Country Report Venezuela March 2009

Outlook for 2009-10

• Mr 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.
• 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 governments premise that oil prices will recover to US$100/b in the second half of 2009 means that 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 run down international reserves and devalue the official exchange rate in preference to making deeper cuts to expenditure.
• The government's heterodox policy approach will deepen the recession in 2010, with real GDP forecast to contract by 5% 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 central government has taken an aggressive line with opposition governors and regional authorities, reducing local control over service provision and diluting their powers by introducing parallel authorities.
• A cabinet reshuffle has brought several chavista hardliners into key positions, reducing the possibility of a moderation in the government's policy agenda.
• The government has taken control of several food producers, accusing them of hoarding food and flouting price regulations and threatening expropriation.
• GDP growth slowed sharply in the fourth quarter of 2008, to 3.2% year on year, compared with 4.1% in the third quarter and 8.5% a year earlier. Weaker private consumption and investment mainly explained the slowdown.
• The current-account balance deteriorated dramatically in the fourth quarter of 2008, posting a deficit of US$4.5bn, compared with a surplus of US$17.9bn in the third quarter. A collapse in export earnings mainly explained the decline.

Source: Country Report

This report covers the following industry codes:
SIC Code: 1
NAICS Code: 11