After a solid year of fiscal growth, the Venezuelan
government is ambitiously embracing deregulation
and economic diversification in an effort to break
with the country's unhealthy dependence on the
petrodollar.
To encourage further GDP growth in 2001 it
has increased spending by 17% to $33.4 billion
and intends to issue up to $11.4 billion in local
and foreign debt .
The
New Venezuela ...Emerging from a Difficult Decade
"We are going through very profound changes in
our way of life. Political life, the economy and
society are all effected," says Pedro Palma, president
of the powerful Venezuelan-American
chamber of commerce, VenAmCham .
After a decade of civil unrest, exchange controls,
massive capital flight and spiraling inflation,
it is little wonder that investors have traditionally
placed Venezuela at the bottom of the shopping
list.
"Business has been even more cautious in
the past two years as President Hugo Chavez Frias
swept into power".
.
Obliterating the country's oldest political parties,
rewriting the constitution and promising social
justice for the nation's poverty stricken millions,
business couldn't decide whether he was an anti-establishment
maverick or a breath of fresh air.
After several turbulent years of political reform,
the hugely popular president and his government
say that Venezuela has finally achieved a solid
legal framework and can credibly steer a steady
course to institutional stability and sustainable
economic growth. After passing up to the minute legislation in
telecommunications and the energy sector, investments
are beginning to creep back into the country,
as business takes advantage of its cheap natural
resources and virgin consumer markets.
"Breaks with the past have historically been characterized
by violence and a break with existing laws. While
we are creating a new legality, we are scrupulously
adhering to the old laws and the democratic rules
of the game," says Venezuela's Former Vice
president Isaias Rodriguez , now Public Prosecutor.
Marking the transition phase has been the gradual
stabilization of macro-economic indicators helped
by historically high oil prices.
"When Chavez came into power he implemented a
very drastic control of inflation with an exchange
rate that had a very small rate of devaluation
and also by a restriction in government spending,"
says Juan
Calvo the president of the largest chamber
for small and medium sized industry, Conindustria.
After a six-quarter long recession, the year 2000 saw GDP growth finally return, easily surpassing the government's goal of 2.2%.
In the third quarter of 2000 GDP increased 3.3% versus the same period 1999.
Taming inflation has been a major success for the government in 2000. It careered dangerously out of control in the mid- nineties and topped 30% in 1999, but will finish well within the 12-15% band set by the government for 2000.
"Our economic policies have given us a platform for sustainable growth in the future. Investors that want to enter the market will enjoy relatively low inflation, monetary stability and strong international reserves," says Jorge Giordani, Venezuela's planning minister and key adviser to President Chavez.
Critics of the new government say that the bloated public sector pay roll of one million workers needs to be cut. President Chavez counters that streamlining ministries and training workers in computer technology will cut down on red tape without increasing unemployment.
Throughout 1999 and 2000 Ministries have been merged and the endless list of inefficient government funded agricultural, industrial and regional cooperatives have been greatly reduced.
The over-valuation of Venezuela's local currency, the Bolivar is also a private sector groan. Financial analysts and ratings agencies put over-valuation at 30-50% and local business complains that it damages exports. The government counters that the fixed currency band system provides investors with a secure, fixed Bolivar rate allowing them to calculate what their costs will be.
The government says that tax breaks and export bonuses set off the costs of the over-valuation, which the government estimates is around 10%.
Recognizing the fluctuations in world oil prices, which have wreaked fiscal havoc the economy in recent decades, the Macro-economic Stabilization fund (FIEM) which gathers oil revenues over $15 per barrel, will have saved $10 billion by the end of 2001.
Nonetheless global ratings agencies continue to give the country one of the highest country risk ratings in Latin America. Former Vice President Rodriguez says that he expects that to drop in 2001, helped by steady fiscal indicators and the lessening of political tensions.
VENEZUELA
The
New Venezuela
