Country Report Venezuela December 2008

Outlook for 2009-10

• Despite claiming victory in local elections in November 2008 and effectively announcing a bid for indefinite re-election, failure to win key constituencies will exacerbate divisions among Mr Chavez's supporters in 2009-10.
• A recession will provide an opportunity for the opposition in the 2010 legislative election, but it remains unclear whether they will be able to overcome internal problems to gain ground on the government.
• The government is likely to blame the private sector for the slowdown and use this as a pretext to accelerate its nationalisation of strategic? industries.
• The central government deficit will widen sharply during 2009, as oil prices fall. The underlying fiscal position will be even worse, as an increasing burden of expenditure will be placed on PDVSA and Fonden.
• The government's heterodox policy approach will deepen the recession in 2010, with real GDP forecast to contract by 3% in 2009 and 5.4% in 2010.
• Given projected oil prices, we expect the government to devalue the bolivar to BsF3:US$1 in early 2009 to boost the local-currency value of oil-related fiscal revenue. Another devaluation is expected in 2010.

Monthly review

• The ruling PSUV retained control of the majority of states in regional and local elections held on November 23rd, but the opposition made important gains Caracas and several of the country's most populous states.
• Following the election, Mr Chavez launched a campaign for a constitutional amendment to remove the limit on the number of terms a president can serve. He is seeking a public referendum on the issue in early 2009.
• However, a string of extra-budgetary spending concessions granted during November and early December has underlined the extent to which the government has depended on record oil prices to fund spending.
• The authorities have maintained pressure on the Organisation of Petroleum-Exporting Countries (OPEC) to cut output, in an attempt to stabilise oil prices following sharp falls in recent months.
• Auto sales fell by 68% year on year in November, bringing the year-to-date decline to 44%. This reflects the introduction of a new automotive policy in 2008 that set annual import quotas.
• The current-account surplus rose to US$18bn in the third quarter, compared with US$5.9bn a year earlier. Although oil prices fell from July onward, they were still around 60% higher year on year, supporting export revenue.

Source: Country Report

This report covers the following industry codes:
SIC Code: 37
NAICS Code: 336