End of Recession is Imminent Says Venezuela’s Planning Minister

Mérida, September 7^th 2010 (Venezuelanalysis.com) – With stable rates of inflation and unemployment and the maintenance of social spending and public investment, Venezuela’s economy is poised to emerge from its six-quarter recession with a stronger productive capacity, according to Planning and Finance Minister Jorge Giordani.

“The economy is passing through a sort of gymnasium in which it is strengthening itself in the area of production,” Giordani said. “We have been training for two years, unfortunately with a recessive period, but there is no doubt that there is going to be growth in the third or fourth quarters of this year and those to come,” said the minister.

Venezuela’s Gross Domestic Product (GDP) shrank by 3.3% in 2009. This year, the 12-month rate of contraction slowed from 5.8% in the first quarter to 1.9% in the second quarter.

Giordani said the government’s maintenance of social programs and public investment during the recession helped bring about this impending recovery. “The Venezuelan economy is going to grow in a much stronger manner in terms of its own capacities,” he said.

These investments included an increase of the state’s presence in the banking sector to more than 25%, according to the government. The Bank of Venezuela grew from third largest in the nation in terms of deposits when it was nationalized in 2009 to first largest today, and it increased its loans to manufacturing and agricultural production. Several privately-owned banks that were found to be either insolvent or in violation of banking laws were nationalized and merged into a new state-owned bank, Banco Bicentenario, which began granting low-interest credits to small and medium-sized producers this year.

The state also increased its participation in the production and distribution of food and other goods at controlled prices. This week, the state-owned chain of markets began selling children’s school supplies at a discount of between 50% and 70% and home appliances such as stoves and refrigerator at prices as much as 30% below market prices. 

According to Giordani, a total of US $330.5 billion have been invested in areas such as education, health care, housing, pensions, minimum wage increases, credits to small and medium-sized businesses, public infrastructure, and other public investments since President Chavez took office in 1999.

The minister emphasized that this public spending does not mean Venezuela is at greater risk to default on its public debt. “There is no possibility of default, so take that out of your head,” he said on Monday.

China has demonstrated its confidence in the Venezuelan economy by promising $20 billion in credit – $5 billion of which have been granted so far mainly for agricultural investments – a testament to Venezuela’s economic stability and ability to borrow, said Giordani, who recently returned from a diplomatic trip to China.

Venezuela’s total public debt is 18.4% of the GDP, and the Central Bank holds $28.3 billion in foreign currency reserves.

Venezuela’s national budget for 2010 was based on the cautious estimate of $40 per barrel of oil, while the price of oil has stabilized this year at around US $70 per barrel.

The National Statistics Institute (INE) recently released data showing that Venezuela’s rates of unemployment and inflation also remain stable.

Monthly inflation during August was 1.6%, the average between the June rate of 1.8% and the July rate of 1.4%. This is lower than the 2.2% monthly inflation rate in August 2009. Cumulative inflation over the past twelve months was 29.7%, in line with the government’s target inflation rate of no more than 30% for this year.

Cumulative inflation during the 11 years of the Chavez presidency is 733%, compared to cumulative inflation of 8,104% during the 11 years preceding Chavez’s presidency, according to AVN.

The INE recorded the unemployment rate at 8.7% in July, compared to a 14.7% unemployment rate in July of 1999, the year Chavez took office. The unemployment rate was 7.2% in July 2007, its lowest point before the world financial crisis hit and drove down the price of oil, Venezuela’s chief export, sparking Venezuela’s recession.

INE Director Elias Eljuri stated publicly that a total of 3.25 million jobs have been created during the Chavez government, while the active working population grew by 2.66 million people during that time. The number of unemployed people has dropped from 1.7 million in 1998 to 1.1 million currently, he said.

Venezuela has a substantial informal economy which shrank from 51% of the workforce in July 1999 to 45% of the workforce currently, Eljuri said.

Venezuela’s working age population is 20.2 million people. In addition to the 1.1 million unemployed, 7.1 million people (35.3% of the total) are not looking for work because they are full-time students (the number of which increased from 900,000 to 2.5 million during the Chavez presidency), homemakers, or incapable of working, according to the INE.

President Chavez has recently been hot on the campaign trail in support of his party’s candidates for the National Assembly in the elections scheduled for September 26^th. He has framed the election as a referendum on his presidency, placing emphasis on many of Venezuela’s economic improvements over the last decade.

These improvements include the reduction of extreme poverty from 24% to 7.2%, and the reduction of income inequality, measured by the Gini coefficient, from .48 to .41 – among the lowest in the Western Hemisphere.

Chavez has emphasized that these changes are not enough, because the richest 20% of the population continues to control 47% of the wealth. Last weekend, he called for all government ministries to join the recently created Ministry for Communes to accelerate the formation of communes.

Communes are networks of neighborhood-based decision-making bodies called communal councils. The communal councils link together into broader participatory governing bodies which provide expanded services to their communities such as subsidized food markets and crime prevention. The vision of many communities is that the communes will eventually replace the current institutions of representative democracy and market economy.