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Venezuela Business Forecast Report Q2 2010Published by: Business Monitor International Published: Feb. 5, 2010 - 68 Pages Table of Contents
AbstractThis year is likely to prove an eventful one in Venezuela, with the political heat rising ahead ofSeptember’s legislative elections. Importantly, our long-held call for a devaluation of the overvaluedbolivar has now materialised, albeit with the creation of a messy multi-tiered exchange ratesystem, which differentiates between ‘essential’ and ‘non-essential’ imports. The move will bringsignificant relief to the government’s coffers and, at least temporarily, salvage the finances of stateoil company PdVSA. However, it will also beget a further rise in inflation as imported goods aremarked up, and is highly unlikely to shut down black market trading in bolivars.T he new decade could well be a tumultuous one, with the polarisation of the political landscapelikely to continue. September’s parliamentary elections will be a key barometer in determining PresidentHugo Chávez and his Partido Socialista Unido de Venezuela (PSUV)’s chances of securinganother term in the 2012 elections. Many Venezuelans may reconsider their loyalty to Chávez’sideological vision unless the economy manages to get back on an even keel. Blistering inflation,a debilitating power shortage, rising crime and corruption and a flight of educated Venezuelansabroad are but a few of the problems that the government will have to overcome. The economy is likely to remain in a stagflationary state in 2010, due to a post-devaluation uptick ininflation, subdued consumer sentiment and continued resource shortages. We maintain an out-ofconsensusforecast for a 3.5% contraction in the economy this year, following an estimated 2.9%decline in output in 2009, and project inflation to tick up to 40%. Although a rise in fiscal spendingahead of the legislative polls will bring some relief for low-income households, we believe that thenet-effect of the devaluation will be a deterioration in Venezuelans’ purchasing power. Moreover,we are glum about the prospects of an uptick in private sector investment as the governmentcontinues to breathe down the neck of private companies. F inally, Venezuela’s power crisis, which is attributable to both unfavourable weather and years ofunderinvestment, will remain a serious drag on the business environment in 2010. The supply anddemand mismatch in the electricity sector is unlikely to be resolved in the short term given the needto bolster capacity significantly. Besides this throbbing infrastructural headache, the government’scontinued interventions in the economy bode ill for entrepreneurs. Many foreign companies havealready learned the hard way what happens if they do not obey the government’s stipulations, andPresident Hugo Chávez has thus far shown few signs of nationalisation fatigue. The unpredictabilityof the government will remain real turn-off for foreign investors, and likely curtail the size ofcommitments made by international oil companies in the much-touted auction of oil blocs in theCarabobo oil fields. Get Full Details About This Report >> |
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