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Venezuela Business Forecast Report Q1 2010Published by: Business Monitor International Published: Oct. 30, 2009 - 56 Pages Table of Contents
AbstractThe Venezuelan economy is likely to continue to take in water as we enter 2010, with the governmentin no position to offset the significant lull in activity. While the authorities may be rescuedtemporarily by elevated oil prices, the underlying health of the economy will remain on a deterioratingtrajectory in our view. Stubborn inflationary pressures are unlikely to vanish as long asmonetary aggregates continue to swell amid sagging private production. The latter phenomenonwill persist unless price distortions and the government’s nationalistion drive are rolled back. Thusfar, President Hugo Chávez has shown few signs of wanting to revise his populist policies, and, ifanything, looks like he is trying to accelerate his ‘Bolivarian revolution’. Although we believe thatVenezuelans are becoming increasingly disillusioned with Chávez, something which will complicatehis palpable desire to get re-elected in 2012, the risk is that his administration could do seriousdamage to the economy in the meantime.President Chávez has continued to consolidate his power, with opposition forces finding it increasinglydifficult to make their voices heard. Although we do not foresee any major political upheaval,the slowdown in the economy and stubborn inflationary pressures are likely to complicate thegovernment’s social spending programmes, which in turn could create fissures in Chávez’s traditionalsupport base. Simmering societal tensions will keep the risk of political turbulence elevated,as reflected in Venezuela’s low score (37.5 out of 100) in the ‘social stability’ component of ourshort-term political risk ratings. The poor score is attributable to the country’s very high level ofinflation and a serious risk of public unrest. Although the rebound in oil prices brought some relief for Chávez’s administration toward the end of2009, prompting us to revise our growth forecast mildly to -3.0% year-on-year (y-o-y) from -5.6%, weexpect the going to remain very tough in 2010. To be sure, the policy-induced structural imbalancesin the economy will not go away any time soon and the government’s decidedly market-unfriendlytone will continue to choke off private sector activity and stifle productivity. One key manifestationof these asymmetries is the wide differential between the official and parallel exchange rates, withthe latter having reached as low as VEF*6.8000/US$ in late April 2009. Although the governmenthas managed to partially narrow the gap, via dollar bond offerings which locals have been able topurchase with bolivars, these measures will unlikely obviate an eventual downward adjustment ofthe highly overvalued VEF2.1500/US$ official rate. Chávez’s continued seizing of private sector assets throughout 2009 confirmed fears that largesectors of the economy are being subsumed into the state apparatus. The erstwhile focus on theoil, telecommunications, electricity, metal and land sectors has been expanded to include otherareas such as tourism, with another Hilton hotel expropriated in mid-October 2009. Nonetheless,the government remains heavily dependent on foreign expertise if it is to exploit its hydrocarbonriches and will in all probability have to win the commitment of International Oil Companies. Aswe go to print there are reports that the authorities are contemplating improving the terms of theCarabobo oil field auction, scheduled for January 2009, with a lower royalty, but we suspect thatit will have to offer more sweeteners to secure sufficient interest. Get Full Details About This Report >> |
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