Venezuela at a Glance: 2001-02

COUNTRY REPORT Venezuela At a glance: 2001-02 OVERVIEW The government of Hugo Chávez Frías is likely to face mounting social protests about the lack of progress on crime reduction and employment generation—important issues to the electorate—as well as greater resistance to its reforms. As the legislative opposition remains weak, protests are increasingly spilling out onto the streets. The Movimiento a Socialismo (MAS), a partner in the ruling Polo Patriótico (PP) alliance, has distanced itself from the government, potentially depriving Mr Chávez’s Movimiento Quinta República (MVR), also a member of the PP, of its legislative majority. Developments in Colombia are a cause of growing concern in Caracas. The economy will expand by 4% on average per year in 2001-02, driven by fixed investment and private consumption, both powered by public spending. Oil production will remain stable, given weaker global growth, indicating decelerating export growth in 2001. However, provided that oil prices do not fall below US$20/barrel, the budget assumptions on which the government is basing its domestic expansion plans remain credible. Based on these assumptions, the exchange rate will once again appreciate in real terms and inflation will be restrained below 15%. External surpluses are expected to halve owing to softening oil prices and rising import spending. Key changes from last month Political outlook • A second teachers’ strike in 2001 is indicative of the growing impatience with the government’s reform programme. Economic policy outlook • The government’s intention to use Bs1.9trn (US$2.7bn) of FIEM funds in a year of relatively firm oil prices will undermine the credibility of the stab- ilisation fund to act as a countercyclical mechanism in the event of a sharp downturn in oil prices. Economic forecast • Although Venezuela managed to issue a ¤300m (US$279m) bond recently, access to international capital markets is likely to remain restricted until a more consistent economic policy is developed. March 2001 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through our digital portfolio, where our latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. 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ISSN 1350-7133 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Venezuela 1 Contents 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2001-02 7 Political outlook 8 Economic policy outlook 9 Economic forecast 12 The political scene 19 Economic policy 21 The domestic economy 21 Economic trends 24 Oil and gas 25 Industry 25 Agriculture 26 Infrastructure 26 Financial and other services 27 Foreign trade and payments List of tables 10 International assumptions summary 11 Forecast summary 19 Central government balance 21 Demand growth, 2000 22 Gross domestic product growth by sector, 2000 23 Consumer price inflation 28 Non-traditional exports, Jan-Nov 28 Current-account balance, 2000 List of figures 12 Gross domestic product 12 Bolívar real exchange rates 21 Gross domestic product and fixed investment EIU Country Report March 2001 © The Economist Intelligence Unit Limited 2001 2 Venezuela 23 Cost of living index 24 Oil prices 26 International tourism EIU Country Report March 2001 © The Economist Intelligence Unit Limited 2001 Venezuela 3 Summary March 2001 Outlook for 2001-02 The government of Hugo Chávez Frías is likely to face mounting social protests as resistance to government reforms builds. The Movimiento al Socialismo (MAS), a partner in the ruling Polo Patriótico (PP) alliance, has distanced itself from the administration, which could potentially deprive the president’s Movimiento Quinta República (MVR), also a member of the PP, of its legislative majority. Divisions between military and civilian sections within the MVR have become increasingly pronounced. In 2001 public spending will be the main driver of the economy, but such spending will only be sustainable if oil prices remain above US$20/barrel. Based on this assumption, inflation will come in below 15% and the exchange rate will once again appreciate in real terms. The political scene There is mounting frustration about the lack of progress on crime reduction and employment generation—important issues to the electorate—and the government’s reform programme. As the political opposition remains weak, protests are increasingly spilling out on to the streets. Protests are rising over reforms affecting education, the unions and land tenure. The appointment of the foreign minister, José Vicente Rangel, to the position of defence minister, the first time a civilian has held the post since the 1929, was particularly striking. His appointment followed the so-called panty affair, which embar- rassed the outgoing defence minister, General Eliécer Hurtado Sucre, and re- opened existing divisions within the armed forces. Developments in Colombia are of growing concern. Economic policy Tax collection disappointed in 2000, despite stronger than expected economic growth. However, efforts to improve tax collection levels will not succeed until the root causes are tackled. The Banco Central de Venezuela (the Central Bank) again threatened to regulate interest-rate spreads. The domestic economy GDP growth reached 3.2% in 2000, led by oil, gas and telecommunications. In- vestment growth was surprisingly weak. Although inflation appeared subdued in 2000, at 13.4%, in the context of depressed domestic demand and the over- valued bolívar it was not low. Unemployment is slowly declining. Telecoms are set to be the main target for foreign investment. Although agricultural output rose, important obstacles to growth remain. Post-mudslide reconstruction needs further boosting as little was done in 2000. Banking consolidation continues. Foreign trade and The trade surplus reached US$18bn in 2000, supporting a surge in the current- payments account surplus to US$12.9bn. Despite a recent Eurobond issue, access to new external credit is likely to remain limited. Foreign reserves are rising steadily. Editors: Ondine Smulders (editor); Justine Thody (consulting editor) Editorial closing date: February 26th 2001 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule EIU Country Report March 2001 © The Economist Intelligence Unit Limited 2001 4 Venezuela Political structure Official name The Bolivarian Republic of Venezuela Form of government Federal republic comprising 72 federal dependencies, 23 states, two federal territories and one federal district The executive The president is elected for a renewable six-year term and appoints a Council of Ministers; Hugo Chávez Frías began a fresh six-year term following elections in July 2000 to relegitimise public posts under the new 1999 constitution National legislature 165-member unicameral National Assembly, headed by the president, which replaced the bicameral Congress abolished by the new constitution in December 1999 Legal system Supreme Court at the apex of the court system; appoints judges and magistrates National elections Presidential, legislative and state government were held in July 2000 and municipal authorities on December 3rd; next presidential election likely in 2005; , legislative

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