Country Report Venezuela February 2009

Outlook for 2009-10

• Mr Chavez will present his victory in the February referendum as evidence of continued firm backing, but his support levels will ebb as the economic downturn hits deeper than in other Latin American countries.
• There is scope for the opposition to bolster its position in legislative elections due in 2010, but it has squandered opportunities in recent years and risks continuing this pattern if it fails to overcome formidable internal divisions.
• The government’s premise that oil prices will recover to US$100/b in late 2009 means that any adjustment measures will prove piecemeal and ineffective in the face of the forecast depth and length of the recession.
• The central government deficit will widen sharply during 2009, as oil prices fall. The government will tap international reserves and devalue the official exchange rate in preference to cutting expenditure.
• 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.
• 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 rise in 2010.

Monthly review

• On February 15th Mr Chavez won a referendum by a margin of around 10 percentage points (around 55% against 45%), allowing him to remove the constitutional cap on the number of terms that an elected official may serve.
• The result clashed with what most opinion polls had predicted. The discrepancy related to the government’s stepping up of its campaign, which presented the referendum as a vote on Mr Chavez’s popularity.
• The run-up to the referendum was marked by an increase in social unrest, with violent clashes breaking out in several cities.
• There have been signs of growing cashflow problems at PDVSA. A number of private drilling contractors have suspended operations, citing unpaid debts by the state oil company.
• The launch of a bidding round for minority stakes in developing part of the Orinoco region reflects an admission that the public sector lacks the resources and technical expertise to boost oil production.
• Mr Chavez has announced that the state banking system will receive a cash injection of BsF9bn (US$4.2bn) to prop up the two main state banks, Banfoandes and Banco Industrial, which have registered growing losses.

This report covers the following industry codes:
SIC Code: 48;49
NAICS Code: 517;22