Except for expansion of distribution facilities, particularly to rancho areas, the basic system is thought to be adequate to meet requirements in Caracas until the late seventies. Meanwhile it is planned to supply a further 6 percent of the population in other cities with potable water and 10 percent with sewerage. This program is expected to be costly, as more distant water resources will have to be tapped. User charges will therefore have to be increased to make the higher income urban population bear a fair share of the cost of the services they receive. Fixed public investment in health and sanitation will for budgetary reasons have to be restricted to Bs. 1,950 million in 1970-74, of which INOS will account for 52 percent. The rest will be available for construction of hospitals and other medical facilities mainly by the Social Security Insti- tute (IVSS), and of public health centers and hopsitals by the Ministry of Health and Sanitation and other specialized agencies.

76. Hospital facilities now provide 3.2 beds per 1,000 inhabitants. but wide variations exist throughout the country and among specialized facilities, creating excess capacity in some lines and certain areas. As a result there were in 1968 more than 2,000 unoccupied beds or 20 percent of the total in hospitals of the Ministry of Health alone. Total beds available in the country numbered 31,000, of which 9,000 were located in the Caracas metropolitan area. A similar situation exists with medical personnel. Venezuela has 1,100 inhabitants per medical doctor, 544 per doctor in Caracas, and 1,350 per doctor in the rest of the countrv. These figures compared with a minimum social demand of 300 and 2,000 per doctor in uirhan and in rural areas- resoectivelvy specified by the Pan Americran Health Organization (PAHO). Here, too, there is little correlation between causes of mortality and mnrbiditv on the one hand- and the sne4ialijatonn of doctors on the other. No study exists, furthermore, of likely future needs for medical andearnr-mediral personnel that eould nrnuilde a frame- work for manpower planning in this sector.

77. Accidents have increased to the point where they now come fourth as a cause of death and first as a ca.us of morbih4t,. MaLnutr- t4on, however, still ranks second in importance for morbidity, mainly among children belo the a ffu. The hi-1, 4ncidence of malnutrition occurs despite - 31 -

the fact th8ai the per cap4 ta caloric int4be in6 Venezuela come to 2, 50 or about 300 above the minimum daily requirement as defined by the Venezuelan .st tit Nasiona1. de N'utrc4 C 4in iT . P art of the expla.aation lies in a uneven distribution of calorie intake among income classes. Even in Caracas, where incomes are 1t wheren.o..es..ae hIgh.i. ononte1 the wh.olle, over 310 percent of theh population are estimated to have a calory intake lower than the minimum daily requirement. Tn par- lue explana:'ion also lies in ar unbalanced Jntake of lasic nutrie;;t;. ~'G L LI& J. ULa.LJ. I U .LL L iAiJ aI A1L~.OL U J. &L ar, i. UG J.L LLU. J.. C..L A significant proportion of the population in the lower income groups obtain p_1_t4_. _ 1 , _ _ _1. . _ C__ , ____Iu_J_£ It _L _ , 11. calcium, riboflavine and thiamine. Educational programs sponsored by the ILNN, and a more ample supply of meat, would help to aueliorate the problemt.

SumAWLin gJ U-p

?8. LTe prograims reconumenGeII Lnche preceaing secLion0ls hiave been selected to further strengthen the economy and to direct it progressively towards exports. Two constraints have had to be taken into account: (i) the momentum of ongoing programs and projects at an advanced stage of preparation, and (ii) the tight financial situation in prospect for the next few years, which is the subject of the next chapter. The results are tabulated below. Fixed public investments for the 1970-74 period wouid reach Bs. 20,552 million or 37 percent of estimated gross fixed investment required to sustain historical rate of GDP of about 5 percent per annum. Fixed public investment in the preceding five-year period had at Bs. 16,80() million come to 39 percent of total fixed investment. Major economies are proposed in health, power and transportation where past advances have been notable and where a more rigorous deftinition of priorities will now be necessary. Major advances are recommended for industry and urban development including transport, and to a lesser extent for education and hydrocarbons. Within each sector there would also be a shift from primarily social to primarily productive concerns.

FIXED PUBLIC INVESTMENT

(Rs m4nili4on 1Q9R ri-4cea)

Total 1970 1971 1972 1973 1974 1970-74

Avricul turp 345 343 352 330 292 1,662 Mining & Hydrocarbons 242 315 300 231 212 1,300 Industrv 323 801 887 772 552 3,335 Electricity 275 245 206 197 195 1,118 4 Transport &. r tin ii.,tin1 1,1 ,0CO176 1,8 0R 1 ,20 f5,44 Education 200 230 235 255 253 1,173 Hous ing, a-r.d T"rbain Developmenit 496 446 475 697 773 2,887 He--lth a.nd Sanitation /4310 14 350 368 0/4 7 JOLLSU.ttJLL *V.J. -J.. -J' - ,-1. , J-. Other 305 316 309 352 402 1,684 Total 3,710 4,020 4,190 4,282 4,350 20,552 - 32 -

79. In order for a program of the kind proposed to be implemented smoothly and enpeditionsly, nrnieprt preparation needs to be better coordinated and phased than has been the practice in the past. A promising development is the creation within the national planning agency (CORTIPLAN) of an Office for Project Evaluation. A need for adequate preinvestment studies is particularly pressing in tourism, urban development, water resource planning, and in education. Tourist development could materially benefit from a review

of the Caribbean tourist m-rket aQ a whole, inwh4ch UVnezuela might par- ticipate. Plans for urban development, including rapid transit facilities andl the construt! on of csteollit citiec arc di ffi il t to oornndrlinatewithont a coherent overview of the prospects and requirements of developing the Core Region as a whole. A thorough study of water resources and requirements in the Core Region and elsewhere has been initiated in COPLANARH (Comision del Plan Nacional de Aprov t..n t Ae los Recursos Hidraulicos), but nee-Is considerable strenghtening. Finally, the large-scale reorganization of

se conJLtary edcaUGL tion, LIn pJarticul .. ar., needsA systematic e5.5.tvaluationLEU InL LCermsL1l~ the investment requirements it entails.

80. In addition to fixed investment, provision must also be made for (iflother" invest.ments including8 accumu.lations of arctural surpluses and (Ii) credit programs to the private sector. Over the 1965-69 period,

"othL-er" investments reached 'Us. 3,000 MiL...L..on: teIIey a re unikre 'Ly tL faLl below Bs. 3,460 million in 1970-74. Credit programs over the last five

years years~totaLd±LeUtoale ~~~1 BsBs. . L.2,00 V%Jn MIL.L.L.LLLL,,illlon. InI~ seriLes ofiL ther,,-L.IIf=LtIL G L ea.LLL---.6 -gl------V ULL1ulnded. e as part of the proposed development strategy, primarily in housing, agri-

culture andu Industry. zliey shouldU not totaLL less thLan Bis. 2,2L5JV ML.L.L.Lon Li 1970-74. Taking all of these together, a total public investment program of some Bs. 26,300 million is tierel'ore proposed as a minLnuimum program for the next five years. Much less than this amount would very likely entail a siowdown in economic growth. Much mnore could probably not be financed.

V. DEVELOPMENT FINANCE

Current Situation

81. The binding constraint on the size of the public investment program is the amount of financing likely to be available over the next 4-5 years. The problem has been one of immediate urgency for the present Government. Current revenues of the Central Government declined by 1.2 percent in 1969, as a result of a decline in oil production and of the completion of payments on tax arrears negotiated with the petroleum and iron ore companies three years earlier. At the same time, current expenditure increased by 4.2 percent, cutting the current surplus to Bs.2,654 million, down from a 1967 peak of Bs.3,260 million (Appendix Table 5.4). For 1970 another decline in the current surplus to Bs.2,418 - 33 -

million maybe anticipated, despite optimistic revenue expectations, mainly because of a further 12.0 percent rise in current expenditures paced by substantial salary increases in the public sector following widespread strikes in 1969-70, particularly by teachers. Reversing recent trends, the authorities have already budgeted a sharp cut, by 21 percent, in capital expenditures and transfers by the Central G.overnment for 1970.

82. The immediate fisrlal nrohlem is Rvmntomatic of a more fundamental difficulty. With nearly two-thirds of Central Government current revenues; derivine from the netroleum sector and with netroleum production fncreasirie only slowly, revenues cannot be expected to increase with development needs. The nonulation will c-ontintip tn inerpacp ntaa rratp of at- least 1-2 nercent annually over much of the 1970's. Improvements in the average standards of education and sonrial servie require mnre f-han commensurate increpAes in current as well as capital expenditures. Even with reasonable restraint on nonessential currentt expendtures the crirent sivrnlus for the Central Government, and for the consolidated public sector as a whole, will therefore rontin,te t, irt.a'-ol'n t arevenue af new measureC The preeont Government became increasingly conscious of this situation after coming into office with a comm.itm.enf toe stress economies rte tha.i new tes as a solution to fiscal problems. It has now announced new revenue proposals to be inrtroduced with the budget for 1971 at the end of this year. in preparation, the authorities have concentrated on a campaign to improve tax collection, to inten.sify budgetary controls, and to cenlral4ze the screeni.g of public investment projects.

83. The precise content of the prospective revenue measures is to be debated in the Congress.. Tr. y.ldA is inz.ny cas e epc- -o. U.. the1 authorities to compensate fully for the very limited increase in revenues -ntrs &LUIftrn, petroleumL IJ..UI, Ile11 &IICLIL. Go;vernmuentJJCL &IC'as thereforeLnIOL CL%JL C exrssdaAF C CU C A..LVC.L)iel .LLILCLWPO 5. in exploiting its "unused borrowing capacity". Interest payments

Ly t.11e CentraL GJovernr,.ent on iLts do,,estic an" externa'L UdebU hI'ave averaged less than one percent of current revenues over the last five years. Never- teleLss, of' a totaL bUorrowing authority of Bs.2,vu0 millioU requestedU LLor 1969, only Bs.800 million were in fact approved by Congress, and only 0-s9.650-4milior fr_ 1970. Ile lo-ver..ment use' `hs authority to b-orrow ).iJ.Jl. I ~L'.JL.LILIL .L-71ILI kLA& %.7 VLLLICL U U "&.1. CULILUL.L5.) tU UJ L W at medium-term from commercial banks abroad $85 million in 1969 and another $100VL,JI JL J r-L.L.on ILtI.LJ I.11,n 1970.It '. *7 Th.s±11.1 typeL.IO Uof' borrowingU IWL2 cartd[ bueC iLncreased".LLCCU or.lyUL)C at considerable risk. The Government has accordingly excluded major capital iLtfems f'rom thle ordinary uuuget anu placea tnem togeth'er 1inani Extraordinary Program, to be financed in large part from long-term development loans from abroad(Appenudix Table S.3).Congress 'has begun to approve parts of this program on an item by item basis.

Structural Problems

84. The outstanding characteristic of Venezuela's fiscal system is the extent to which it continues to depend upon taxes on foreign trade. Almost three-quarters of the current revenue of the Central Government comes from taxes on imports and exports (Appendix Table 5.4). The composition of foreign trade taxes has, however, altered markedly over the last - 34 -

fifty years, with import duties becoming less important than taxes on petroleum exports. As a result, the cost of the rapid expansion in public expenditures in recent decades has been borne virtually in full by the users of Venezuela's petroleum. In 1969, for example, government saving amounted to Bs.2.7 billion and financed 75 percent of Central Government capital expenditures. If petroleum revenues were excluded however, the government would have dissaved Bs.2.8 billion. The decline of import duties in foreign trade taxes has been matched by their decline as a proportion of taxes paid by Venezuelans, in favor of income taxes that were introduced in 1942 and streamlined in 1967. Though this has increased the progressivity of the revenue system, its income elasticity is still insufficient to compensate for stagnation in petroleum revenues. The question is, therefore, whether Venezuelans will be willing to support increased expenditures needed for sustained development, now that they themselves will have to meet much of the cost.

85. Apart from its dependence on oil revenues, a second striking characteristic of the Venezuelan fiscal system is the dominance of the Central Government on the revenue side. The Central Government collected over 70 percent of total public sector receipts in 1969. It transferred 45 percent of its revenues to autonomous institutions and regional governments, however, so that it accounted directly for only 43 percent of total public expenditure. Autonomous institutions contributed only 25 percent of receipts but 45 percent of expenditures, state governments 2 percent of receipts and 10 percent of spending, and districts and municipalities 2 percent of each (Appendix Table 5.3). The fiscal pattern in recent years has therefore been that the Central Government's current account surplus, before counting transfers, has financed, apart from its own investment, a substantial fraction of that of other levels of government as well. Despite the existence of some 72 autonomous institutions, 21 states including the Pedpral Distrist, 172 districts, and 700 municipalities, the key determinant of the fiscal position of the public sector as a whole has been the current account nonition of the Central Government alone, which in turn deoends primarily on the course of oil revenues.

86. A third important feature of the Venezuelan fiscal system is the lack of centraliz7d control over niihlio exnendituires. There is no inrernal executive review of commitments. The external pre-audit by the Contraloria - responsible to Con-ress rather than ton the Executive - is ronr.-rndr1 nnly with legal accountability. Thus, for example, the Ministry of Public Works has a continuing excess of commitments over authorlzations financed by increases in the floating debt. The budgetary system is not yet fully accommodated either to the proliferation of autonomous 4r.stieutions that has taken place over the last decade. In March 1970 the report on the initial budgets subm.itted for 1969 by those institutions that d- submit L Ji).L U UU, L. ~uuuJ..L A. ~/ A.,-. fltOk- LtI*A O ASO budgets was still not ready. The situation may improve over the next

Lew years iLn thle cor.text of ar. C4LAd...insta L%ef.'& &ki. ir.troduced in April 1969. Its first substantive result has been an April 1970 decree intended to bring autonomuous institutions under stricter fiscal control. - 35 -

The L.udget offi.e now hopes to gtSe, f'or the first t1mie, quarterly spendini;

SJA.v t J 1. J.LLJ11IL ~ IU L , L Li1t~ I.LL L .Ii~ ULL L) * Jfll reports from some agencies. What is urgently required beyond these first steps, however, 's a syste, ofl annual consoLUidated public sector UuLgets for review in advance of the fiscal year. If such a review focused primarily on the aLiJounts to be recei-vedU [1rom Lti'e Central Uovern[Lent andU on thle foreiLgn and domestic borrowing of the main decentralized institutions, it need nob: iLnterfere with thne autonomy wnichi was a major reason for their creat'ion.

Fiscal Prospects

0 7,_ .w se _ ent___a_ _ 87. in the absence of fiscal reform the prospects are that tne CenLtl- Government's current surplus will gradually diminish. Given the dominance of the Central Government in puDlic savings, the total public sector surpl.us may be expected to follow much the same path. Revenue from petroleum will continue to dominate. For purposes of projection, crude production is assumed to rise by 2.5 percent annually over the next five years, associated with a GD? growth rate of some 5 percent annually. As a result: of these and other more specific assumptions on each category of revenues, Central Government current revenues may rise from Bs.9.1 billion in 1970 to Bs.ll.2 billion in 1974. When this growth is related to the projected GDP growth rate, the income elasticity projected for 1970-74 is 1.04. The! main factor iS of course a relatively slow growth of petroleum revenues. For non-oil revenues alone, the elasticity with respect to non-oil GDP is projected to be rather higher, at 1.30 for the 1970-74 period. The composition of public revenue is expected to change accordingly, with the share of oil revenues declining from 63 to 61 percent.

88. With such revenue expectations public savings are bound to decline even on conservative assumptions concerning the prospective rise in current expenditures. These must rise if a rising capital stock due to continuing. public investrnent is t:o be fully utilized and adequately maintained, and if the level of socia:L services for xi rapidly rising population is to be maintained or improved1. Over the 1965-69 period Central Government current expenditures rose by an average 7.5 percent yearly at current prices - or some 6.5 percent in real terms. The projected increase from Bs.6.7 billion in 1970 to Bs,9.0 billion in 1974 averages 7.5 percent in constant prices (Appendix 5.5). This slight acceleration nevertheless presupposes a;high degree of future restraint, because (i) expenditures on personnel will increase in response to wage increases already negotiated; (ii) interest payments on a rapidly rising public debt introduce a new element of inflexibility; and (iii) the important grants to state governments are constitutionally set at a minimum 15 percent of current revenues. Interest and intra-government grants account for 20 percent of the projected increase. Of the rest, 26 percent is thought to be required in education, 17 percent in health, 12 percent in public administration and defense. Most of the remainder is in the main investing ministries including public works and development. - 36 -

89. A deciine in puDLiC saving seems unlikely to be offset elsewhere in the public sector. Neither the regional entities nor the districts and municipalities are important in this context. The autonomous institutions as a group have generally run a deficit if their Central Government transfers are excluded. Excluding intra-governmental transfers, the Central Government surplus of Bs.4.7 billion in 1969, for example, was offset by a deficit of Bs.0.3 billion on the part of autonomous institutions

FINANCING OF PUBLIC INVESTMENT (Bs. millions)

Total 1970 1971 1972 1973 1974 1970-74

Public Investment 4,720 5,120 5,340 5,482 5,600 26,262

Financing: 4,455 4,363 4,276 4,143 3,905 21,142

public savings (3,255) (3,206) (3,120) (3,038) (2,968) (15,587) net foreign borrowing (950) (872) (846) (770) (614) (4,052) net domestic borrowing (250) (285) (310) (335) (323) (1,503)

Gap: 265 757 1,064 1,339 1,695 5,120

tax measures ( 235) ( 755) (1,060) (1,342) (1,697) ( 5,089) treasury balances ( 30) ( 2) ( 4) ( -3) ( -2) ( 31)

and of Bs.0.9 billion by state governments, to yield consolidated public sector savings of Bs.3.5 billion (Appendix Table 5.3). The municipalities just broke even that year. Hence the current surplus for the public sector as a whole may be projected to decline from Bs.3.3 billion in 1970 to some Bs.3.0 billion in 1974. A total of Bs.15.6 billion may still be expected for the period as a whole. About 40 percent of the mission's proposed public investment program of Bs.26.3 billion would still have to be financed from other sources, compared with less than 20 percent so financed in 1965-68.

Tax Reforms

90. The tendency for public savings to decline is unlikely to be reversed as long as the Central Government's revenue system depends as heavilv on petroleum as it now still does, while expenditures respond to other forces in the economy. This prospect was neither as urgent nor as generally recognized as late as 1966, when an effort at fiscal reform all but foundered on the opposition of urban middle class interests that felt themnelYu inadequately consulted or orenared. Until some buoyancy in public savings is restored, however, the need to borrow for debt service as well as for development exnenditures is likely to become cumulative. - 37 -

There is no need to risk such an outcome. The unused taxable capacity of Venezuela remains aiple, at least in economic terms. Central Government current non--petroleum revenues in 1969 were lower per capita than they had been ten years before. They now amount to only 7.5 percent of non- oil GDP. This figure places Venezuela well below the average for most developing countries, especially for those with comparable per capita income.

91. The first response of the authorities to fiscal stringency has been an effcort to reduce tax evasion and eliminate waste in government. Evasion is being attacked by "Operacion Blanqueo", a two-part operation consisting cf a tax amnesty for those who confess past delinquencv within a specified time period, followed by an intensive field search for missing taxnayers. Some redtition In wasteful exnpnditures is also exnected to result from the April 1970 decree establishing stricter ministerial control over spending aoenries. Roth initiativue are rrntrlrtiuie even thniouh their immediate impact is likely to be minor in present circumstances. The qearrh for unrecorded xpnnayera is leoa likealy t-o iinrn,er maior than minor offenders, and the penalty for getting caught is not particularly severe, No dinisQsalQ are contemplated rbt cut c-u,rrent erpendituires whilie the need to recruit and retain high quality staff is likely to require more rather than leac expendanitirea over ti4me More findA.mentally, however, both kinds of measures will in any case have only a once-over impact on the level of revenues ad ependi44tr,e-a They do not alter the strucetu,ral imbalance of the Venezuelan fiscal system.

92. Accordingly, the authorities are now considering fresh revenue measures for the end of the year. The introduction of service contracts is expected eventually to bring some relief by raising the Government's participation in new oil revenues. ThIe precise content of addit4inal measures for the domestic sector has not yet been made public. In view of the lead time required for adequate preparation, a two-stage approach would seem to be advisable, and is recommended by the mission. Thus, the immediate need for additional reven.ues in 1971 could for example be r,et from (i) increased excises on liquor, tobacco, gasoline and the like, combined w4it (ii) ar.44i1. -14it- 10-15 percent surcharge on the 4-cme tax, and (iii) increases in customs duties. A more fundamental reform for the following year could have two maJLor com.,ponents: (i), the intro= duction of a single-stage 5 percent sales tax and (ii) the establishment of A n eff:ective real property -ax. The effect of such refor.-,s woul 'be to t~U~L CJ~L~L.V L JL IJL L. La. I iI J.LL I L V. C it LLLILC UUU Li yield about Bs.5 billion in additional revenues in 1970-74 1/. Around oLnieaL of Central Gover...ent rever,ues will thlen coTie frOML sources othLeir than oil; yet the burden of taxation on the non-oil sector would still not exceeu 10Jpercent. Other mueasures, or comIbinations[Leasures, of wouLUd of course also be feasible and could also produce the required revenue iLncreases.

1a/ For details, see Vol. IV, Public Finance. - 38 -

93. Two additional aspects of the fiscal system need further examination by the authorities beyond the reforma nrnnoped hv the M-ssion. The first concerns the size and rationale of tax incentive policy, particularly toward induRtrv. Duties collected in 1969. for example, amonntpd to nnly 38 percent of duties due: revenue foregone, assuming all imports would have ontninutpd even in the ahbence of incentivesq amotnted on almoat Ra .900 million, of which Bs.650 million benefited industry directly. If we add to this figtire niihlir epYendittures of RBs225 million; and a rough estimate of the value of investment credits under the income tax law, then public "expenditure" on industry may well have reached RBs.ln0 m.illion in 1Q99, onl!y 22 percent of which was accounted for through the budget. The possibility of reducing some of the present exemptions in favor of, say, a flat 15 percent subsidy on exports, on the Colombian pattern, should receive early consider- at ion. 94 T.he second aspect of the revenue system that reui4res cor.sidera- -~~ ..~…- - .- -… tion going beyond the immediate reforms, concerns the optimum degree of f4scal Aanae.-.4.t a4Onv T,ransfers by the Cerntral Gmerrme_ to ote levels of government amounted to Bs.1,700 million in 1969, and to about Bs.2 ,500 in4 1 4 on to -aitonomouas inQt4-tutions, or tnogther to onma 42 peent of total expenditures. The revision of the property tax included in the reforms proposed by the mission…e should raise state and local revenues by- 50 percent by 1974. This tax, and others to follow, may become more acceptable to th-e degree that expenditure functions are concurrent-ly A-ecnt:al4-- well, particularly in the area of urban development. Establishing a clearer connection between t-he provi4sirn f urbar. serv4 cesand the-a e s ta p-a fo them should trim any excess demand for such services, and at the same time help to icese sk"he:ir I,, o-Z TM-e Mmeofs pricil-eH hz^olls *witchrspc to autonomous enterprises. The mission's reform proposals do not include explicit proposauls on rates, but ltshould Le clear that the reverue requirements at the Central Government level could be measurably eased by realistic pricing in place of subsidies in the field OL public utilities.

Publ'ic Debt

95. Tne rerorm package ouelined above is expected eo help raise public sector savings from Bs.3,500 million in 1970 to Bs.4,665 million in 1974. Savings should reach a total for the period of Bs.20,700: out of a proposed public investment program of Bs.26,300 million, a gap of some Bs.5,600 million will remain to be financed by borrowing. About Bs.i,500 miiilon can probably be covered by net borrowing in the domestic market without expanding that domestic credit excessively or unduly restricting the credit available to the private sector. New borrowing has increased sharply in recent years, trom Bs.216 million in 1967, tor example to Bs.859 million in 1969. Nevertheless, service on the internal debt still came to no more than Bs.540 million that year, or to 4.4 percent of total public sector current revenues. The internal bonded debt of the public sector remains low at Bs.2,200 million or 4.4 percent of GDP in 1969. Very - 39 -

little of this debt isEheld by the Central Bank, only some 10 percent in 1968, the last year for which detailed statistics are available. About 30 percent was held by the public sector itself, two-thirds of that by the Social Security System (IVSS) alone. Some 60 percent was therefore held by the private sector. The proposed increase in domestic borrowing may not need to be monetized to any larger extent than it has in the past, particularly if it is viewed as part of a larger program, now under study by the authorities, of further strengthening domestic capital markets.

96. There remafn some Bs.4,100 million net that must be covered by borrowing abroad, up from some Bs.1,270 million in the previous five-year period. In relation to total public investment, the increase would be from just short of 6 percent to just over 15 percent, still not necessarily an unduly high proportion. Venezuela's capacity to service additional external debt remains ample. The total external debt outstanding came to US$664.3 million including undisbursed at the end of 1969, or to 6 percent of GDP, (Appendix Table 4.1). The service on it came to as little as $51 million, equal to 6.5 percent of public sector current account saving, or less than 3 percent of exports net of income payments (Appendix Table 4.2). Given the terms likely to be available to Venezuela, the increase in the debt service burden need not exceed 10 percent of net exports in the next 4-5 years (Appendix Table 4.5). At the same time it should be borne in mind that although no precision is possible in iudgments of this kind, it seems likely that an increase in the debt service ratio from 3 to 10 percent in less than 5 years is the maximum consistent with maintenance of Venezuela's excellent international credit rating. The investment program and the financing gap have been limited with this in mind.

97. The level of gross disbursements on external loans would have to increase to about Bs.5,900 million (US$1,320 million) over the period, comnared with Bs.2-700 million (H'q600 millionn? over the last five years. Given the lead time required for project preparation and negotiation, the nace at which devulopment lending ran be arrelerated in limited- Tn consequence, the authorities have alr,eady borrowed for budgetary support from commercial banks abroad Bs.385 million in 1969 and another Bs.450 miLlion in 1970, on top of some Bs.50-100 million of more normal borrowing by the public sector from banks and suppliers. The imnact on the debt service burden of this type of borrowing have made it seem advisable to posit a ceiling upon it of RsA550 million anniinllv for the newt 2-3 years with the expectation that it can be reduced thereafter. In addition, a very ranid increase in nroiert nrepnaratinn for development finanring has had to be assumed. Some of it has already begun; it would be further accelerated in the conteyt of a romnprehensive hnrrnwing program, prepared In close cooperation with major lending agencies. The Extraordinary Investment Program now heFore the Gnngress ronstitutes a possible beginning in that direction. DeLays would reduce the total investment program that can be financed. - 40 -

VI. EXTERNAL PAYMENTS

Reserve Position

98. The international reserve position of Venezuela is still comfort- able. International reserves of the banking system reached a peak of just over $900 million at the end of 1969, or the equivalent of more than 6 months' imports. Price stability has also been remarkable. Though the money supply increased at an average rate of 10 percent per annum in 1964-69, price increases have only in the last year or two begun to approach a rate of 3 percent per annum, and then mainly due to rising import prices rather than to domestic inflation. Private claims on the banking system have con- sistently increased at a faster rate than GNP, with quasi-monetary claims rising as a proportion of the increment from 49 percent in 1964-67, to 68 and 56 percent in 1968 and 1969, respectively (Appendix Table 6.2). A widen- ing gap between expenditures an'd resources can nevertheless be observed in the balance of payments as well as in public finance. The current account balance, which had been positive through 1967, turned sharply negative in the last two years, with the deceleration in exports of petroleum and continued GDP growth that kept imports buoyant.

99. Total credit extended by the banking system rose at an average rate of over 12 percent annually in 1964-68 without thus far precipitating any undue expansion of aggregate demand. Liquid asset holdings by the private sector. defined as claims against bank and non-bank financial intermediaries, rose from Bs. 8,236 million in 1964 to Bs. 11,893 million in 1968, or from 22 percent of GNP to 25 percent. Comparable totals are not yet available for 1969. The most notable element in the flow has been the ranid increase in the role of mortgage bonds issued by mortgage banks: they rose from Bs. 468 million in 1964 to Bs. 1,704 million in 1969, due in nart to having their relatively attractive counon yield enhanced by income tax exemption on interest earned. A specially cautious monetary nnlincv eems nevertheless to be called for in future; an the publir certor in addition to tax reforms increases its recourse to domestic credit. The Government1R nrnnnrtinnate share in the domestic credit increment nueraged 16 percent for 1964-67, but has since then increased to 18 percent in 1968, and to 39 nprcant in 1QA9 (Annpendix TAble 6.2)

100. Credit policy has traditiona11y bhen Pnsnarfativn 4n Vana7,tnla. Recent measures by the monetary authorities have been aimed at (i) absorbing excesso 4i.uidit- of teh comercial banks, and (44) rowse nf.Sl,, private savings abroad. Despite a rapid increase in credit extended, excess reserv-es of thle banking system rose from Bs. 309 illior. to Bs. All) milllon in 1968-69, or from 23 percent of required reserves to 29 percent. Their

Un&qur,eJ U.L bL.UtL.I.LIon aJLor. UaCLnAks, hAowe VeL, LLnUUced thLLe aUL11oitiA.es to preLfL reductions in Central Bank advances and in shifting of treasury bills to thLe cumierc[aL banks, in place of generaL ncreases iLn reserve requ'ir1emens. - 41 -

Meanwnile, fowreign companies operating in Venezuela have increasingly cal:Led on local banks for their borrowing to avoid higher interest rates abroad. To keep locai. savings at home, the authorities in mid-1969 (i) introduced minimum interest rates on time and savings deposits; (ii) established min:L- mum and maximum lending rates of 10 and 11 percent respectively to make borrowing more expensive; and (iii) raised the rediscount rate. LiTmita- tions were also imposed on remittances abroad by companies with majority foreign ownership who are debtors to the local banking system.

The Cur.ent Account

101. Monetary stability will continue to be important as pressures oi the current account of the balance of payments mount with continued growth of national product and of imports, against an anticipated growth of no more than 2.5 percent per annum in petroleum exports. Gross petroleum receipts still account for 93 percent of total export earnings, but supply elasticity is limited in the medium-term. There is virtually no shut-in capacity at present. Production from existing wells is likely to be main-- tained by secondary recovery techniques. Such techniques can make a bigger impact only to the extent that crude prices for exports rise to meet rising marginal costs. Costs have been increasing also because of sulphur content regulations in the United States which have made investment in desulphuriza- tion plants necessary. New exploration on existing concessions is discourag- ed by the fact that present concessions begin to run out in 1984, reducing the period over which investment will have to be recovered. Finally, new exploration under service contract arrangements is unlikely to result in appreciable production increases before 1974, assuming that service contracts can be negotiated without further delay, now that the necessary legislation has passed Congress.

102. The relatively small contribution of other exports suggest that, though their vigorous promotion must be a niaor element in any long--term development strategy, they are not likely to produce major increases in foreign exchange earnings over the next few years. Exports of iron ore have contributed just over 4 percent of earnings: production has fluc- tuated widely without exhibiting a consistent trend. Agriculture continues to account for less than 2 percent oE total export earnings despite a growrth of some 6 percent annually over the last few years. Of the five principa]. agricultural export commodities only plantains are sold under free msarket conditions. Both supply and market Limitations, however, are likely to restrict future expansion. Despite substantial subsidies, coffee exports have declined with increases in local consumption; cocoa exports have all but remained stationary for similar reasons. The most significant expansion has taken place in sugar and in rice, whose high domestic support prices produced surpluses that are sold abroad at a loss, in the case of rice at a discount of 50 percent over the last three years. To minimize such losses, 'Venezuela is seeking an increase in its U.S. sugar quota. - 42 -

103. The major items among manufacturing exports have been iron and steel products, crude aluminum, and construction materials including cement. None of these existed in appreciable amounts five years ago; now they joint- ly contribute nearly one percent of gross export earnings. In future, exports of petrochemicals are likely to enter the list, though it is not certain when production is to be initiated or whether export prices will cover full costs. In addition, sporadic exports, mainly to Central America and the Caribbean, have taken place in processed foods, beverages and tobacco, leather goods, and in certain chemical and metal products. Differences between local and international prices are narrower in these and related manufactures than in agriculture, and markets, particularly in developed countries, are less restricted. To provide the basis for a sustained export drive, however, these products would require at least the same incentive privileges as are now enjoyed by import-substituting industries, and export credit facilities on a par with those available to competitors in other countries. As imports continue to rise, a system of flat-rate export subsidies might also be considered, on the pattern now in use in Colombia.

104. No net addition to foreign exchange earnings can be expected from the services sector. Net factor earnings are the dominant element in this category: the deficit in 1969 was of the order of $700 million, over $600 million of which was on petroleum account. The negative balance on other services registered $350 million: over $200 million on freight and insurance and about $80 million on travel and tourism. Unrequited transfer, finally, added another deficit of $100 million. Over the next few years, not even tourism is likely to become positive. Petroleum remittances have maintained a fairly steady relationship of 27-28 percent of f.o.b. exports for most of the past decade, and may be expected to rise along with the postulated increase in petroleum exports. As income and imports continue to rise;, so will freight and insurance. Prospects are good for a long-term expansion of foreign tourism in Venezuela, provided a set of identified nroierts and mpesurps are acceDted. 1/ In view of the lead time required for major project preparation, however, past trends are likely to continue for another 4-5 years-

105. On balance, gross export earnings less net paympnts n services available to finance commodity imports are unlikely to increase by more than3 p n5 everage over the next -ears. If GDP is to continue increasing at some 5 percent annually, therefore, accelerated import substitution and rapid increases in foreign investment will be required. Over the past decade, the proportion of consumer goods imports in total consumption has already declined steadily. However, the proportion of imports of intermediate goods to GDP has steadily increased, so that between them they have virtually kept pace with the growth of output (Appen- dix Table 3.3). Such trends are indicative of a first phase in import substitution. Future policy may encourage a shift toase.ond phase, in which inputs to established consumer goods industries will also be produced at home, tnough only to the extent that costs fLor export industries are not

1/ For details, see Volume II, Tourism. unduly raised by it. Imports of capital goods as a component of total fi.xed iLnvestment are likely 'LO continue rising as a result, of course, an tthe e- quired sophistication of the capital stock increases.

106. For the next 4-5 years, however, the current account is likely to continue to deteriorate. Tne precise degree of pressure from year to year on imports depends as much on short-term variations in gross investment and on speculative factors as on underlying trends in tne expnmsion of gross product and consumption. Less than a quarter of total imports has been in consiumer goods in recent years; just short of a third in intermediate goods; and nearly half in capital goods (Appendix Table 3.3). In 1966, for example, stagnation in investment but a continued increase in GDP of over 5 percent we:re associated with a 3 percent decline in imports. Taking both long-term trends and probable swings of investment into account, cumulative imports of $9,200 million over the 1970-74 period are likely to be a bare minimum, compared to $7,170 for 1965-69 (Appendix Table 3.1). Even such restraint wi:Ll barely manage to keep the cumulative trade surplus from failing below $4,850 million compared with $5,300 in the preceding period. Even then, a negative balance in services will probably cause the current account deficit over each period to deteriorate from $250 million to $1,600 million. It should be noted that tax reform has been an essential premise in arriving at these projections. caniftal Flnrrci

107= Th. ch4ef probhlm in hnlceri nf pay.ments mnanagpment fnr the medium- term, therefcore, is to find ways of attracting foreign capital at terms that will not raise future debt ser31ce to unm.anageable propr n Net private investment, practically all originating with the petroleum sector, amounted to only US$80 m4llIon over the last fimve years. Non-petroe=m private a- pital flows have proved to be extraordinarily volatile in the past. Political uncertainties over tax refo.m anrd relations with the pe,tarole.m,. ompanes induced massive outflows in 1966-67, though these have been reversed sincie (Appendix 'rat-le 3.) ,e effor; lo ma-uir.t.iin a cllmlate favorable to foreigr. %_ ~~LU.L~ .4 * ±.LJ L. A.L I L. IU.L l-L.L1 I.~L.WL LVIL~ L. JJLL1.a._ investment has focussed on maintaining a high degree of price stability,

ti cont.verC i LiJSbL'Lty of the cudrency at sLCUblC eangLeau. *tSaO anf leVS'- of external reserves high enough to absorb even substantial savings in capi- flo0-ws. A tal 5.0. A .tJW0 newlO factor*C.. .S thstLIAC L dSt,,tsuould &%AAU aAA substantiallyfUO LCU.a.L .LyL to ir.vestorIYO%&%.fCAJ. con.fi= dence is the ratification by Congress of service contracts with the petro.- lewur companiLes. Or. bUal-ane L -be i; shul I- -rf>-of---sLl to inres_ ---- .LV4 AJUal±C*liiU , .LL Z:L1VUULU UCt poZSZSLUJ.L LU .LLUZLL_aV= .LLIJ.LSWO VL private capital to some $600 million on petroleum account, with an addi- t iona1C%.inly259LJ Z.,.Fvillion IIL..UILUU ,'roru otherLAI5UL5 sources, overUVn th'eLI 41970-4nA_JI' periLod.pL.L

1L.e remaLni-..Lg exterrnal gap, to be filled uy pubULic Uorrov L.L is of the order of $780 million, with a comparable fiscal gap of $900 million (Bs. 4,1vv million) arter fiscal measures nave been taken. Dorrowiig abrcad to meet fiscal requirements is therefore likely to add a further $120 million to foreign exc.hange reserves over the period as a whole. This margin would be all but lost if petroleum exports increased at 2.0 percent annually rat:her thnan at tne 2.5 percenit assumed. Even on tne more optimistic assumption, - 44 - most of the gain in reserves would be accumulated in the first two years; thereafter some erosion in the reserve position is likely to occur. One primary reason is a continued deterioration in the current account, as investment income payments and interest on the public debt rise faster than the increase in the surplus on goods and non-factor services can accomodate (Appendix Table 3.1). It is essential, therefore, to keep public borrowing from abroad to a minimum and to concentrate the investment program on export promotion as its primary target. It would also be desirable to encourage private foreign investment to expand exports outside the petroleum sector, rather than be tied, as it has sometimes been, to market sharing arrangements between parent companies and subsidiaries or licensees.

109. The increase in public external borrowing over past levels will in any case be substantial. Gross disbursements amounted to some $600 million in 1965-69; they would have to rise to a total of over $1,300 million in 1970-74 to cover not only the net payments gap, but increasing debt service obligations as well. Debt service obligations would rise from $263 million over the last five years to about $730 million over the next five. As a percentage of net exports of goods and services, after deducting investment income payments, they would rise from less than 3 percent in 1969 to nearly 10 percent in 1974. Though still not unusually high by Latin American standards, the terminal ratio nevertheless is the result of a very rapid increase in public borrowing, and could arouse concern unless the increase in borrowing can be shown to taper off in time. This requires a high degree of discipline in maintaining the level of investment within reasonable limits, and of adapting growth targets to available resources. Such discipline will be particularly important in the event that loans of the magnitude necessary cannot be contracted as rapidly as projected.

VII. CREDITWORTHINESS

110. A continued slow growth of petroleum production is forcing two long-standing issues to a decision in Venezuela. The first concerns export policy. Inasmuch as petroleum products still account for 93 percent of exports and iron ore for another 4-5 percent, the prospects for export expansion seem limited. Venezuelan efforts to encourage renewed exploration for oil through service contracts and expanded access to U.S. markets remain therefore a vital element in any evaluation of creditworthiness. Additional export possibilities for the near future in liquid natural gas and in petrochemicals deserve high priority as well. Measures to expand foreign tourism, and thereby reduce Venezuela's tourist deficit, need also to be rapidly expa.ded. ore deliberate nolic- of exnort incentives for A r--v - - industry requires early implementation. These efforts may well have to a broad 8Sstem subsidies to .L&L4-rclud3e, L~L withiWi. L I.LL n %.Stthe r.ext- few years,7- of export help increase the exchange earnings needed to finance rising imports. Such a system of' siubsidiU'es huas oper:ated tto good effect ir.other cour.tries - e_.g. Chile and Colombia - but will place an additional burden on the fiscal system, and urdt'erscores the overriding need to broaden the tax base in Venezuela. ill. The second issue brought to head by the slow growth in petroleum production, therefore, concerns fiscal policy. Inasmuch as petroleum re-- venues still account for two-thirds of Central Government current revenues, the prospects for mobilizing domestic resc:urces to support theIncreasI.g investment requirements remain clouded. In fact, without fiscal reforms,

theprospects are t ,LMEC current account sav0 ivLng6s0 o fJ thle pub.lic sector wl-4 progressively diminish. The efforts of the authorities to improve the

collectiLon of exiLsting taxes, aLUdto restraiLnL1 thle grLoWth of uLLICOsary current expenditures through administrative reforms and tighter fiscal control of spending agencies, deserve every encourdgerleL, LthereforeL In acl'i- tion, the authorities are already aware that fresh revenue measures will be requiredu Linthe near Luture. I these are of the magnitude ou the reforMS outlined in this Report, they will go a long way towards tapping the amp:Le urluseudtaxable capacity remaining in thLe non-petroleum sectors of thle Vene- zuelan economy, and towards reducing the degree of fiscal dependence on petroleum which would otnerwise make difficult Lne flnancing of e"ven a minimum investment program for development.

112. Even with these efforts; both to expand exports and to strengthen the fiscal base, the limits on public investment and economic growth remain narrowly circumscribed for the next few years. The authorities have therefore expressed a lively interest in the country's --unusea capacity to Dor.row. The external public debt remains low. At the end of 1969, it came to no more than $664 million, and the service on it remains less than 3 percenc: of exports net of investment income payments. This situation makes Venezuela creditworthy for substantial amounts of external borrowing for high priority projects. However, the debt service burden would increase sharply over t:he next few years if the Government were to attempt to carry through an investment program of the size proposed in this Report without mobilizing addi-- tional public savings. Venezuela has traditionally adopted a conservative approach to external borrowing, and it is clearly understood that if addi>- tional taxes are not approved in the near future, a slowdown in development expenditures will have to be one of the consequences.

I. ._ _E J .- C I z POPTqTT.ATTTTr AT.m 1T\M.TlVM"N

I-, I Vuai o on y egi on,c C-89

1.2 hierarchxy of Principal Cities by Size, 1936, 1950 and 1961

TT NTA TTNAT AcPCCOnvTh

°.1 (;Gross Don2es"oi F.xenditures 2.2 Gross Value Added 2.,3 O;ross Fixed rvs1.n

TTT BAT ALTt'- o(YT, PAVNFfT, 77T EMT.lTAT I1T.QA 1.L.LJ. wX3flUZ1.I'I>.L tJ .Z±iaW .L, .1*IU..lL ± IJ

3.1 F,alance of Pa.,ments 3.2 1:Ni-oorts by Product Categories JLj U-L,ts L)bY U,UonomicL.L'iud oes Imports by Area of Origin

IV. E)YTERNAL DEBT

4.1 External Public Debt Outstanding as of December 31, 1969 4.2 Estimated Future Service Paymenits on External Public Debt Outstanding Including Undisbursed as of December 31, 1969 4.3 Planned F1inancing of Extraordinary Inveszment Program, 1970-7 4.4 Elisbursements on External Loans 4.5 External Debt Service -'rojections

V. FISCAL STATISTICS

5.1 Fixed Public Investment by Sectors 5.2 Public Investment Financing 5.3 The Structui'e of the Public Sector in Venezuela, 1969 5.4 Central Government Finances, 1965-1969 5.5 Central Government Current .xpenditure Projections, 1970-74 ,.6 Central Government Revenue Projections, 1970-74 5.7 Sstimated Yield of Fiscal Reform Program 5.8 Holders oi Internal Public Bonded Debt, 1963-69 5.9 Composition of Internal Bonded Public Debt, 1966-69

VI. MONETARY STATISTICS

6.1 Suxmmary Accounts of the Central Bank 6.2 Sulmmary Accounts of the Banking System 6.3 Origin, Destination, and Financing of Bank Credit 6.4 Yields on Savings instruments 6.5 Cost of L:iving Index for the Caracas Metropolitan Area VII. AGRICULTURAL STATISTICS

7.1 Production of Selected Agricultural Commodities, 1960-69 7 ~~TT- - A -ea n4~ In I *\ L±O.1 A | VCLE ~11nI7%J¼ VVn 1n5*7IJJ7A 7.3 Use of Inputs in Agriculture, 1960-1968 7.4 u ltI.JJ. Ii3JAoU.±UU.J.d,..L, I~7~pp9 II 7.5 Land Redistribution Under the Agrarian Reform Program, 1960-1968

VIII. STATISTICS ON OTER SECTORS

8.1 Proven Reserves of Crude Oil, 1949-1969 8.2 Production and Disposal of Crude Oil, 1954-1969 8.3 Ultimate Destination of Crude Oil, Heavy Fuel Oil & Other LRefined Product Exports from Venezuela and Netherland Antilles, 1954-1969 8.4 Growth of ivanufacturing Industry in Venezuela 8.5 International Comparison of Industrial Prices in 1969 8.6 Size 1jistribution of Industrial Enterorises in Venezuela 8.7 Ownershio Pattern in Venezuelan Industry (1966) 8.8 Tourist Traffic, 1962-1969 8.9 Transportation Statistics, 1947,1957, 1965-1969 8.10 Electric Power Statistics 8.11 Telecommunication Statistics, 1966-1974 8.12 Construction of Dwelling Units, 1964-1969 3.13 Students Registered in Academic Institutions, 1957-1968 8.14 Health indicators. Table, 1.1: POPMJkTION BY REGIONS, 1950-1980 (in thousands)

Area 2/ 7 N.______r No. No. % No._ , No. _

Veneziela 5,035 1()0 7,612 10Do 10,399 100 12,I4% 100 14,870 100

Mer+.po1j+n 1 - Q79 39.3 3h;414 44W.9 4,997 148.1 6,185 49.7 7,566 50.9

Core Region 1 ,I19 28.2 2,480 32.6 3,654 35-1 4,535 36.4k 5,545 37.3

Federal District & Miranda 986 119.6 1,777 23.3 2,712 26.1 3,420 27.4 41,223 2 8.4

Aragua & Carabobo 433 8.6 703 9.3 942 9.0 1,1115 9.0 1,322 9-.

Maracaibo (Zulia) 5'60 11.1 934 12.3 1,343 12.9 1,650 13.2 2,021 13.6

Non Metropolitan 3,056 60.7 4,198 55.1 5,4c02 51.9 6,269 50.3 7,30. 49.1

Mountain 1 ,548 30.7 2,016 26.5 2,504 24-1 2,1331 22.7 3,229 21 .7i

Plains & Coast 1 ,381 27.5 1,963 25.8 2,515 24-.2 2,,932 23.5 3,41 4 23.C

Guayanaa(Bolivlr) 1127 2 .5 219 2.8 383 3.6 506 14.1 661 4.1,

1/ Venezu.ela, Min. dei Formento, Novenoo Censo General de Pfbla,ci6no, Resumn Gener&l de la, Republica, Partes B y C caracteristicas Glenerales, Cuadro tca. 2/ Venezuela, MLn. de Agricultura y Cria, Anuario Estad{stico c opecuar'_ 1968, Cuadro 737, pp. 572-3. Table 1.2: VENEZUELA: HI]ERARCHY OF PRINCIPAL CITIES BY 'SIZE., 1936, '1950 and 1961

1936 Cens;us 1950 Census 1961 Census (City Population Index City Population Index City 'Population Index (000) (Coo) (ooo)

Caracas (1) 263 100.0 Caracas (1) 694 10().0 Caracas (1) 1,336 10C).0

Maraca-Lbo 110 41.8 Maracaibo 236 34.o Maracaibo 422 31.6

Valenc.ia 49 18.7 Barquisimeto 105 15.1 Barquis.iletD 199 15.0

Barquisimeto 36 13.8 Valencia 89 12.8 Valencia 164 12.3

Maracay 30 1:1.3 Maracay 65 9.3 Maracay 135 1(0.1

San Cristo'bal 22 8.3 Litoral Cen.tral 61 8.8 Barcelona-Pto. 113 8.-5 La Cruz Curnana 22 8.2 San Cristo6bal 54 17.8 Litoral Central 113 8.5

Ciudad Bolivar 21 7.9 Curnana 46 6<.7 San Cristobal 98 7.3

Pto. Cabello 21 7.8 Cabimas 42 63.1 'Cabimas 90 6.8

Calbimas 19 '7.1 Pto. Cabello 34 5.0 Cunana 70 5.2

(1) Metropolitan Area

Sou,rce: Alberto M![orales Tuckear, "La 'Problematica. Urbana de Venezuela: El Caso de Caracas" ( 1969 ) 1969 Table 1, 3: ILLUSTPATIV72 CALCUTLAT-[0N CrF SHIFT-SlAT ANIALYSIS

12 Natic*na1 NMix Effect: Area and Sector D7iployment Total Effect: Change Regional Qaangae Txo..cted if Competitive 19ff60 1970 Change Exected at Ef,'fect Regi-nal Sectors Effect (1(00s of perscns) 2 - 1 'latl. Growthr 3 - Changed at Natl. 5 - 6 Rate Sector Rates (50 parcent)

I n( I°1 c5r) TTP 1CO N_

Agriculture 500 640 1ho NR NR NR NR

Tndus trv 300 48o 180 NR NR NR NR

Serv ces 200 380 180 NR NR NR NR

ALRHA RD'ION 36 0 -.

Agricldture 240 300 60 120 *-6o -52.8 - 7.2

Industry 80 120 4o 40 -0- + 8.0 - 8.o

Services 40 80 40 20 4-20 +16.0 + 4.o

BETA REG,ION 350 540 190 175 _ +15 +10.8 + .2

Agricualtu-e 160 200 4O 80 -40 -35 .2 - 4.8

industry 100 160 60 50 +10 +10.0 0.0

Services 90 180 90 45 +45 +36.o 9.0

GAMMA REGION 290 460 170 145 +25 +18.0 + 7.0

Agriculture 100 1 L0 40 50 -10 -22.0 +12.0

Industry 120 200 80 60 +20 +12.0 + 8.o

Services 7n 120 50 35 +15 +28.0 -13.0

RErGO LC1 |.0 -O- REGIONAL C0LIETh TOTALS 1 .0J0 10 50 0 500 -0- Inutry +30.0 -0-. SerT:L-- c ec,, +80.0 -0-- C,re n',~ .:': S G,,. ._ 1 c_

Notes to Table 1.3

The computation of mix and competitive effects in shift-share analysis is illustrated in the table above, where a national economy containing three regions and three basic sectors is described in terms of employmaent in each of two census years (Cols. 1 and 2). The "national effect" (Col. 4) specifies how the nbsprvedi smnlnvment. inGrerment. woniild have been distrihuted iA all sectors everywhere had grown at the rate of growth of national employment. Thin observedi diffi-rpnnebe..ee +.he nationnal effec_ts 2nd the actua1~rhangesq in each sector in each region are defined as the "regional effect" (Col. 5). The regi onnl effect sums oinover al re ns to zero.

One explanation of the Aiscrepances bet-Teen the national effect and the observed changes in employment is that the individual sectors grew at different rates. The national goVwth rate is really only a weighted average of sectoral growth rates. If deviations in sector growth rates from nt n at ional ae-r-ge thenapp4lieA-1re +t +t,h "rtian- - ' on ech sector.+r1 in each regiorn, an adjustment will be obtained. This adjustment specifies h0w the sectorall composition of eachl regional economy wo,' 'd ha-Mve i..lrluenced, its growth, had each sector grown at uniform rates in all regions. This is re.ferredd to as t1he TIMIX. ef`ftect" ('Col. 6). This, explains part, but no' a'' 4.L~4 0. 0~0L ±0±4Ui~ 'LL ~±. t~ I, ~ L..* L]. . 4l1I-LO t--,AhULd.JLJLL IJO.L U, L'LLU L± U 0L.L.- of the regional effect. What remains cannot be ascribed to sector composition and fmast resalt- from the fLact- thast regional growthi' ratues wituhi-n eachl secltor vary around the national rate in that sector. These regional variations within eachil secluor are identiflted as "LcorJIrPetUiLve effeL.Ltsuj (Col 7) Arithmetically they are the difference between the overall regional effects and the mix effects. In short, the observed changes in emplouymfient in each sector in each region between two points in time can be defined as the s-Lur of national, mix, and competitive effects in the subnational econor-ny.

This is illustrated by the table. In the period specified agriculture was a slow growrth sector (28 percent) compared to the national growth rate (50 percentj, while services were a rapidly growing sector (yu percent). Alpha region's specialization in agriculture resulted in a relative loss of employment of some 52,800 which was partially offset by gains in industry and services anmounting to 24,000. Hence the sectoral mix of Alpha region's economy should have produced a relative loss of employment in the region of 28,800. However, neither agriculture nor industry increased employment as rapidly in Alphia regioni as they did in the nation as a whole resulting in competitive losses of 15,200. These were offset in part by competitive gains of 4,000 in services, but a net competitive loss of 11,200 employees was sustained by the region during the period. The double-edged effect of mix and competitive losses resulted in a level of employment 40,000 less than would have resulted had the region grown at the overall national rate.

Gamma region is a contrasting case where strong endowments in industry and the services outweighed agriculture:s slow growth to provide a regional employment gain of 18,000. However, agriculture did well competitively (12,000) and almost exactly offset the competitive iosses ascribable to the services, rolling up net competitive gain of 7,000. Hence, a concentration oI growth industries and the tendency of its sectors to grow at faster rate than the national sectors gave Gamma region a dual oasis for growth. These illustrative figures and interpretations exhibit shift-share analysis as way of ordering economic aggregates. While employment data are most commonly used because of their availability for regional analvsis, value added or value of product might be just as appropriately employed. Table 2.1: GROSS DO]ISTIC EXPENDITURES (in million Bs.)

Rates o7f Rates of Growth Growth 1965 1966 1967 1968 1969 i5s64-6!? 1970 1971 15972 1973 1974 1970-74 _ _-_-_ _ _ _ (;7 reent) _(perent_

ionsiumption 31,152 33,372 35,556 3B,376 40,255' 6.6 142,531 44,935 47,408 49,912 52,795 5.5

Privat2 24,533 26,h1 9 27,840 30,003 31,516 6.5 32,677 34,642 36,397 38,085 40,118 5.0 Public_ 6,619 6,953 7,726 8,373 8,743 7.2 9,582 10,253 10,910 11,735 12,552 7.0

Investment3/ 7,502 7,889 8,659 10,315 10.79$ 10,964 11,419 12,130 12,645 12,918

fixedc private 4,518 4,216 4,777 6,339 6,225; 6,537 6,652 7,146 7,536 7,723 fixedL pubLic/ 2,456 3,215 3,216 3,431 3,82,5 3,710 4,020 1h,190 4,282 4,350 changes in stocks4/ 5928 1458 676 545 745; 717 747 794 827 845

Exports"! 11,264 10,896 11,5.46 11,762 11,760 1.1 12,105 12,50)l 12,895 13,623 14,124 3.-8

Imports< 7,9540 7,691 8,150 9,229 9,7774 5.54 9,971 10),426 1l,0o48 11,617 12,048 14.8 6 GDP at current marktt iprices 2 42,378 44,)466 47, 31 51,224 53'04( 5.8 55,557 58, 353 61,285 64,471 67,664 1.0

Net factor payments abroad- 3,519 3,1425 3,519 3,560 3,51 7 3,548 3,679 :3,911 4,108 ,30)4 5.0

GNP at current market prices 38,859 41,041 44,112 47,664 )49,523 6.3 51,973 5)4,674 57,374 60,363 63,360 15.0

GDP deflator 94.7 96.7 98.3 100.0 10(.0 100.0 100.0 100.0 100.0 100.0

GDP at constant 1968 market pri.ces 44,750 )45,983 48,455 51,224 53,040 4.4 55,557 58,353 61,285 64,471 67,664 5.o

Ratio of Investment to GDP .19 .18 .18 .20 .20 .20 .20 .20 .20 .19

TTResidual; elasticity to GNP at current market prices was 1.03 in 196x4-9; tx reforms should bring iLt down to 1.0 as shown. 2/ CORDIPLAN figares 1965-69; forecLst of current expenditures to grow at 10 percent in 1970 and at 7 percent annually thereafter. 3/ Central Bank figures 1965-68; staff projections follow: for exports mark-up of 1 .03 was used, on imports mark-up of 1.33 over B/P commodity acco unt figures. 4/ Estimated as .07 of Gross Fixed Investinent. §/ The ratio between pri-ate factor payments in thg national acecounts and in thea balance of payments was ca.1.12 in 1965-6cl, the same was used for subsequent years. Source: Cenlral Bank, CORDIPLAN, ard, Staff estimates. Table 2.2: GROSS VALUE ADDED (million Bs. at 1968 market prices)

- Grow th GrowTh 1965 19 66 1967 1 968 1969 1964-69 1970 1971 1972 1973 1974 1969-74

1. Petroleum 9,178 8,912 9,381 9,578 9,412) 0.9% 10,690 11,052 11, 331 11,735 12,030 3.3"% 2. Re fi nirg / 837 836 8 31 84z7 812)

3. Mining-/ 450 454 l41 4h23 524 5.0% 544 584 644 708 771 8.1%

4. AgricuLture 2,958 3,104 3, 235 3,438 3,574 5.1% 3,717 3,892 4,C)75 4,270 4,473 4.ti%

5. MaznufacturizigL 7,338 7,678 8,324 9,064 9,5 ;4 7.6% 10,106 10,813 11, 570 12,420 13,334 7.)%

6. Constructions 2,520 2,697 2,787 3,066 3,066 6.2% 3,074 3,202 3,l01 3,545 3,622 3.l4% 6/ 7. Transport aid Communication 1,656 1,730 1,852 1,967 2,1C07 6.6% 2,234 2,379 2,534 2,698 2,874 6.,%

E8. Public Adninistrationr/ 3,505 3,708 3,909 4,108 4,313 5.5% 4,529 4,755 4,990 5,240 5,5C3 5.(%

9. Ot1her- 16,308 16,864 17,695 18,733 19,698 5.0% %0,663 21,676 22,740 23,855 25,063 5.0% Of i4iich: Elec. and Water ( '508) ( 583) ( 640) ( 718) ( 789) Housing (4,927) (5,oo4) (5,0)86) (5,192) (5,299) Com. and Fin. (7,691) (7,945) (8,:394) (8,976) (9,586) Other Services (3,182) (3,332) (3,575) (3,847) (4,024)

10. TOTAL EXCEPT PETOL 34,735 36,235 38,243 40,799 42,B16 5.5% 44,867 47,301 49,954 52,736 55,6i40 5.l4%

111. TOTAL = GDP 44.750 45,983 48,1455 51,224 53,040 4.7% 55,557 58,353 61,205 64,471 b7,bbl4 5.() 1/7 Includes all activities by petroleum companies, based on data from BCV (1969 from MinistiE of Minesacusted 19 prices. 2/ Projections by CORDIPLAN delayed one year. / Pjection assunes grioth to accelerate once more after 1970. N.B. past growth in part unsupportable as sulrpluses had to be sold at loss. hi Excludxes refining; assume l to rise 6 percent in 1969-70, thereafter to accelerate. NB. the grcwth rate has been declinir4: over the last decade due perhaps to ircreasing d_fficulty of inport-substitution. ,/ VA in past stood at .31 - .34 of GFI, the projection took .30 in order to maintain reasonable ICOR. 6/ Projections assume past elasticity with non-petroleum GDP growth continues in future at 1.2. i/ Ne assuixd 5 percent p.a. growth for future.

Sources: CORDIPIAN, Central Bank, and Staff estimates. Table 23: GROSS MUFIM INEsTMENr (in million Bs. at 1968 prices)

Total Total 1965 1966 1967 19 68 1969 1965-69 1970 1971 1972 1973 1974 1970-714 est.______.____

Petrolehum and ref2ning/ 827 613 603 1,182 'I,191 4,416 1,470 1,250 1,500 1,146t 1,320 7,000 Of *,;hich public (e) \'-3'jf23N(69) (t19)V3) J% 14$';LUI (3no2)) t242-l '3\55 (1,300)

ICniLng3 113 15 43 28 40 239 100 150 190 210 230 880

Agricu]Lturet- 1,243 1,332 1,213 1,368 '1,350 6,506 1,390 1,,435 1,493 1,523 1,538 7,379 Of which publics (29) (325) (367) (339) (5I'! (1,640) (3145) (3143) t352) "33) (292 ) (1,62)

Manufacturingi- 1,072 1,094 1,005 1,143 1,152 5,466 1,207 1,729 1,862 1,796 1,627 8,221 Of which public (123) (322) (234) (222) (302) (1,203) (323) (801) (887) (772) (552) (3,335)

Constructiorn 138 86 1112 145 125 606 151 158 168 175 178 830

Transport and Conmmnicationsl 1,182' 1,388 1,1656 1,943 2,050 8,019 1,940 1,900 1,872 1,940) 2,1143 9,795 Of whlLch public (990) (970) (921) (1,125) (1,222) (5,228) (1,085) (1,000) (1,076) (1,050) (1,205) (5,446)

EducatLon and Public Health-/ 491 671 687 538 676 3,063 639 5514 652 719 3,120 Of whLich public (4911) (671) (687) (538) (676') (3,063) (639) (:554) (585) (623) (719) (3,120)

Housing and Urban Development92 1,257 1,342 1,337 1,45'2 1,566 6,954 1,500 1,600 1,750 2,071 2;,171 9,092 Of w]hich public (213) (456) (1475) (465) (522) 1(2,131) (46) (446) (475) (697) (773) (2,887)

All ot]her 1,1421 1,364 1,773 1,973 1,900 8,437' 1,850 1,896 1,516 2,020 2,1147 9,829 Of which public (697) _(680) Q57 ) (6 23) (60 318) (5791 [%1) (515) (54) . (5 97L (2,802)

TOrTL AMt)UNT 7,750 7,905 8,229 9,772 10,050 43,706 10,247 10,672 11,336 11,818 12,073 56,1146

Of which public 1(2,796) (31,447) (3,331) (3,431) (3,825) (16,830) (3,710) (4,020) (4,190) (4,28:2) (14,350), (20,552)

1/ Historical fig4res inflated to 1968 prices try followirg indlices: (i) non-petroleum 1.140 (1965), 1.073 (1966), 1.038 (196'7) 2/! See petrolew armex. (ii) petroleum 11.003 (1965), 0.960 ('1966),, 0.932 (1967). ,3 CORDIPLkN projection delayed one year. 4/ Private investment was Bs.1,000 m. in 11969; assuned to rise at 4.5 percent ;p.a. thereafter. : Private investment was Bs.850 m. in 1969; assumied to rise 4 percent in 1970, thereafter at 5 percent p.a. Averagedl 1.4--1.5 percent of non-construction investment in rnormal years; assumed to be 1.5 percent for 1970)-74. 7/ Private investment as percenrt of total in sector rose Jfrom 116 percent in 19i55 to 42 percent in 1968, to 31 percent in 1969. As-rumed to average 44 percent ini futtre to main'tLn reasonable I'O. 8/ All pubLic insvestment. 2/ We note that in 15965-65 there was very little rise in consti-x ticon expenditaiwes: for the future we a:Llw IBs.40() million rise compared with Bs . vv JI,-"Ul'*,,_U 'uo 10/ Private investment assumed to rise at 5 percent per alnum after 1970.

NOTE: The share of public in total investznent declines sligtly, from 39 percent in 1965-69 to 37 percent in 1970-7'4: this is consistent with t '-mern- ment' EL desire to reduce somrewvhat the direct role of the Government in the economy.

Source: ^entral Bank, OuRDIPIAN, and Staff estisates.

.able L.1 t BALANCE OF PA!VENTS (in US $ millions)

Totals Totals ______1965 1966 1'767 196c8 1969 1964-69 1970 1971 1972 1973 1971 1970-74

Ccommodity exports/ 2,482 2,398 2,534 2,526 2,545 12,48'5 2,60o9 2,695 2,779 2,9:36 3,o44 14,o63 Of which Petroleum (2,306) (2,215) (2,:334) (2,345) (2,328) (11,528) (2,386) (2,1446) (2,507) (2,570) (2,6314) (12,543)

Commocdtyimpo r ts2/ -.1,355; -1,252 -1,370 -1,58I -1,624 -7,186 ..1, 66c -1,742 -1,8846 -1, 941 -2, 013 - 9,208

61 4 Trade! bsalarEe 1,123 i,L L1 945, 921 5,29.9 943 953 933 99 1,031 4.85

Non-factor services and transfers - 403 -397 -378 -492 -483 -2,153 -4731 -495 -515 -5142 -558I -2,583

Net ;ods and servic as 720 749 :786 4453 438 3,146 470 458 418 1453 47. 2.272

Interest on public debt/ - 10 -12 - 15 - 18 - 22 - 71 - 32 - 40 - 64 - 78 92 - 314

Other factor irmome - 694 -657 -633 -6c9 -667 -3,320 -67 2 -694 -717 -7141 -766 -3,5910

Current balance 16 80 138 -2314 -251 -251 -2314 -284 -363 -366 -385 -1 ,632

Direct investnent (ne t) in petroleum sector - 14 - 21 64 122 41 163 70 115 130 1145 1140 6o0

Oth-er private long-tern (anet) 6 -39 -173 1 32 41 -33 40 45 50 55 60 25,0

Lang-term public capital (net)I/ 68 55 83 81 118 405 211 194 18 171 137 902

gross drauiins (110) (103) (113) (120) (147) ( 593) (24t,) (256) (271) C 278) ( 263) (1,317) amortization (-142) (-47) (-30) (-39) (-29) c-187) (-37) (-62) (-83) (-107) (-1 26) C- 415)

Short-term capital, net -5 -61 1 9 10C - 146 - -

Errors and omissions -65 -65 -11 -56 52 -145 - -

Net balance 13 51 -102 -514 -11 -103 -87 -70 -5 - 5 48 - 120

I]MF transactions O -25 - 10 - 8 - - 13

Monetairy gold -25 25 0 - 2 C - 2

Exchange reserves (- i.nrease) 38 51 - 92 -,4l4 -111 - 58

1/ Assuminig petroleum production and exports rise at 2.5 percent annually after 1969. 2/ Assuming GDP at marxket price rises at 5.0 arunually after 1969. Projections calculated as: .0195(non-petroleum GD?P) .077(non-petroleum G:DI) + petroleum. '/ IBR1) debt divi-sion for hiStorical data; proJ-ctics by TB=r Starr (sse tale 33). l CORDIPLANMfor.historical data; projections by IBRD staff (see table 33). Sotrce: COBDIPWLAN, Central Bank, and Missicn estimates. Table 3.2: EXPORTS BY PROWJCT CATEGORIES (Millions of Bolivares)

1 94 1965 1966 1967 1968

Petroleum and Derivatives 10,134 10,138 9,737 10,269 10,700 Iron 470 540 542 519 h68 Other Minerals and Derivatives 2 3 6 1 0 11

Coffee 68 62 62 63 33 Cacao and Derivatives 32 32 31 32 37 Other Foods and Drinks 23 h2 59 88 92

All Other 2xports 120 102 i11 176 178

Total Non-Petrol Exparts 715 781 811 888 819 Total Exoorts 1/ io,8h,9 10,919 1O.5)8 11j157 11-o20

1/ Based on Informe Economico. 1968 of the Central Bank. The figures usedr in the balance of payments tables in this repcrt are revised totals; no new product breakdown i8 available.

nirrn 1rRsnDn CAntvrAl HA VAneZueAA Tnrnr.mae rcon,om^co, 1A Table 3.3 ; Ii'uRTS BY ECONOMIC CATUaORnS (Millions of Bolivares)

1964 1965 1966 1967 1968 1969

Foodstuffs (ready f'or consumption) 354 315 230 249 269 271 Beverages 33 45 52 57 81 57 Other Consumers' goods 913 1 008 975 984 1,171 1 068 Total Consumers! goods 1,3u- 1,366 lp257 1,290 1,521 ,o

Intermediate Goods 1,536 1,727 1,658 1,814 2,082 2,208

Machinery, Accessories, Tools 1,131 1,362 1 ,428 1,413 1,718 1,S779 Transportation equipment 665 840 856 888 989 1,1';2 Construction materials 254 293 251 227 228 21,5 Total capital goods Z,050 2,495 2,535 2,528 2,935 7,Tfl

Total Imports 4,886 5,590 5,451 5,632 6,538 6, 779

Sources: Banco Central de Venezuela, Infarmf Economico, 1968, and preliminary Central Blank figures for 1969.- Table 3.4: IMPORTS BY AREA OF ORIGIN T(illions of Bolivares)

1964 1965 1966 1967 1968

America 3,045 3,348 3,221 3,296 3,8L3 LAFTA 148 141 145 151 177 U.S.A. 2,618 2,860 2.786 2,837 3,°51 Other 277 346 288 307 1413

Europe 1,462 1,855 1,822 1,898 2,203 EEC 919 1,167 1,183 1,226 1,28l (of which Germany) (393) (484) (541) (527) (556) EFTA 468 589 536 55 783 (of which Zigland) (261) (332) (29h) (°93) (1425" Other 75 98 102 117 138

Asia 1!, 371 390 20 14614 Japan 281 297 291 345 380 Other 69 74 98 75 83

Other Areas 28 16 18 18 29

Tot.al Tmpnrts ),R886 5,590 5j)4? 5|6n2 6,538

Sola-ce: Banco Central de Ve.nezuela, TLrfonm Economi.c o, 1968. Tabie 4.. 1: =-RKnAL PuBLMC DEEcn OuU-TA?AING AS OF DECsER^^ 31, 1969 /1

Debt Repayab.l in Foreign Currency

(In thousands of U.S. dollars)

Debt Outstanding Source December 31, 1969 Disbursed Includirng only undisbursed

TOTAL EXTERNAL PUBLIC DEBT 514 279 664,278

Privately-held debt 154.177 184.105 Publicly-issueod bonds 38 322 36 32 Suppliers 12;8532 Germany 2,743 2,743 Italy - 3,599 Japan 7,365 11,327 United Kingdcn 684 754 United States 2,040 2,040 Financial Institutions 103,023 125,320 United States -I8,023 h0,320 Multiple Len(lers 85,000 85,000

Loans from international orMfni2AtionS 234,528 3441628 IBRD 211,16W Th1,9l6 IDB 23I3614 62A712

Loans from zovernments - United StAtam429 <71 I 1 C A

/1 Debt with an original or extended maturity of over one year.

S!+-istA Cal Cer-4- -i1%D - sor- Economics Department Ala L, 1970 Table 4.2 - ESTIMATED FUTURE SERVICE PAYMENTS ON EXTERNAL PUBLIC DEBT CTJTTXfINuO INCLUDING UNDISBURED AS OF DECEE 31. 1969

Debt Renavable in Fbreign Currenev

(Tn thousands of US. dollars)

*r-T fltTST (>.TyNr flF PERrln- ) P4 -4ENITS rIJING PER1!0) TI %CiJ7-G Af nPTT- yEAq I ISwlIPSEns 'ATI rH II4TEREST TO!AL

TOTAL E'TERI.IAL Pl)qLIC nFsT

197' A'3'i,9Q1 3cS,L45; 32*536 68,987 1971 '')?,531 , 52 32,637 91,5;89 1972 544,579 %7,1?6 .o1167 87,293 1973 4A',453 ?7, 175 5J63A 1974 q?A'qqr" 590"p 22:3,P67 83#5n9 i 97 369,168 'S,325 19,988 S6,# 3 197.S 332, 43 3.4.# 3 1:3. ''01 52, no4 j97' 29 ,'4 1 32]3 7 16,139 4AA777 1973 2A ,o 13 43, 47a i4, 313 47 741 j979 ?3?A775 3ts,41n 12,F35 46J^5 198 ! 193,359 34t67i 1o#504 45,t183 1981 t3,580 34,5¶7 ,s59C 4 3,107 1982 129,1,i3 2 71 I b67 33 33,899 197 t.12. n4 ?3,I 6 5,306 28 7i? 1983 78,¶97 17,515 v, 74 21,*589

Note: Includes service on all debt listed in Table 1 prepared May 4, 1970 with the exception of the following, for which re- payment terms are not available:

Total $25,297,000 Financial Institutions 22,297,000 Loans from IDB 3,000;000 Table IL3: FLANNED FINANCING CF EXT RAORDINARY INVESTMENT PROGRAM, 1970-73

External Domestic Total Bu,dgetary Own Other Total Project ___ Debt I)ebt Debt Supoz _ Resources Resources Cost intergml Agralricltural Development ProgrWa 337.5 337.5 478.5 816.0

National Agnrrian Institute 171.0 171.0 171.0

Orinoco SteeL Company 477.8 477.8 305.8 783.6

Venezuelan Petrochemical Institute 833.1, 833.4 208.4 1,041.8 Venezuelan Petroleum Compamy 270.7 270.7 68.2 338-9

National Institute for Sanitary Works 105.3 3N)6.o 411-3 421.3 144.0 55.,3 1,032.3

Public Works (Maiquetia Airport) 137.0 !50.0 187.0 167.8 354.8

Putblic Works (Margarita Airp3rt) 24.0o 24.0 61.8 85.8

Workers'" Bank 1'2.0 152.0 158.14 40.0 51.2 401.6

Zulia Development Corporation _O --'jO.O _- _ _

TOTAL i^,18I.7' 91b4 ______4 .8 106... ______C

SoLrce: Programa Extraordi.nario de 'Inversiones

Table_4.4: DIB3URSEENTS ON EXTELNAL LOANS3- (in $ millions)

Original Undisbursed New Com- D I S B IJ R S E M E N T S UndisbursTed Commitment 31 XII 69 mittmernts 1970 1971 1972 1973 1974 31 KII 74

1. Petroleum - 63.5 16.0 21. 12.6 12.4 0.5 +o

(:i) Unspecified - 63.,, 16.0 2'1 12.6 12.4 0.5 +0.5 Various projects - =0 2-1. T 2 1.0 2-+5 2. ILiculture 5-0 3.9 LL) 3.1 1 3.0 19.3 19.2 20.3 44.0

(i) IBRD _- - 1.0 3.0 3.0 4.0 24.0 Livestock credit I (BDA) - - 10.10 - 7 3.0 T -;5 Livestock Credit II (BDA) - - 15.() - _ _ - 1.0 14.0 Agriculture (Unidentifie,d) - - 10.0 - - - - - 10.0

(ii) IDB _- 80.0 - 11.2 16.3 16.2 16.3 20.0 Land reform (PR]DA) -. 75 - 1I0. Td(5 T1.0 T5 20.0 Animal health - - 5. - 1 2 1 3 1 2 1"3 -

( iiiL) EXI)ANK Agric. and Uvestock, OP 1%7) 5.0 3.9 - 3.1 0.8 3. Induistry 67.8 44.7 360.7 16.9 91.8 137.4 109.3 30.0 20.0

.(.i) I]BRD/IFC - - 50.- - 15.0 15.o0 20.0 IndLustry I (SIDOR) - *- - 4 T-50 - Ind6stry II (Unidentified) - 20.0 - - - - - 20.0

(ii) IDB 38-4 26.9 - 7.6 7.0 7.,4 4 - - IndLustrial credits (CVF) 12.0 T.72 - 3.2 17 T1T - - - Expiort credits (CVF) 3.2 1.8 - 1.8 - .. Preinvestment (C,VF) 4.0 3,5 - o.8 1.2 1.5 -5 Petrochemicals (IVP) 19.2 16.,4 - 1.8 4.0 41,4 4-9

(ii:i) iIMUAW 10.5 5.8 5 3 3 0-0 SIDOR 10.7 - 2 .8 0.2 - - - Banco Industrial -* 5.0 2.5 2.5

/ The allocation of new commitraents to instLtutional sources is highly tentati4ve and does not imply any commi tment what soever. Table 4.4: DISBURSEMENTS ON ETERNAL LOAN'S (Page 2) (in $ millions)

Original Undisbursed New Com- B UR E N T S Unclisbursed GComnitment 31 XII 69 mitments 1970 1 9 71 1972 973 TT 9774 31 XII 74

(iv) Pr:ivat4 18.9 12.0 *- .0 4.O 4.o - - Mitsubishi and others (Ivp) 1 Wn 12.0 - 1 .o 71o l5T - -

(v) Unspecified - - 3o0>.7 - 75.5 11 0.i8 89.4 30.0

'Flat products nid (SIDOR) - - 1 - 7 .32.9 .Sppl. expansion (SIDOR) - - 10(.0 _ 3.0 4-.0 3.0 Basic expansion (SIDOR) - - 35.0 - . 20.0 15.0 - _ Petrochemicals (IVP) - - 151.5 - 37.0 49 .38.5 .30.0

14. Tourism _ _ 1 5.0 _ _ 1.0 3.0 11.0

(i) IB:ERD - _ 11.0 _ _ 1.0 3.0 11.0 Roads (Caracas-Higuerote) - - - - - 1.0 3.0 11.0

5. Transportation 50.0 26.5 1 58.9 13.7 18.7 32. B 5.3 39.2 26.7

(i) IBRD ;0.O 26.5 60.0 9'.3 10.8 15.3 26.6 13.0 11.5 Roads 30.0 6.5 - 7 3.0 RoadB 20.0 20.0 - 5.8 5.8 5.8 2.6 - - Aizport (Mai.quetia) - - 30.0 _ 2.0 9.5 14.0 3.0 1.5 Rapid transit (Caracas) - - 30.0 _ - 10.0 10.0 10.0

(ii) Unspecified - - 98.9 4.4 7.9 17-2 27-7 26.2 15 2 Port, Expansion - _7T 1.9 27 2.9 3.3 T3 3.7 Venezuelan fleet - - 26.1 2.5 5.3 5.0 5.0 5.0 3.3 Rapid transit (Caracas) - - 35.0 - - 3.6 13.4 11.8 6.2 Roads - - 20.0 - - 6.0 6.0 6.o 2.Ci

6. Electric Power 169Lj 71.0 60.6 41.7 21.0 24.4 17.8 13.1 13.6

(i) IBRD 131.0 33.9 15.0 10.8 10.4 6.6 2.1 6.0 13.0' Power (CVG three loans) 131.0 33.9 - 1 10o- 2 Power (CVG) - - 15.0 - - - 2. 0 13. DISBUISEINTS ON EXTERNAL LOA:NS (Page 3) (in $ millJons)

t)riginal Undisbursed New Com- - D I S B U R_S E M E N T S Undisbuised Commitment :31 XII 69 itments 1970 1971 1972 1 973 7T51 31 XII 74

(ii) IDII 16.0 14.8 20.0 2.0 3.0 10.0 12.1 7.1 o.6 Power expansion (CADAFE) 16.0 14.8 - 2.0 3.0 4.0 $.8 - _ 1hn-aJ. electrification - - 20.0 - - 6 o 6.3 7.1 0.6

( ii) Private 22.3 22.3 6.6 28.9

Frequency uniLfic (Chase) 22.3 22.3 - 22.3 - (hiri expansion (suppLiers) - - 6.6 6.6

(iv) UnSpecified. - 9.0 - 7.6 7.8 3.6 Power expansion (CADAFE) - _ 19.0 - 7.6 7T I 3- _

7. Comwiutcat±ions 37.0 10..0 136.1 51.7 27.1 19.9 22.7 24.7 _

(i) IBIR 37.0 5.8 35.0 5.8 3-7 10.2 12.5 _8.6 1bcpansion I (cCANTV) 37.0 77 - -' - - - - IDgansion II (CANTV) - - 35.0 - 3.7 10.2 12.5 8.6 -

(ii) EXIBAfK - 4.2 - 2$5 1.7 - - - _ Sate:lite station (CANTV) - 12.71 - - -

(iii) Private _ 101.1 43.4 21.7 9.7 10.2 16.1 - Comrmercial1 banks - r. 079 - T7 - - - - - Suppliers crmdits - 78.5 22.5 20.0 9.7 10.2 16.1 -

8, Education 1.5 0.8 25.0 0.7 0.1 - 4.0 4.0 17.0

(i) IB]RD _ 25.0 - 4.0 4.0 17.0 Education I (Polytechnic Inst.)- _ 10.0 - - 2.0 Education II (Secondary Educ.) - - 15.0 - - - - - 15.0

(ii) IDB 1.5 C).8 - C).7 0.1 -

Fundacion Andres Bello 1.7 -07_ 0.7 0.1 Table 4..4: DISBURSEMENTS (N EXCTEMAL I][OANS (Page ,L) (in $ millions)

Originial Undi-sbursed New Con- D I SBURS E M E N T S Undisbursed Commwitnent 31 XII 69 mitmen-ts T'7 7T 77V 7 TT19 30 XII 74

9. Housing and Urban Development - 60.o - - - 20.0 20.0 20.0 (i) Unspescified El Tuy Medio Dblvelopment - - 60.0 - - - 20.0 20.0 20.0

'10. Health and Sanitation 17.2 12.14 20.0 3.6 5.9 9.5 5.1 4.3 L..0 (i) 1IDB 17.2 12. i - 3 h6h44 4.4 - - Urban water (INB), 17.2 12.14 _ 3.6 4.4 14.4 - Other

(ii) 'Unspecif'ied - 20.0 - 1.5 5.1 5.1 4. 3 4.0 Titer and Sewerage (INOS) - - 5- 7 5.1 T1T ;77 T70 1/ 11. Total of Project Bccrrowring 347.8 '169..3- 999.8 147.4 199.1 255.9 265.8 159.1 156.8

12. Unallocated - - - 100.0 56.5 15.2 11.9 103.8 --

(i) Conmercial bankEs - - - 100.0 - - - (ii) Unspecified - - - - 56.5 15.2 11.9 103.8

13. Total f'or debt service calculator - - - 2147.4 255.6 271.1 277.7 262. 9

1/ Includes debit nct guaraniteedl by the State.

Sources: Ministry of Finance, OORDILPLAN, Lending Aigencies, Staff estimates. Table 4._: EXTER3NAL DEBT SERVI:CE PROJECTIONS (in Be.. mil'Lions)

Prelim _ Totat Projection - 1969 1970 19,'1 1972 1?73 197h 1970-7b 1975 Remarks

Net Requirements 8dL 655 559 417 201 2,636 83

Investment 5,528 4,720 5,120 5,34o 5,482 5,6oO 26,262 5,768 residual

Less: public saLving 3,557 3,401 3,423 :3,407 3,391 3,381 17,003 3,365 excluding interest on external debt revenue measures 21 2315 755 1,060 1;342 1,657 5,0!3 2,000 sales, ircome and property taxes balancing item 1,092 O0 2 4 -3 -.2 31 - floating debt, treasury balances etc.

subtotal 4,670 3,666 4,180 1h,471 4,730 5,076 22,123 5,365 tax reform reverses trend in public savings

less: internal borrAwing 423 250 2135 310 335 3223 1,503 320

Debt service 227 211 .2L5 661 833 982 3,282 992

Old loans (31 XII 69) 227 311 408 393 385 376 1,873 253

interest - 95) (11,6) (1147) (136) (122) (107) (658) ( 50) amortization (132) (1 65) (261) (257) (263) (269) (1,215) (163) Niew loans 137 268 448 606 1,409 7.39

interest ( '70) (151) (231) ( 306) (758) (368) amortization ( 17) (117) (217) (30O) (651) (371)

Gross Requirements 662 1,115 1,1110 1,22) 1j250 1 13 5,918 1,0j5

Old Loans (31 JO:I 69) 662 335 195 145 70 I8 763 -

New Loans 780 955 1,075 1,180 1,165 5,155 1,075 sof t deve:lopment .(.3) t 55) ( 75) ( 80) ( 1UO) (340) 100) 30 yrs life; 5 yrs grace; 4 percent soft. deveelopment (35a) ( 450) ( 550) ( 600) ( 6) 20 life; 5 yrs grace; 7 percent long commercial (5C)0) (500) ( 5) ( 500) ( Q!o) (2,450) 3 7 yrs l Se;1 yr grace; 10 percent short commercial ( 50) ( 50) ( 50) ( 50) ( 15) ( 215) ( _ ) 3 yrs life; 0 grace; 112percent

Assumptions: (i) pe±rnleim crow at 2.5% grcowth target down to 5.0% p.a.; (iii) two tax reforms, 1970, 1971. Source: Mission estimates.

Table '. 1: F'IXED PUBLIC INVESTMENT BY SECTORS (in million Bs.)

pre- im. Total Total 19_196' 1966 1967 1968 15969 196 5-69 1970 1971 1972 1973 1974 1970-74

Mining and Hydrocarbons' 2'5 24 74 119 146 388 242 315 .300 231 212 1,300 21/ Tourismn 5 16 9 2 2 34

Agriculture-/ 226 303 354 339 351 1,573 345 343 '352 330 292 1,662 Of which: PRIDA ( 58) (138) (132) (105) ( 53) ( 485)

Industryt/ 108 300 225 222 102 1,157 323 801 887 772 5';2 3,335 Of which: 3IDOR ( 48) (109) (412) (502) (374) ( 26) (1,423) i:vP ( 39) (101) (339) (306) (296) (lo0) (1,142)

Transport, and Sommumications 868 904 886 1,125 1,822 5,605 1,085 1,000 1,076 1,080 1,2(5 5,446 Of which: MAIQUETIA - - - - ( 14) 53) ( 84) (104) (1(1) (356) METRO ------73) (105) (270) (450) CtANTV (61) (97) (111) (178) (1,37) (M8) (246), (287) (264) (282) (302) (1,381)

Electricity and Gas 285; 334 230 31, 327 1,489 275 245 206 197 195 1,118 Of which: GURI (EDELCA) (1714) (68) (162) (178) (1114) (696) ( 95) ( 95) ( 59) ( 60) ( 71) (375) STO. JM1INOD (CADAFE) - - ( 36 i( 64) ( 57) ( 21) ) ( (178)

Eduxc atior E6/ 141' 16565 26206 20-0203 182 905 200 230 235 255 253 1,173

Housing and Urban Development 187 425 458 465 !522 2,057 496 446 475 697 773 2,887 Of' which: Tuy Medio (171) (171) (342)

Health and Sanitation 282 460 456 335 494 2,027 439 324 350 368 4h56 1, 947 Of' iiich: :INOS (231) (174) (205) (202) (215) (1,027)

Other 326 300 327 310 279 1,542 300 300 300 350 400 1,650

TrOTAL 2,4515 3,215 3,216 3,l431 4,425 16,743 1,710 4,020 4,190 4,282 4,350 20,552

TTSeePlletroleum unAnnex T77 See Industry Annex 2/ See T'ourism Annex: histcorical figures iLncluded in "other" 5/ The 1969 figuLre irhludies some Bs. 600 million iLn arrears See Agriculture Annex o/ See EdLcation Annex

Ro.rce -'flThTITADN execifti+na agencies; an Staff estLtes. Table _.2 PUBLIC INVESTMENT FINANCING (in million Bs.)

Prelim. Total Total ______1965 1966 1967' 1968 19,69 1965-659 11970 1971 1972 1973 1974 1970-74

I. Investment Expenditures _,521 4b047 4,088c 4_,76 5528 21,760 4, 720 5,120 5,340 5,',482 500 26,26

1. fixed investments 2,456 3,215 3,216 3,431 4,425 16,743 3,710 4,020 4,190 1L,282 4,350 20,552

2. credit prograws 653 296 365 457 237 2,008 350 400 450 500 550 2,250 new loansi / i(881) (672) (7331) 1(783) (646) (3,715) (693) (721) (789) (862) (946) (4,ci11) repayments- (228) (376) (368) 1(326) (409) (1,707) (343) (321) (339) (362) (396) (1,761) 2/ 3. otheir 412 536 507 688 866 3,009 660 700 700 700 700 3,L460

II. Sources of FiLnanre ,058 3,230 3,689 4,219 4,415 18,611 p363 4y627 14,143 3,905 21,142

1. current account 2,941 3,093 3,552 3,790 3,462 16,969 3,255 3,206 3,120 3,038 2,968 15,5;87

2. external borrowing 305 249 372 364 530 1,820 950 872 8146 770 61 4 4,052 drawings (495) (462) (50'3) (539) (662) (2,667) (1,TM5) (1,150) (1,220) (1,250) (1,183) (5,918) repayments2 (190) (213) (137) (175) (132) ( 847) ( 165) ( 278) ( 374) ( 480) ( 569) (1,866)

3. internal borrouing -188 -112 -235 65 423 -47 250 285 3110 335 323 1,503 drawrings (233) (398) (21 6) (499) (859) (2,205) ( 634) ( 957) ( 798) (1,072) ( 937) (4,398) repaxymentst (421) (510) (451) (434) (436) (,2,252) ( 384) ( 672) ( 488) ( 737) ( 614) (2,8l95)

III. Financixg Gap 463 817 39' 357 1,113 3,149 265 757 1o64 1,339 1,695 5,120

1. spec-Lal sources 463 697 -7:2 102 1,092 2,282 30 2 4 -3 -2 31 coinage ( .-.) (100) ( 84) (140) ( 146) (470) treasury balances ( 60) (-10) (-309) (-266) ( 232) i(-293) ( 3) ( 2) ( 4) ( _3) ( 2) (.31) sale of assets ( 1) (146) ( 76) ( 89) ( 6) 1(318) others/ (402) (461) ( 78) ( 139) ( 708) (1,788)

2. reveniue inea es - 120 471 255 21 867 235 755 1,060 1,342 1,697 5,)089 tax arrears2. - (120) (471) (255) ( 21) ( 867) (160) - - - -- (160) new taxes - ( 75) (755) (1,060) (1,342) (1,697) (4,929) 17 Estimated at 214percent of the sum of the preceding two ye!ars' new loans. 4Tima-tiraed at 77 percent of drawings two years earlier. 2/ This is taken from IMF Consultation Repart; it differs from CORDIPLAN. / Mostly floating debt. :/ Past history - CORDIPLAN:; projecti.ons - IBRD staff. 6/ Including loperacion blanciueo" for 1970. 3ources: Ministry of Finance, CORDIP]AN azd Staff estimates. Table 5.3: THE STRUCTURE OF TEE PUBLIC SECTOR IN VEIEZEILA, 1969 (Page 2)

Central Autonomous Regional Distriots and Government Institutions Governments Municipalities total

Transfers to autonomous institutionsi 1,743 1,743 0.;her I _ £40V

Total 3,756 2,922 295 62 7,033 Consolidated. total 2.013 2,922 295 62 5,290

V. Total Expenditures (II + IV) 9,899 6,308 1,550 312 18,067 Consolidated total 5,977 6,308 1,438 312 14,032

VI. b2qius or aeficit (I - V) -1,235 -657 75 8 -1,806 Cornsolidated surplus of deficit 2,687 -3,245 -1,189 -62 -1,306 VII. Lending operations

Loans granted 3 643 - - 1546 Loans repaid _ _- _2 il_2

Net -3 -243 - -:237 VIII. Debt amortization 179 311 75 4 568

External ( -31 101 1323 Domes-tir ( 143.I 21-') ) \ !I.3,)

LX. Financinz Reauiired 417 1,202 - -4 2,611 (VI + VII + VIT

Txternal borrowing 400 262 - - 662 Domestic borrowing 409 449 - - 359 Sale of assets - 6 - - 6 Other capital receipts 190 754 - - '44 Change in depo:3i"ts

(inrrease) - -270 - 5 -274

Source: (:OI?DIPLAN and mission estimates. Table q.1: THE STRUCTURE OF THE PUBLIC SECTOR IN VENEZUELA, 1969

(Budget Data in Millions of Bolivares)

Central Autonomous Regional Districts and Government Institutions Governments Municipalities Total

I. Current Revenues

Ordinary revenues 8,664 1,150 249 249 10,312 Sales of Roods and Services - 1,858 - - 1,858 Intragovernmental Transfers 2,587 1,376 70 4,034 From Central Govern- ment (2,546) (1,376) (-) (3,923) From Other Govern- ments ( 41) ( - ) (70) ( 112) Other revenues - 5- -

Total revenues 8,664 5,651 1,625 320 16,260 C.onw&l idatpd revenues 8,664 3,063 249 250 12,226

II. Current Expenditures

Wages and salaries 2,971 1,749 755 154 5,629 Purchases of goods and services 470 1,245 210 34 1,959 Transfers 2,470 220 277 52 3,019 To autonomous institutions ( 803) (-_ ) ( 41) (- ) ( 845) To other governments 1,376 (7 1,447 To others 291 (220( 166 52 626 Interest on public debt 76 125 3 - 204 Other current expenditures 155 48 10 10 223

Total 6,143 3,386 1,255 250 11,034 Consolidated total -3,943,38 1,4 R 71,74

III. Surolus on current account (I - II) 2,521 522 370 70 3,483 Consolidated current

account surplus 4,700 - 323 - 894 - 1 3,483

IV. Capital expenditures

Real investment 1,970 2,107 288 60 4,425 Financial investment 32 346 - 377 CENTRAL GOVERNMENT F'INANCES, 1965-1969 (Millions of Bolivares)

1965 1966 1967 1968 1969

Current revenues Taxes on foreign trade Petroleum companies a4,826 49992 5,716 5.837 5,403 Iron ore companies 165 319 193 157 127 Customs duties 457 48o 479 497 537 Taxes on income and wealth Income tax 864 975 13,04 1,135 1,,289 Inheritance tax 23 23 26 26 29

Taxes on internal trade Liquor and tobacco 459 h7h 516 542 563 0thers -59 170 183 216 2314

Non-~t rbvenues 3n0i'A 318 382,02 365 Total revenues 7R2-61 7,751 B,539 8,777 Current exDenditure s Perso nnl 2,82 L 2, Goods and services 397 450 509 583 555 o_~~~~-- 4 - r o/ ri nl.- .2 . 1 -i e%qnn % n 1. £As2LO±s.1 ,LVO .J w.Lp'JL .L IVV L7- L7U;O u Interest 61 56 58 61 67 OL-.er btransfers Iv7 (UV 7LL4 .LJu Total current expendiultUre s L1,L477 L47Ltu 5 77U 04

Current account surplus 2,765 2,80% 3,260 3,003 2,654U Capital expenditures Direct investment 1,393 l1,482 1,574 1,609 1,960 Real investment; (1,237) (1,357) (1,422) ,1p461) (1,8514) Financial investment ( 156) ( 125) ( 152) ( 148) ( 106) indirect investment 1,230 1,9444 1.437 1,5Th Total capital expenditures 2,619 2,712 3,018 3,046 3,535 Total expenditures 7,322 7,853 8,545 9,150 9,5445

Over-all deficit (-) -58 -102 -6 -373 -881

Notes: (a) Includes royalties, irycome tax, exchange profits, and tax arrears - (b) Excludes revenues from coinage. (c) Includes all transfers to regional entities. (d) Includes extra budgetary expenditures and assumption of indirect debt not allocated by category of expenditure.

Source: Ministry of Finance.

Ta&bl--5: CENTRAL O)FT¶TCURRENT EYPEMITUR3E PR?0OJECTIONS, 1970-74 ( m i lons of Bs.)

1970 1971 1972 1 973 1 974

Personnel 3,353 3,554 3,767 3,993 4, 233

Goods and services 609 646 684 725 769

Grants to regions 1,396 1,459 1,523 1,597 1,679 Interest 175 320 355 380 400

Other transfers 1,2030 . 1.4 11699 9L Total current nn ri- tTI-P.n o67 7,327 7 8,39 8,990

T'ot '-c-Lcue,nt- revenweS 0 151 0 79Q o10?4X6, 11.190 Current account savinas 2.418 2.402 2,312 2,250 2,200 mabe 5.6 fJT.P!T. r1t) =77.JMPv -iPjMTT. fPlrO-TP.rThT0 1070)-74

1970 1971 1972 1973 1 971

Petroleum conpanies Lncom- -tax 2.I9 3, v, ,0Ub J3J53 3,1 Income tax arrears -8 - Royalties 2,791 2,866 2,943 3,022 3,104 Sur1'ace tax 14 14 14 14 14 =change profits 130 1 ,1 13 137 141 Sub-total 5,782 6,111 6,297 6,526 6,772

Iron Ore comoanies Income tax 148 160 171 183 196 Incomne tax ax-ears 2 ------Sub-total 350 6D 1 71 183 -196

Customs duties 3-6 557 569 592 623

Total taxes on foreir-n trade 6,448 6,828 7,037 7,301 7,591

Income tax (other than oil or iron) I 1,537 1 67, 1.826 1,990 Inherit-an e tax 25 25 25 25 25 Taxes on domestic income anti we-na.lt h 1 A "I 1,562 1,7nn 1,R'1 2.i1.C

TAriqur~ +r __ 2315 41 4UJ8 484 Tobacco taxes 245 257 270 283 297 T onILaxes pe,4.JleA.l .. s 1l *1I4Lno IC* 168 Stamp taxes B5 B9 93 98 103

Taxes on intern,a co r unist- ,-n- 853 911 975 1 4 ,4 1 1

Total internal tax 2,288 2,47 2, bP 2,8 3__29 revenues Total tax revenue 8,736 9,301 9,712 10,192 10,720

Fees 229 236 244 252 260 Other non-tax revenue 186 192 198 204 210 Total non-tax revenue ___1_ __2_ S L2 - 247C

Total Current revenues 9,151 9,729 10,151L 10,644 11,190

Source: Mission estimates. Tabel 5.7: ESTIMATED YIELD OF FISCAL REFORM PROGRAM

Total 1970 1971 1972 1973 1974 19970-74

Central Government

Personal income tax -- 100 110 121 133 .1464 Business income tax -- 100 110 121 133 .464 Customs duties -- 100 106 112 118 .436 Liquor tax 25 100 106 112 118 461 Tobacco tax 25 100 1o6 ill 116 458 Other excise tax -- 40 042 4i4 46 '172 GaOtherexise tax -- 104~ 0 421 4446 Motor vehicle taxes 35 37 39 41 I152 Foreign travel tax 30 31 32 33 2i26 General sales tax -- -- 150 250 350 _ 75c) Subtotal 970590 6 3 T,22T 3,972

Subnational Governments

Real property tax -- -- 50 150 320 520 Special assessments .---50 75 100 225 Motor vehicleMotor taxesvehice -- 500- 52752 54 1 52156 22 Subtotal -- 507

TOTAL 75 755 1,o6o 1 697 4__29

Source: Mission estimates. Table 5.8: HOLDERS OF INTERNAL PUBLIC BCONDED DEBT, 1963-69 (Millions of' Boi:Lvare3)

Percentage Distribution Holders a/ a/ a/ b/ b/ in C/ '1963 196j 1 9K' 1 1967 1968' 1968 16fj i

Total 1,323 927 993 1,007 1,283 1 ,647 10C0.0 2,200

Central Bardn of Venezuela 330 21 39 86 135 172 110.4 --

Public Sector 57, 7871 198 287' 459 .30.3 _ Ver.ezuelan Social Security In3titute -- -- 9 1314 327 '19.8 560 Workers ' Bark ------11 16, 115 0.9 - Agricultural Bark ------38 37' 35 2.1 __ Venezuelan Devel.opment Corp. 36 114 116 1.0 __ National. Sa-vings arxl Loan Bank -- -- 10 18 28 1.7 Others -- -- 94 68 78 4.7 __

Private seictor 723 861 976 59.3 __

Cormercial banks TY V 13-3 b .. Mortgage banks - -- -7 35 2.1 Savings and loan association 18 21 53 5 24 451 37-- Insu.rance compamies 56 70 73 98 1 52 2014 1 2.4 Savings and credit unions 2531 2149 237 223 1759 182 11.0 -- Petroleum ccmpanies 76 '714 77 62 51 !51 3.1 _ Otheirs 383 3 73 381 273 34 3.30 20.0 __

Notes: (a) DE.,TEC Panmnerica S.A., Ea. mercado de capitales en Venezuela (CILA,j 1968), p. 109.

(b) CentraL Bank and IMF.

(c). Ministry o:f Finance. Table 5J.: COMPOSITION OF INTERNAL B P

(Millions of Bolivares)

End of TYar 1966 1967 1968 1969

Total 1,1007 1,283 1,617 2200

Central Government 1614 17h 321 738

Autonomous Institutions 726 1 ,o46 1 ,2508 1 ,h62

Manicipalities 117 63 20 --

Source: Central Bank of Venezuela and Ministry of Finance.

Table 6.1: SXDVAXY AOCDUNT'S OF TH CNTBRAL BANK (In millions of bolivares)

End of Year

Foreign assets, net 3,631 3,5L41 3,379 3,816 4L,035 4s09

Domestic credit, net -864 -5841 -. 320 -484 --3h5 -172 Gtovernment sector, net - -33 - -21 *- 2T Central Goverrnment, net 7:7I9 -7 7 *-7 -322 - 77 ;T2 Credit 76 84 197 26t4 34Q 577 Deposits -.755 -4,11 -442 -5136 *-425 -451 Rest of public sector,rnet 37 14 57 78 32 102 Banking sector 305 297 389 299 2L48 249 Commercial banks 222 23X 29E 1'; 10 Official banks 81 61 98 1143 137 204 Mortgage banks 2 2 2 1 1 1 Private sector 14 -23 19 10 7 10 Exchange revaluation adjustment -.586 -61i 6 -607 -612 -605 -604 Unclassified assets, net 45 4t5 67 63 50 55

Liabilities to banks 1 166 1 202 1 213 1,407 1 610 1 699 Commercial banks M T t9 3 1,201 r 33 T', T1677 Official banks 3 8 10 11 16 19 Mortgage banks -- 1 2 3 4 3

Liabilities to private sector 1,321 1 ,4'13 1,472 1,584 1,698 1,785

Official capital and reservres 280 312 374 341 382 4,34

Source: Central Bank Table 6.2: SUI4IARlY ACCOMUNTS OF TEE BIUWG SYSTK (In millions of bolivares)

_ __ ~~~-__ _ -r_ _ _ _ _~~~~~~~~~~~~~19614_ 1 055 _1966 19S67 _1 ~7 968 _1969

Foreign Reserves, net 3,685 3 61 0 3,398 3,B48 3 848 4O85 b 088 Assets 33,52 3, 37 3, 3* Net IMF position 165 275 275 319 319 354 389 Liabilities -105! -247 -141 -114 -114 -84 -1 50

Domestic criedit, net '7 81,3 97 10,034 11,311 10 868 1416 14 131 Government sector,net T -2 -32 92 - - 271 Central. Government,, net; -453 -1 73 36 136 22 260 952 Credlit 477 576 810 1,022 1 ,022 1,308 1,96 Deposits -9 30 -749 -774 -886 1, oc0 -1,048 - 1,ol 3 Rest of public sector, net - 8 -107 -68 -373 -542 -681 CredLit 118 80 114 112 112 98 184 Deposits -1226 -1 87 -182 -156 -485 -640 -865 Private sectcir 7,370 8,491 9,064 9,983 9,974 11,9164 11 794 E1ccha.nge revaluation adjustments -596 -625 -61 7 -621 -621 -.613 -611 UnclaLssiflied assets, net 1,323 1 ,290 1,397 1 ,536 1 ,542 1 ,946 2,523 Interbanh: float 177 121 222 321 324 201 1514

Medium-- andl long-term fore:Lgn liabilities 25[ 276 391 422 4212 41 8 421

Private sector claims on banking system 8 755 9 533 9 879 11 296 10 853 12 194 13 323 Monet;ary claims 4:273 11-t; T T> 9 TW Coi.n and cuirrerncy iLn circUilation 1 427 1,565 1 674 1,812 1,81 Z 1,974 2,063 Demand deposits 2,846 3,093 3,172 3,664 3,387 3,,508 3,806 Quasi-monetary cLaims 3,148 3,561 3,651 4,392 4,226 5J,142 5,7714 Time and savings depos:Lts 2,628 2,850 2,811 3,327 3,161 3,522 3,905 Other deposits 43 50 49 63 63 86 141 Foreign currency deposits 9 18 10 20 20 17 24 Mortgage bonds and othier bank bonds 468 643 781 982 982 1 ,51 7 1 701 Private bank capital and resierves 1,334 1,314 1,382 1,428 1,428 1,570 1,680 Official bank capital and :rese:rves __ 2489 2,798 3,162 3,441 3,4W1 3889 4t,475 1/ Accounts presented with revised classification for the coummercial banks of soiie credits and deposits, beginning with 1 967. Source: Central BanK of venezuela. Table 6.3 ORIGBi, DESTEIATION, AND FINMCING OF BANK CREDIT. (In millions of bolivarps)

End of Period __ _~IFTJ (1 91& _.…gj=jj

Or-igirn l7813 8 9 O).J34 11 311 10 868 12 , CeralBul;-n ~-> =3r 4ii> Official bariks 2,702 3,007 3,488 3,933 3,933 4,663 Commercial banks 5,229 5,689 5,7143 6.,493 6,047 6,569 Mortgage- banks 396 561 659 782 782 1,000 I reaLsUIr 20, 242 266 266 328 Interbank float 177 121 222 321 324 201

Destination 7 813 8 997 10,034 11,311 1 0868 12 416' Government ';ector, net -32 92 -3KV 271 Central Government, net -453 1 73 36 136 22 26C0 952 Rest of public sector, net -8 -107 -68 -44 -373 -542 -681 Privrate sector 7,370 8,491 9,064 9,983 9,974 11,164 11,7'94 Fcchange revaluation. adjustments -596 -625 -617 -621 -621 -613 -611 Unclassified assets, net 1,3:23 1,290 1 ,397 1,536 1,542 1,,9.46 Interbank fLoat 177 121 222 321 324 201

Fi-nanc ing 7,81 3 8,997 10,034 11,31 1 10,868 12416 Privrate sector claims on banking system 8,755 9,533 9,879 11,296, 10,853 12,194 Monetary claimns 4,273 4,658 4,846 5,476 5,199 5C,482 Quasi--monetary claims 3,148 3,561 3,651 4,392 4,226 5',142 Private bank capital and reserves 1 ,334 1,31 4 1,382 1 ,428 1 ,428 1.,570 Official bank capital and reserves 2,489 2,798 3,162 3,441 3,441 3,889 Medium- and long-term foreign liabilities 254 276 391 422 422 4118 Net international rBserves -3,685 -3,61 0 -3,398 -3,,848 -3,848 -4,0o85

1 / Accounts presented with revised classification of some credits aLnd deposits beginning with 1967.

Source: Cent:ral Bank b0.l£4e L6LiJJ.L4; Y JIN V J." r1 _U14O.LnalUlJ .I

Nominal Reail/ Interest Income Tax Yield- Savings (Annual per- Exemption on (Annual per- Liquidity Instrument centage rate) Interest Earned centage rate) Conditions

Mortgage bonds ("cedulas") Of mortgage banks 8 (up to 8 per- 9.4 (market support,ed (cent interest (at close to par

Of Workers' Housing Bank (with government guarantee) 7 (any interest 8.2 (Bank accepts at (rate (face value in (cancellation c,f (mortgage loan

Deposits in savings and loan associations (insured up to Bs 50,000) 4-6 (up to 6 per- 4.7-7.1 (repayable on (cent interest (short notice

Deposits in commercial banks Sight deposits 0 -- ... sight

Savings deposits 4 (up to Bs 50,000 (of deposits 4.7 (repayable on (short notice

Timp ripnoqitq 14.5-7.5 (anv interest rate (on deposit of more 5.3-8.8 agreed term (than 90 days

1/ Since the interest ona.l the savngs Instruments in this table is free of income tax, the real yield is adjusted by the tax for a middle-income investor who pays a -rg. -a.a....a,.coI.e tl* rat of 15 p COST OF LIVING INDEX FOR THE ClARACAS METROPOLITAN AREA (, December)

Weights 196]3 1 96)4 1965 19665 1967 1968 19695

Food, beverages and tobacco 271.10 98.89 96.68 100.82 100.20 98.62 101.85 104.20 Shoes and clothing '.91 97.23 98.99 100.74 96.59 99.65 100.71 104.29

Housing expenditures 30C.03 95.66 96.90 97.56 99.'18 99.27 100.10, 101 .77 Other expendituLres 36.96 89.86 93.73 96 .40 98.:27 98.22 102.44 104.92 General indLex 10)0.00 914-46 95.78 983.25 98.96 99.02 101.48 103.75

Source: Central BELnk

Table i.1: PRODICTtIN 07 SELECTND AGRICULTURaL CCNW@DITIES. 1960-69

(thonngusls of metrio tos)

Actual Groth Rate percent '196S0 1961 1962 1963 :L964 1965 1966 1967 1968 1969 19'60- 1969

Rice (paddy) 71.9 80.7 103.1 131.1 165.8 199.9 195.0 223.1 244.6 271.3 15.9

M!adze L el ,~.39.59~.5 574°.5 43.2 h475.0 52; .0 557.5 6i33.4 735.7 6,12,1 5.2

Beans 49.8 31.0 23.0 24.0 25.1 26.1 29.8 31.8 26.3 26.5 - 4.h

Potato 133.6 74.0 121.2 110.9 123.5 135.9 126.1 132.6 1h2.5 122.9 - 0.9 Cassava 340.2 339.2 322.8 342.4 31l.7 301.4 320.0 315.6 340.9 348.3 0.; Tomato 4S.3 65.9 52.6 53.8 71.9 72.1 72.3 65.6 82.6 68.7 3.8

Plantain 222.1 215.1 197.1 198.1 217.6 203.0 211.6 185.4 222.2 231.. 0.4

Banana 990. 0 753.0 656.0 771.0 743.0 825.0 840.0 860.0 948.0 977.3 - 0.1 Coffee 55'.0 57.1 54.2 60.7 56.1 54.3 61.0 61.3 62.2 63.7 0.8

Cocoa 16.5 16.9 18.9 20.8 20.9 21.9 22.9 23.1 24.7 25.3 3.5 Sugar Cane 1,92L.5 2,448.0 2,535.7 2,730.2 3,710.6 3,693.5 4,437.5 4,009.0 4,001.3 4,232.2 9.2

Tobacco 9.2 10.4 8.h 8.8 8.h 9.0 9.7 9.7 11.L 9.6 0.5

Sesame 16.2 24.9 28.1 30.9 46.6 5h.1 60.0 80.5 76.2 82.6 19.8

Cotton 29.6 36.4 24.2 34.4 1,1.3 44.6 46.0 47.8 46.1 48.6 5.7 Sisal 10.0 8.4 85 11 6 13ce 13J M 1 theh 15.8 5.2

MilkY/ 420.9 444.5 481.5 521.5 585.5 627.1 662.6 695.7 736.7 766.5 6.4

Beef 120.8 136.5 '8. IL7.0 15 .5e 2. 179.7 183.9 12.2 239.5 7.2 Pig Heat 25.1 26.1 28.3 28.1 29.6 28.8 28.8 31.2 32.1 36.7 4.3 Poultry 21.6 30.6 32.6 36.2 45.6 45.0 47.6 52.8 54.8 50).6 8.9

1/ In millionf n4 litre-.

Source: Based on data supplied by the Ministerio dae Agricultura y Cria and projections by w nvIPLU'N. Table 7.2: HARVESTED ARMA, 1960 - 1969

(Thousands of Hectares)

Average Annual, Distribution Growth Rate 1960 1961 1962 1963 1964 1965 19665 1967 1968 1969 in 1969 1961-1969 ______- (oercent) (percent)

TcrYAL n.a. 1332.6 11430.0 14'T.2 11431. 15495.9 154.2 17657.8 1818.8 1828.2 10.O0 4.1

Cereals 44L.7 44-5 553.5 50,2.5 536.8 57'0.9 584.4 740.2 784.0 767-7 42.7 6.9 ;ilfE ; 907. 9 . 55Ie5 - 124.8 6-3 9-9 MaLize 398.2 38E8.7 483.3 426.7 443.0 461.8 466.9 616.1 657.2 639.1 35-8 5-4 Sorghum 1.2 - 0._ 1.7 4.6 6.8 9.3 2.6 0-5 - Wheat 1.6 2.3 1.2 2.1 2.2 2.3 2.9 3.0 2.3 1.2 0.1 0.0

Le_ 157.7 96.7 79.4 94.5 105. 5 108.2 114.3 119.9 131.8 130.3 7.2 .

Beans 1541.8 93.4 714.9 90.1 102.8 1(5.3 110.7 116.0 127.4 125.1 7.0 4-3

Roots aEd T_xirs n.a. 61.7 67.6 67.2 67.6 69.6 72.5 83.0 90.6 89.6 _ 0 . __ 4.8 ~~ 1'otat~~~~' n.a. 79. T . - 2.7 0.*1 -1.*1 Potato 18.2 9.3 16.o0 14.7 14 .9 :16.2 16.4 L6.1 L6. 9 13.9 0.9 8.7 Cassava n.a. 33-9 25.7 25.1 24.7 214.5 25.6 35.0 40.5 40.9 2.2 2.4 Other's 28.5 15'.7 23.1 24.9 26.31 ;27.1 28.6 29.9 31.1 32.1 1.7 10.3

Fruits n.a. 137'.3 132.5 138.6 139.7 1.40.9 142.5 146.4 151.9 1JC.5 8.31.' La n.a. 4 7 3W7 l7 47 50.2 2.7 + Orange n.a. 214.o 1/ 26.0 1/ 28.0 l/ 30.() I/ 21.8 34.0 L/ 25.1 25.,4 25.6 1.4 n.a. Guava. n.a. 2/ 2/ 2/ 2/ 2.5 2/ 1.5 1.,5 1-5 0.1 n.a. Papaya n.a. 2/ T/ 5/ r/ 2.5 Y/ 5.9 5.9 6.0 0.3 n.a. Pine±pple n.a. 2/ 2/ i 14.2 2/ 5.6 5.7 3.0 0.3 n.a. Plantain 66.2 6t).1 60.0 58.9 59.5 57.0 54.7 51.4 55.,2 59.6 3.0 0.0 Others n.a. 6.5 6.8 7.3 7.5 7.8 7.9 8.2 8.,8 9.6 0.5 4.8

Ve etables 5.6 8.1 7.1 7.7 9.1 9.4 9.8 11.8 12.,5 8.9- 0.7 1.. -ec35 0.7 - 7.2 Onion 1.7 1.7 1.4 1.5 1.9 2.0 1.7 1.7 1.6 1.5 0.1 -0.8 Tomato 3.3 4.3 3.5 3.9 4.8 4.7 5.2 4.5 5,1 4.6 0.3 0.8 Others 1.7 1.7 1.8 1.8 1.9 1.9 5.1 5.2 2.1 0.3 2.7 Industrials n.a. 5759.3 589.9 606.7 618.7 6146.9 657.5 666.5 663-14 676.2 36.2 2.0 S-3e-arwe 4-°1olF604 ;Wg 946140 153.4 7-6 13.9 Cotton 5L.9 50.3 37.4 47.5 43.7 J45.9 149.1 49.6 53,5 50.5 2.9 0.0 Coconut n.a. 25;.8 25.0 25.0 24.1 ;25.4 23.0 23.0 20,8 20.8 1.1 -2.8 Pearut 1.3 1.1 1.9 1.4 1.91 1.9 2.3 4.9 3,-7 3.1 0.2 13.8 Sisal, 9.7 10).5 10.5 10.1 11.11 LL.O 11.2 11.2 11..9 13.2 0.7 2.6 Cocoa. n.a. 72.0 70.0 70.0 70.() '70.0 70.0 71.6 71.5 71.6 3.9 -0.1 Coffee n.a. 316.6 340.0 340.0 300. 300.0 300 0 303.1 292.,2 303.1 16.0 -0.5 Sugar Cane 33.8 141.6 42.4 44.7 46.t6 49.6 52.6 53.3 49.2 52.8 3-3 3.0 Tobacco 7.0 7.5 6.0 6.6 6. 6.5 6.6 7.3 8,,5 7.7 0.5 0.3 n.a. Not Avaji;Lable

1/ Estimated, including guava, papaya and pineapple. 2/ Included tander orangeas

SoiLurce: based, on data fron the Yinisterio de Agricultura y Cria. Table 7.3: USE OF INFUTS IN AGRICULTURE,, 1960-.1968

Average Annual Growth Rate 1960 1961 _ 1962 1961 19q%5 196c 1967 1968 1960-1968 Fertilizers (tons)I/

Total ProduLction 20.915 57.3 55 225._910 244.521 g2,9256 25)3 J3 2,9.2 37-2 Simple fertilizers - 28 111,18 Compoundc fertilizers 20,915 23,997 26,309 17,871 29,345 58,025 76,799 96,910 97,460 Intermediate product - 9,054 U,166 50,337 104,7659 102,273 98,228 85,2i51 151,269 Ghemicals (tons)3/

Total Supply 11 978 6.723 6.C; 6.298 9.482 127'82 9.616 12.261; 12,15 9. Production 927 2,133 5i5-3,551 57870 Imports 11,051 4,5590 2,018a 2,7l47 3,728 4,512 3,0OQ2 3,737 3,485

Certified Seeds (tons), - Total 971 2.067 7149 4. 470 .82>_ 12 lc 7 929 9.205 _2 ffaize 15 1,2531 2,241F 2,259 2 2,5W 3,18300 Rice - 1 l,ODO 1,200 1,250 2,2140 3,652 3,232 Clotton1 , 7510 827 1,242 1,019 1,500 1,500 1,600 1,094 1,287 Othersi/ 6 7 13 30 511 514 5,1426 9215 1,586 kachinery (imported Wuits)

Tractors-wheeled 1,037 683 1,909 1,514o 2,039 3, 038 1,685 1,493 1,796 7.16 Tractors-tracked 103 I42 ,20 70 91 92 2114 487 16 14.2 Harvesters 35 95 80 55 123 180 181 19B 1a,6 21.3 Seeders 137 1959 331 237 266 447 161 4456 352 12.5 Ploughs 410 447 1,36;2 405 962 7t98 457 248 280, -3.5 Others 1,669 4,9;2 32,432 7,935 12,747 5,I25 7,1161 1,262 652 -6.2

Machinery (millions of Bolivares - CIF value of imports) 115.0 107.5 14b.2 163.7 28.5 264.8 21 .1 214.8 258.8 10.7

Value of murchased inputs in agriculture4million cf Bolivares) 1518.9 19?7.8 217.2 264.9 120.6 _51.7346.o 3o0.9 J 43 .2 10.3

Refers to national produactiOn

RefersE to productiLon and imports of insecticides, herbicides and other agriculturaL chemicals

Refers to seeds produced by the Ministry of Agriculture j/ Principally sesame, beans, peanuts and potatoes

M/fssion estimate, incluwing cost of seeds, fertilizers, chemicals and fruels and depreciation of machinery

6I Refers to period 1961-1968

Source: Compiled from data supplied by the Minist,ry of AgricuJture Table 7d4 SUPPLY OF AGRICULTURIL CRLDIT, 15960 - 19659

(in :nillioris1 or bol:Lva-cses)

Avera-e - 1960 1961 19 2 1963 196 I 1965 1966 1967 1968 1969 -ro th t

By Scv'.rce:

OTAL 185.4 225.4 265.2- 65_ 303.7 305.1 3145.6 331L.2 336.0 n.,a. 5.9

Private Sources 142.4 145.0 38.3 52.8 4 0.7 38.5 53,6 '13. 43,8 n,a. -0.4

1B P (own ,accoutnt) 129.7 1;'7 .175.4 ]L52.. 219.0 215.0 2142.7 247.0 228.3 2414.2 8.7

Small farmerrs 75.5 70.9 83.3 78.C 11.0 115.1 1:33.0 124.0 117.7 12:3.2 7.5 Commercial farmers 54.2 56.6 92.1 74. 10CB.0 99.9 1;9.7 123.0 110.5 12L.0 10.0

]lAP (governwnt account) 13.3 52.9 51.5 60.5 44.0 51.6 149.3 53.7 63.9 66.7 2.7

By Use:

TOTAL 185.4 225.14 265.2 265.7 303.7 305.1 3145.6 331.2 336. 0 n.a. 5.9

Agriculture 122.4 132.14 142.8 :L143.1 2oL0.3 192.2 236.4 226.7 2146.7 n.a. 9.3 Livestock 61.7 93.0 121. :121.3 97.3 11014.8 87.5 n.a. ... 8 Fishing 1.3 - 1.4 1.3 2.1 2.0 2.6 2.7 1.8 n.a.

re o oredit

TOTAL 185.4 225.4 265.2 ,265.7 303.7 305.1 345.6 2 :33.Cl n.a. _ 5.9

Production Credit 148.2 151.2 179.2 186.2 220.6 213.1 260.1 245.7 238.0 n.a. 6.7 Develcp ent Credit 37.2 7).2 86.0 79.5 83.1 37.0 85.5 88.5 98.0 85.9 4.1

1/ 1961. is a more suitable base Year than 1960 because the government account credit programs did not have full effect

," 1 is as.u-rne! that all piv,a--e credit is short-terr. and tl-t all governnment account credit is long-term.

SO-irce:e inisterio de Agricultura y Cria and Banco Agricola y Pecuario. TabiQ 7.';; IWNu REDI3TRIE'uT"ION TuNDELR Tu;E AGflAPLiAN },EF0;s ?;rXFLAN 1960-1968

1960 1961 1962 1963 1964 1965 1966 1967 1968

Land Atfected / 900.8 180.9 261.5 171.0 202.9 784.3 445.5 380.0 708.2 Private 0 I5.0 214.3 ?9 10.7( 3B3.7 I35 102.9 71' Public i40.8 65.95 4 7.2 1141.6 96. W400.6 310.5 277{.1 640.5

Farailiei Benelfit. 2d,/ . .. . . 364i 69 )4.1 16.

Total TInvest,nt, 3-/ .I.4.Joe.1 117.2 6 6.o eI .L '.-2 .sI °.t7 'I1L. Land ane Inorovemants Insn o 822 48h6R 1 1i 30JI11 95 0 6L 3R.6 b40.C Consolidatioti 40.0 62.8 68.6 15.5 22.7 44.1 76.1 61.1. 71.9

Total Rcxpenditure of IAN Y n.a. n.a. n.a. n.a, 171.3 225.4 230.2 203.2 232.1 Budgotary 3/ Appropriation to IAJ121.8 199.5 139.3 107.8 15'0 . 150.6 16t.7 16.- 6 177.3 kgr..iilau TDo',t .twtido. Bunds Authorized 200.0 - 20.0 - - 200.0 - - -

E~onds. rss;;ledA 61.2 L42-.6 -1.8 5.3 17. 33.V 25.7 21.0L G6.8

n.a.: Not availTh.S1 .3.

2./ Area ir. t'ousands of hectares.

2/ Thousaw^.. of families.

3/ Millioi;s- of bolivares. Source: Instituto Agrario Nacional

Table 8. : PROVEN RZESERV'ES OF' CRUDE OIL, 1941h-196!r (millions of barrels)

194 9 1954 '1959 15960 1961 1962 1963 15964 1965 1966 1967 1968 1969

Blew reserves

Disicoveries n.a. 436 342 585 106 148 69 74 77 60 38 38 144 fttensions n.a. 617 695 5'94 365 144 298 268 264 72 98 534 308 R"siaions n-.8. 1419 196 1262 72 802 1.025 1.084 982 721 _ 243 _4.58 182 1,073 1,472 1 ,233 1 ,1441 5143 1 ,094 1 ,392 1 ,1426 1,323 853 379 1 ,1330 534

Anan l prod=.tion 482 692 1,011 1,042 1,066 1,168 1,186 1,242 1,268 1,230 1,293 1,320 1 ,314

Net increase (+), decrase (.) +5S'1 +780 1'222 +399 -523 -74 +206 +184 +';4 -377 -914 -290 -780

Eaixing reserves at year-endi/ 8,2313 10,932 17,003 17,402 16,879 16,805 17,011 17,194 17,2';0 16,873 15,959 15,669 14,819

(tmulative production 4,9595 8,161 12,824 13,866 14,9311 16,099 17,285 18,!527 19,7914 21,024 22,317 23,637 24,951 (yeairs)

Life of reserves 17,0 15.8 16.8 165.7 15A8 14-1a 14.4 13.9 13,6 13.7 12.3 11.9 11.3

Notes: 1/ Irclud&rg condensate

2/ Retfers to fiscal reserves

Source: Ministry of Mines and F'drocarbons ITshja a, : PRODUCTION AND DISPOSAL OF CRUDE OIL, 1954 - 1969

- 'o CompDund Annual GroWth 1954 1959 1964 19655 1966 1967 1968 1969 9

(milLions of barrels3)

Crude production 1 692 lOL 1242 1268 123( 1293 1119 1312 +4.2 +1.1 -0.5

Crude processed in Venezuela J! 112 301 400 429 428 426 434 422 +5.8 +1.1 -2.8

ICnternal consumption 49 61 64 65 67 71 70 +4.5 +j.O -0.7 Direct exports of products 126 221 315 336 335 240 334 341 +7-4 +1.6 +2!.1 Direct exports of crude 529 720 860 851 826 887 898 904 +3.6 +1.0 +0.6 Di.rect exports of crude and products 655 941 31176 1187 L16:1 1227 1232 1245 +4.6 +1.1 +1.1 ( OOOs b/d)

Crude production 1/ 1895 2771 3393 3473 3371 3542 3605 3594 +4.1 +1.2 -0.3

Crude processed in Venezuela IL/ 443 824 1092 1175 1174 166 1186 1L55 +5.8 +1.2 -2 .5

Internal consumption 134 166 176 180 183 194 193 +4.4 +3-1 -0.5 Diretct excports of products 345 606 860 921 9113 932 912 934 +7.3 +1.7 +2.4

D:Lrect exports of crude 1449 19731 2350 2332 2263 2430 2l453 2477 +3.6 +1.1 +1.0 Direct expcrtn of crude and products 1794 2579 3210 3253 3181 3362 3365 3411 +4.5 +1.2 +1.4

Notes:

L/ Including natural gasi liquids blended inito crude.

Source: Ministrr of KineIs and Hydrocarbons. Table 8-3: 1,LT J.ATE DESTINATION 3F 1J D-L, 'EAVY F3UELOIL ;, OIHhR REK 'ED PkLODU.-TEyP1rT c Y 1o!I- EL LA- ' HERLAN.L ATL13,1 'Th-l727

_____3!u ~d_Annual Grov.th 1959 19611 196' 1966 1967 1968 1969 1 C999 d1969/1,u96 A 1969,'1968 ('CIOO b/d) (S Wi)(|

Crude, Oil

Urited States& 455 480 456 464 411 462 434 * 1.1 Ca,,da 3 CI -1().- 205 281 232 16° 24e 280 299 '.4 1.3 u6i Central Arica &Caribbean 198 287 318 369 1103 h40 462 +7.7 +10.0 * 5.0 of utiLch Pwerto Rico (66) 1(103) (103) (13L4) (115) (108) (123) I+ 9.3) Trinidad (+ 3-6) (-1o .9) &Tobago (n.a.) t109) (12r) (145) (17i9) (206) (189) 1 - ) (+11.6) (- E8.3) Other (n.a.) 75) ( 88) (110) (l19) (126) (150) ( - ) (+L4-9) (+151.0) South America 162 137 13:3 120 111 121 I11_ 3.L - 3.7 - 'i.8 suropean Ecoromic Comunity 116 161 139 137 210 173 193 + 6.8 + 3.7 * 1] 6 Urdted Kingdom 109 151 175 153 151; 168 139 + 6.7 - 1.7 -17.3 Other Suropean countrieB 30 91 110 96 104 101 117 +24.9 + 5.2 +L5.8 Asia & AfricaL 6 9 9 10 8 9 15 + 8.4 +10.8 +66.7 Total 1,280 L,597 1.5Z7 1.2020 1..75j 1.75 +*4-5 + 1.9 (0.0 Heavy Fuel iDil

United Statee/ 516 676 7412 766 769 757 878 * 5.5 + 5-.t +16.0 Canada 20 44 69 70 83 65 68 +17.1 + 9.1 + 11.6 Central Amrica &CaribbeanY 70 6'51 62 62 74 70 +11.3 0.0O.X - South America, 57 16 21 20 13 16 24 -28.3 + 8.14 +50.0 Suropeon EcorLam.ic CGomunity 3 34 213 17 1.7 16 18 +62.7 -13.t6, +1:2.5 United Kingdom 1i 73 67 27 A8 12 13 +12.2 -41.1 + 8.3 Other 3uropean countries 15 32 38 25 38 28 13 +16.4 -19.7 -5:3.6 Asia & Africa, 16 15 113 9 20 21 12 - 1.3 - t.6. -4;2.9

Total 709 960 2±l l 996 1.0.0 989 1,096 + 6.3 + 2.7 .+10.8 Other Refined Products

United States2/ 135 345 156 172 172 162 160 + 1.4 + 2.0 - 1L.2 Canada 43 37 5:1 50 61 81 76 - 3.1 +15.5' - 15.2 Central America &Caribbeacn/ 57 50 62 68 714 103 132 - 2.7 +29.5 +213.2 South America 63 116 3 3 33 :12 38 28 - 6.5 -10.5 -26.3 European Ecoromic Consunity 42 64 56 55 43 22 12 + 8.8 -39.8 -45.5 United Kingdom 60 58 50) 51 118 42 36 - 0.7 -10.0 -1,.-3 Other European ccuntries 52 76 5.3 60 417 311 30 + 7.9 -20.5; -11.8 Asia & Africa 57 90 814 101 13.4 91 63 + 9.6 - 7.11 -310.8 Total 509 565 5415 586 590 574 537 + 2.1 - 1.( -o 5

/ Excludes exports from VenzuLela to Netherlands Antilles.

Excludes exports to Puerto F'ico.

In"ludes exports to Plerto Rico, Panama Canal Zone, Trinidad & Tobago. Ihose to Puierto Rico inclu;ied 75O0O b/d of refined prod&it,. in L96.9 thoce to Irinidac only 3,Q00 b/d. The Panarma Canal Zone received only prodacts (:,7,000 b/d in 1969) and no crude oil. Source: Mirnistry of Mines & Hydrocarbnos. Table 8.4: Gr-owth of Mariufactuin Industry n Venezuela (Year:Ly comLpound growth rates)

_1950- L960 _ 1960-1964 15164-_68 _ 1960-1968 1968-1969 In ter-ts of In terms of In terms of In terms of In terms of In terms of In terms of In terms of PhysicaL Growth Value Added PhysiLc:al Growth Value Added Phsical Growth Va].ue Added PhysicaL Growth Value AddecL

Consumer Goods 8.6 6-5 7-5 4*3

Food LL .6 9.95 9.9 5.3 3.3 7.6 6.6 2.8 Beverages 11.2 4.7 1.4 7.1 5.1 5.9 3.2 6.1 robacco 13.2 6. 9 6.9 5.7 6.4 5-6 6.7 2.3 Textiles 16.8 13.7 14.1 8.6 2.8 11.1 8.3 6.8 Footwear and wearing apparel. 17.5 8.7 5.2 7.6 -2.1 8.1 1.5 5.8 Furniture anid fixtures 11.0 6.! 9-3 8.6 12.6 7.-4 11.0 6.3 Printing ani publishing 14.2 6.0 2.3 8.6 12.0 7 -3 7.0 7.0

Intermldiate Goods 92.8 6.5 8.2 1.7

Wood and wood products 11.0 8.3 8.4 5.9 5.7 7.1. 7.1 7.2 Paper and paper products 32.0 16.5 .17.3 9.7 5.7 13.1 11.4 8.9 Leather and leatber products 16.2 -11.2 0.1 0.0 -4.3 -5.-8 -2.1 -1.9 Rubber and rubber products 19.2 11.14 12.5 8.2 3.1 9-.8 7.7 4.5 Chemicals 16.2 18.1 13.9 10.4 7.2 14.]L 10.5 3.1 Petroleum acd itsi products 12.9 5.14 5.2 2.1 2.4 3.-7 3.8 -4.1

apitaL Goods 14.1S 12.9 13 ! 7-4 Nonmnetalic minerals 9.5 7.-9 5.6 9.1 6.5 8.5 6.1 2.0 Baaic metals 28.3 48.1 74.7 19-3 13.3 32.9 40.7 0.6 Metal products 22.7 /1 11.3 9-5 11.1 3.6 1.;2 6.6 17.8 Machkiery except electrical (3 4 17.0D (22.2) 18.9 (17.8) 18.0D (20.0) 16.7 Electrical machinery (30.1) 12.2 ( ) 10.5 ( ) 11.14 ) 14.5 Transport equipw)nt 11.6 18.7 15-5 15.1 7-5 16.9 11.5 6.1

MiscelljIneous 28.8 28.14 22.2 10.0 6.8 18.8 14.3 11.4

Whole Industry 13.8 10.l 9-3 7.9 id 9. 1-3 4-5 IndusTtrr with.out etroleum 11.0 8.6 9.8 5.1

/1 1952-1960

Sources: Calculated from data supplied sy _..rdiplan and the Central Bank of Ven-z.:ela. 10

1 19 9 9 1 11 0 0 a UA

11 11:9 9 9 1:1 1%, 19 1

-I 9 9 -1, 9 1 9 1: 1 1

11 9 Al -tR. 0 11 51,11-1.14.1M

-i Y, 1: 17 19 11 1 I? 9 I 0 0

...... I.- - 0 - - -Z Z . 11--fis. . . . . Iv. . .

9 91t,999-V999 -i 9 9 -9 9 9 9 9 9 99 9 9 R 11: 9 0000-OW H 110

v t 8 31 8

3 'A RR§ v t t-22 -S EZ cg 3cl 3 t Table 8.6:Sise Diatributin of Industrial Enterprises in Venezuela (in C)

lloyment Value Added 1961 __66 19__ U.]LUm- .5LLrK UL .LI1id IUt a.LL

Uonsumer Goods 1 26.1 5.2 48.9 26.1 25.0 6 21.9 14.8

Food 'Q38.8 23.4 37.8 8.1 29.1 60.0 16.i Beverages 56.8 23.4 19.8 50.1 37.2 12.7 71.8 23.3 14.9 Tobacco 70.8 15.3 13.9 65.8 20.9 13.3 97.8 1.5 0.7 Textiles 81.3 12.2 6.5 82.4 12.0 5.6 82.5 12.6 L.9 Fcotwear and wearirg apparel 14.9 40.2 44.9 27.5 41.2 31.3 25.4 11.6 33.0 Furniture and fixtures 7.8 30.7 61 5 20.6 31.4 ).Ro0 18.5 32.2 L Printing and publishing 24.2 28.5 47-3 29.8 30.0 40.2 46.6 26.6 26.8

Intermediate Goods . 2 26.1 1 4 76-4 17.6 o. '

Wood and wood products 3.5 42.3 54.2 30-0 33.7 36-3 30.6 38.L '1.0 Paper and paper products 61.0 22.7 16.3 65.0 23.1 11.9 80.5 10.0 ,. L,eather and leather products 27.- 26.0 46.6 a3.5 23.0 33.5 54.4 20.1L '5.2 Ruboer and rubber products 51.5 22.9 25.6 60.1 21.2 18.7 77.0 10.2 12.& 2hemicals 39.4 33.9 26.7 52.9 35.5 11.6 55.5 39.1 5.1 Petroleum arid its products 96-3 3.1 0.6 94-5 4.5 1.0 95-.3 4-5 °..

Capital Goods 23.2 26.9 49.9 46.8 24.6 28.6 ss-o 24.6 26.L

NonrLetallic minerals 38.8 21.6 39.6 43.7 31.3 25.0 66.1 23.8 10.1 Basic metals 66.9 19.9 13.2 85.9 11.3 2.8 81.9 15.2 2.5 Metal products 26-a 27.7 45.9 33.3 34.7 32.0 ,O.l 42.82 Machinery except electrical - 59.6 40.4 15.0 26.6 58.4 19.0 29.2 51.8 Electrical machinery 3.2 47.9 48.9 49.3 27.7 23.0 16.3 22.6 31.1 Transport equipment 9.6 25.0 65.4 38.7 18.2 43.1 48.3 19.iL 32.3

M-;3cella-neous o 7 l. I n.c en. ,n -. S-u 6t.-

Grand total 37.2 26.1 7L 26.14 24.6 63.8 222' 13-9

Note: Small enterprises are those eploying 5-20 persons, medium 21-100 persons, and large more than 100 persons. Total employment of each industry adds up to 100 percent.

Source: Calculated from data collected in the lst and 2nd Industrial Survey conducted by Cordiplan. Table f8.7: !4NRSi PATrE&; iII ViEZU i:1V4,ll UAT

,rprorate Characteristic National ;haracteri ti __ _ _ Share (wnerThip __ _ I>nne.i, c)nership Foreign OwnwrsIh p Fixed Share ;7hare Capita17 Private ?ubli - .apital CapitaLi Fixed Calpitlti ni I n b. in ,t b3 inl, mlIon iil1')fn

Consumer Goods 3,l99 .9 3 2.292 2,182.- S i6.i ____3- Food 1,L51.1 1,158.6 .798 966.. 83..J 192.2 16.6 Beverages 15i4.L 369.4 .747 363.5 98.L 5.9 1.6 Tobacco 96.4 14 2.1 1.474 86.5 60.9 5$.6 39.1 Textiles 699.9 376.0 .537 297.0 79.0 791.0 21.0 Footwear and wearing appaLrel 171.8 260.2 1. 515 252.4 97.0 7.8 3.o Furniture and fixtures 103.4 103.0 .S'96 95.7 92.9 7.3 7.1 Printing and publishling 182.9 1214.0 .678 120.8 97.-4 1.2 2.6

Intermediate Goods 3,886.4 6,788.9 l.47 441L.8 6._ 475j0 7.,0 5,87 !.1 86.5

Wood and wood products 100.9 1014.2 1.(33 101.8 98.5 2. 3 1.5 Paper and paper products 434.9 24i3.7 .572 201.9 82.3 17.7 Leather and leather products 60.7 53.0 .873 45.1 92.6 3.9 7.4 Rubber and rubber products 226.4 97.5 .431 55.8 57.2 , 4.7 42.8 Chemicals 688.1 703.3 1.022 18.6 2.7 4775. °L 67.5 205'.7 25.8 Petroleum and its products 2,375.4 5,582.2 2.350 11.6 0.2 5,570.6 99.8

Capital Goods 2.507.9 2,8415.8 1.I13 1LQ4J.2 64.7 200.0 7.0 803.6 28-3

Nonmetallic minerals 772.6 449.1 .,81 411.6 91.6 37.5 8 4 Basic metals 923.3 314.3 .34(U 100.4 32.0 200.0/3 63.6 13.9 '' 4 Metal products 348.6 1,0 8 4s.4 3 . 11 1,029.7 95.0 514.7 ,5.0 Machinery except electrical 37.9 39.4 1.040 36.1 91.6 3-3 8.34 Electrical machinery 162.9 696.1 4.,273 96.8 13.9 599.3 8;2.1 Transport equipment 262.6 263.5 1.0J03 168.6 64.0 94.9 36.0

Mliscellaneous 96' 107.8 1.117 99.1 91.9 8.7 13.1

Grand total (including petroleum) 9.690.7 12,276.8 1.267 4,566.4 37.2 675.0 2-5 7_035IL _5L3

Grand total (without petroleum) __8 68.o0 67.0 10.1 1464.8 21

/1 Domestic private + public + foreign = 100% /7 Mission's estimate Share capital only. This share capital has been revised upwards in 1967 to 1, 6 45 million bs.

.iource: Calculated by the Mission from data ccntained in the 2nd Industrial Survey. Table 0.0: TO-OuIL.T TFUrfIC, 1962-i969

('000 Arrivals)

jJ Transient Year Tourists T,xcursionists Visitors

1962 26.7 n.a. n.a.

1963 30.2 30.1 25.8

1964 41.2 29.9 27.0

1965 54.2 30.2 29,2

1966 70.8 n.a. n.a.

1967 76.3 40.1 28.2

1968 93.5 65.i 25.7

1969 108.2 74.4 29.4

i/ Defined as visitors staying in the country for less than 24 hours, including cruise traffic.

.?I Defined as visitors staying in the country for less than 48 lhours with another country as their destination.

Source: Direccion de Turismo. Table 8.9: TBiSPO TATION STAIISTICS, 1947, 1957, 1965-1 969

1917 1957 196, 1960 1967 1968 196'9

Comoosition of road network

Paved 1,366 6,023 15,173 16,423 17,049 17,478 18,006 (Grave1edi and eart.,h 5p21 181-.1 7Q79 1. 1S 19.257* 20.073 21.585 Total 6,617 24,502 301 3,976 3551' 3,

iIotor Vehicles (units)

Automobiles 384,685 426,179 452,449 498,144 Buses 10,A03 13,307 14,,327 1Lj8 Trucks, pick-ups, etc. 156 954 174 865 175,500 184,942 Total Al613C:1 )'L,2 7.9 - 97iR O7 i;A1

Railroad- Tnaff'ic (milins

Metric ton- kilometers 32.0 26.1 17.2 13.5

Port Traffic (thousand tons)

La Guaira 1,149 1,086 1,097 1,140 MaracalbL3U 3 )u 297U3 Puerto Cabello 1,208 1,224 1,308 1,482 -4 I t t Q71 5n I1 t UU -&1IL, III Ur 7) II U Puerto Sucre 50 36 49 51 CaIu.p~a±o 30 1281 Ciudad Bolivar 14 4 - - Ltas Piedras 4 2 2 Total 2,T8 2,757 25 3,120

* Ministry of Public Works.

Sources: CORDIPLAN and Ministry of Public Works Table 8.10: ELECTRIC POWER STATISTICS

Average Annual 1959 1961 1963 1965 1967 1969 Growth Rate (S)

Installed Capacity (NW): State Companies 212 736 777 819 938 1,477 21.5 Private Companies h90 626 733 755 922 980 7.2 Self-Producers 523 523 523 523 523 523 - Total Installed Capacity 1,225 1 2,032 2,097 27T3 i2,980 9.3

Peak Demand (MW) 760 890 1,174 1,428 1,603 n.a.

Energy Generated (thousands MWH) 1-577 5.192 6.771 8.245 9.L79 11.960 10.0

Enerev Consumption by Sector (Thousands MwH)

Residential 576 758 887 1,047 1,310 2,617 16.3 Commercial 261 313 397 462 568 683 10.1 Industrial 704 779 1,753 2,264 2,786 3,803 18.4 Official 79 265 336 LL2L 532 2,516 13.0 Other and Unclassified 1 664 1 881 2 097 2 398 2 691

Tot.al Enery Conusimntion __8_,1!996 5;L0 6__9_ 7587 99 11.4

Source: CORDIPLAN. Table 8.11: TELECO1 'UI'CATION STATI3TICS, 1966-1971

1,966 1 967 1968 1969 1970 1971 1 9 72 1973 1 974

Total exchnge capacities 251,675 272,260 278,080 342,435' 382,235 440,635 515,335 59 3,33', 689,565

Conmected direct lines (DEL) 191,836 207,084 224,256 248,166 286,67'4 330,L14 386,583 448,768 5117,171

Total telephones 308,898 327,038 345,704 371,710 L425c,000 490,000 575,,o00 665,ooo 770,000

Densit-y Telephones per 100 pop. 3.42 3.49 3.59 3.76 4.1 4 .5 5.2 5.8 6.4

Long distance channels 2,152 2,599 5,980 6,877 7,908 9,094 1,X58

International circuits 69 84t 166 1166 283 283 313

Telex exchange capacities 320 1,64() 1,740 1,940 2,1140 2,340 2,740

Telex subscribers 683 1,460 1;,'44 1,822 1,920 2,018

Source: CANTT' Table 8.12: CONSTRUCTION OF DWELLING UNITS, 1964-1969

1964 1965 1966 1967 1968 1969

Public Sector Worker's Bank 1,479 5,615 6,493 11,377 18,767 Venezuelan Corporation of Guayana 632 367 375 70 136 National Agrarian Institute -- 250 1,563 2,374 2,366 Ministry of Public Works -- 64 391 243 351 Total 2,111 6,296 8,822 14,064 21,620

Private Sector,/ dwelling units -- -- 11,252 8,769 11,230 estimated value of construction (Bs.million) 659 882 775 600 687

1/ As given by building permits.

Source: Ministry of Develonpnent and CORDTPLAN Table 8.13: Venez:uel: Studcrt Regirter.d in Acadc., ic InrLIL 1, ,., 1 ,-68 (In tho.u arndT)

L&vel of Institution 1957/58 1958/59 1959/60 1960/61 1961/62 1962/63 1963164 11651/Sl5/66 1966/67 1967/68 1958/69-

r1mary ?W_5 916.8 1 4 1,243.9 j4.L29B.4 1,339.77 1.370.6 1,42L.1 1 Bl.3 1,541.2 1,584.5 I,65.7 Official 608,,4 775.6 933.4 1,080.7 1,129.1L 1,159.6 1,18ii.7 1,227.9 1,276.1 1,328.3 1,366.8 1,39d.5 Irivate 143.1 141.2 161.2 16. -2 169.1 180.1 181.9 194.2 205.2 212.9 219,7 227.2

Secondara 55,2 71 .4 187.9 105.0 122.-3 139.4 155.2 173.4 189.6 209.8 230.4 251.6 OtGf ic ial 30.1 -T 45.7 13.0 78.6 89.2 95.4 107.5 120.7 -130.0 0 14/.2f - -1-66 -T8 lrivate 25,1 25.7 24.9 26.4 33. I 44.0 47.7 52.7 59.6 62.6 64.2 66.01

Rorsal 8.3 14.3 25.5 31.6 32. 28.9 22.2 17.3 12.8 11.0 11.1 11.8 Official 3.8 7 .7 15.7 17.9 17.3 13.5 9.4 7.3 5.6 5S4 62; ! rivatc 4.5 6.6 9.8 13.7 15.1 15.4 12 .8 10.0 7 .2 5.6 4.7 3.7

Technical 19.4 25.4 34.0 44.0 51.7 61.4 70.3 82.1 93.1 104.8 115.8 126.8 Official 17:! 23.3 32.0 42.0 49.5 58.6 66.9 78.0 87.9 97 .7 106.7 -11iF I?rivate 2.2 2.1 2.0 2.0 2.2 2.8 3.4 41 5.2 7.1 9.1 11.0

Lascrior 10.6 17.0 -22.8 26.5 31.6 34.3 38.1 41.2 47.0 53.8 5J.8 67.0 Jnivc1sityX 10.3 16.1 21.0 24.3 29.2 31.6 35.2 38.7 44.2 50.6 55.4 63 Ofiicial 8.2 13.6i 18.7 21.2 2.5 26.9 10.3 33.7 37.81 43.8 481.2 55.3 IPrivalte 2.1 2..5 2.3 3.1 3.7 4.7 4.9 5.0 6.4 6.8 7.2 8.1D

PedaL1cal Institutions 0.3 0.9 1.8 2.2 2.4 2.7 2.9 2.5 2.8 _ 3.2 3.4 3.7

oto, I 845.0 1,044.9 1,264.8 1,451.0 1,536.4 1,603.7 1,656.4 1.736.1 1 823 81 1 920.6 2,00o.6 2 082 9 DOfficial 668.0 866.18 1,064.6 1,242.6 1,313.0 1,356.7 1,405.7 1,470.1 T TT4T;3Z- i1767.0 Private 177.0 178.1 200.2 208.4 223.4 247.0 250.7 266.0 283.6 295.0 304.9 315.9

Sourcc: Ministry of Education. 1/ EstitLited. Table 8.14: HEALTe INDICATORS

(Averages)

Mortality Life Expectancy Total Mortality Infant Mortality Years (over 5U years) (years) (per tnousana) kper tnousand born alive)

1941-1945 24.5 48.1 16.0 111.8

1946-1950 25.0 N.A. 12.6 93.8

1951-1955 29.5 61.7 10.0 72.4

1956-1960 31.2 63.1 8.5 62.5

1961-1965 36.9 66.1 7.2 49.19

1966 39.8 66,7 6.7 L6.7

1968 4o.9 67.0 6.9 h1.6

Sources: Escuela de Salud Publica and CORDIFLAN