Venezuelan Economy Grows Over 10% for 3rd Year in A Row

Caracas , January 3, 2007 ( venezuelanalysis.com )— The end of year figures for the Venezuelan economy showed a mixed bag of good news and bad news. On the negative side the final inflation figure for 2006 was 17%, while on the plus side the government collected $25 billion dollars in taxes and the economy grew by 10.3% over the year—the third consecutive year in which growth was over 10%.

The inflation figure is 2.6% higher than the previous year and considerably higher than the target the government set itself at the beginning ot the year. That was a “single digit figure” and the Central Bank (BCV) had to modify its forecasts several times throughout the year.

The BCV released a statement along with the figures, which said, “Against a background of a strengthening of consumer spending power, the internal productive apparatus and an adequate level of international reserves…these and other indicators allow a more favorable view of the evolution of prices for 2007.”

Most analysts assert high levels of liquidity in the economy as the main cause of the inflation. Record oil prices have given the goverment enormous surpluses to spend and the fact the 2006 was an election year increased the temptation for the government to raise levels of public spending. The Chavez government spent enormous sums on its social programs and raised the minimum wage for public sector workers twice last year.

Viewing the figures sector by sector by sector, food and non-alcoholic drinks experienced the largest growth in prices, with a 26% increase over the year. The cost of transport, education and health went up 15.0%, 16.4% and 13% respectively.

In better news the Venezuelan Tax Collection Agency (SENIAT) collected 30% more in taxes than the Ministry of Finance had forecast at the beginning of the year. Historically tax avoidance has been rife in Venezuela as much for personal taxes as for business taxes. The new tax regime for oil companies and a concerted effort to collect more Value Added Taxes (IVA in its Spanish acronym), seems to have achieved results. SENIAT also collected $8 billion in special contributions.

Accompanying the high levels of economic growth and inflation is a fall in unemployment in 2006 from from 12.9% at the start of the year down to 8.8% at the end of November.

The BCV expects economic growth for Venezuela to be around 6% in 2007, but in a statement released by the World Bank, its economist for Latin America, Guillermo Perry, has said that Venezuela should exceed that figure quite comfortably.