Country Report Venezuela January 2009

Outlook for 2009-10

• The economic downturn will be deeper and sharper in Venezuela than in other parts of Latin America. Mr Chavez will try to rush through an indefinite re-election amendment before his popularity falls.
• A referendum could be held as early as February. We expect the public will vote "no", but the result will be close. The political environment will stay tense, with the opposition struggling to find a viable rival to Mr Chavez.
• The downturn will be exacerbated by mismanagement of the economy during recent boom years. Mr Chavez is likely to blame the private sector for the slowdown, and accelerate nationalisation of strategic? industries.
• 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

• The National Assembly has voted in favour of holding a referendum on whether to reform the constitution to allow Mr Chavez to seek another term in office. Opinion polls indicate a lack of support for the re-election proposal.
• The 2009 budget was passed in December, unchanged from the package submitted several months earlier, which assumed an oil price of US$60/b and growth of 6% (compared with our forecasts of US$35/b and a 3% contraction).
• The transfer of US$12bn of reserves in mid-January to finance social spending is likely to be repeated in preference to cutting expenditure.
• Mr Chavez announced the nationalisation of a shopping centre in Caracas in late December. The president has not halted his nationalisation drive, and rising cash constraints could raise the risk of expropriations.
• Withdrawals of Treasury deposits held in the commercial banking system has caused liquidity problems in some institutions, resulting in a spike in the interbank rate and forcing the authorities to intervene.
• According to Central Bank estimates GDP growth fell to 4.9% in 2008, compared with 8.4% in 2007.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60;70;15
NAICS Code: 52;72;23