Country Report Venezuela April 2009

Outlook for 2009-10

• The president, Hugo Chavez, will use his victory in February's referendum to justify an increasing radicalisation of government policy, a further strengthening of the executive's powers and harassment of the opposition.
• The persecution of anti-Chavez politicians will reinforce long-standing divisions in the opposition and remove potential leaders from the political scene, hampering their efforts to make gains at the December 2010 elections.
• Fiscal adjustment measures announced in late March will be inadequate to deal with the severity of the impending recession and will fail to prevent a sharp widening of the central government deficit.
• A further radicalisation of economic policy and an extension of controls will deepen the recession in 2010, while continuing declines in oil production capacity will restrict the benefits of a forecast rise in global oil prices.
• A sharp projected fall in oil prices will virtually wipe out the large current-account surplus in 2009. Assuming a moderate pick-up in oil prices in 2010 and falling import volumes, the current-account surplus will widen in 2010.

Monthly review

• Several prominent opposition leaders have been accused of corruption by the government. Critics accuse the authorities of relentlessly pursuing these individuals to prevent them from challenging the government.
• The government-dominated National Assembly has been processing a variety of laws that limit the scope for democratic resistance, including greater restrictions on the media and measures to weaken the trade unions.
• Following months of inaction, the government has announced moderate adjustments to spending and taxes in an attempt to cushion the impact of the global recession and the steep drop in oil prices.
• Monetary policy has been loosened to boost demand for increased government bond issuance and encourage consumption, in an attempt to cushion the economy from a deep recession.
• The central government balance deteriorated sharply in 2008, posting a BsF20.7bn (US$9.6bn) deficit, compared with a BsF5bn surplus in 2007. This was caused by a jump in government spending.
• Although the unemployment rate has remained stable in recent months, underlying labour market data point to a less rosy picture, with weak job creation resulting in an increase in the "inactive" population.