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Message: ANALYSIS - Venezuela private sector woes new Chavez headache
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ANALYSIS - Venezuela private sector woes new Chavez headache
Thu Nov 19, 2009 1:28am IST
By Frank Jack Daniel
CARACAS (Reuters) - A collapse in private sector investment and output is pushing Venezuela into recession and spells trouble for President Hugo Chavez's state-driven growth model ahead of elections next year.
South America's top oil exporter on Tuesday reported an unexpectedly high 4.5 percent economic contraction, largely caused by double digit drops in private sector activities.
While other countries, are recovering from recession, Venezuela is just entering it.
Chavez promised his socialist policies would protect Venezuelans from global recession and likely faces months of negative economic news. That will compound public anger at poor public services and shortages of water and electricity.
Venezuela's opposition is still divided and without an obvious leader but hopes to take a number of seats during September 2010 elections for legislators in the National Assembly, where Chavez currently has a vast majority.
"They are very worried that the economic problems combined with all the other weaknesses could spell some real political difficulties for them in next year's elections," said Michael Shifter of Washington-based analysts Inter-American Dialogue.
ANALYSIS - Venezuela private sector woes new Chavez headache
Thu Nov 19, 2009 1:28am IST
A close ally of Cuba, Chavez oversaw a five year oil bonanza, winning a series of elections over a moribund opposition as social spending and lax monetary policy put cash in the pockets of even the poorest and fueled a consumer boom.
The consumer boom has now come to an abrupt end.
Falling demand has been compounded by government restriction of access to dollars to protect foreign reserves after oil income fell. One result is imports of parts and products ground to a halt in many sectors, such as vehicles.
When oil prices tumbled earlier this year, Chavez chose pro-cyclical cuts and import limits rather than the economic stimulus favored by other governments. His strategy seems to have chilled consumption and private sector investment.
"It's a reality, people are consuming a lot less and Venezuela is producing a lot less," said Fernando Morgado of the Consecomercio commerce chamber.
Imports fell 25.5 percent in the third quarter as internal demand fell 10.7 percent. Consumption was down 4.8 percent.
The impact of the global economic slowdown has been worsened in Venezuela by Chavez's decision to drastically limit imports from Colombia because of a feud over military bases.
The neighboring nations' $7 billion of annual trade may be reduced by a half this year.
Finance Minister Ali Rodriguez on Tuesday predicted the economy will contract as much as 2.2 percent in 2009, a relatively low number but more serious for consumers when added to Venezuela's inflation of 21 percent so far this year.
And the government forecasts growth of just 0.5 percent for next year, which would mean the recession dragging on even as Chavez opens the public purse during campaign season.
"This is fundamentally the product of a model that depends on one person to make the decisions and they tend to be more based on politics than on economic rationality," Shifter said.
ENTERING RECESSION
Chavez has nationalized many of Venezuela's main industries, including oil and telecommunications, during his decade in office. He has discouraged the private sector with threats and stiff regulation.
The public sector continued to grow in the third quarter while private business plummeted.
"Potential GDP continues to decline due to insufficient private investment and the inefficiencies created by the ever-growing reach of the public sector" said Goldman Sachs analyst Alberto Ramos in a report.
Manufacturing contracted 11.5 percent in the quarter, commerce 11.5 percent and mining 18 percent.
"Like in the first quarter and second quarter, there was a complete collapse of private investment and of the private sector" said Kathryn Rooney, senior emerging market macroeconomic strategist at Bulltick Capital Markets in Miami.
Chavez ordered the nationalization of dozens of companies that service the Lake Maracaibo oil industry earlier this year. The takeovers appear to have reduced output in the region, although the government denies that, and likely contributed to the 9.5 percent decline in oil GDP in the third quarter.
Venezuela's oil GDP is measured much more by production and local costs than by international prices.
"This is part of an overall decline in the level of government performance," said Shifter of the downturn. "It will be difficult to reverse short of major changes in the model."
(Additional reporting by Nelson Bocanegra and Marianna Parraga; Editing by Andrew Hay)
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Nov 18, 2009 06:23PM
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