Caracas, Venezuela, August 19, 2006—Venezuela’s Gross Domestic Product (GDP) increased by 9.2% last quarter, while inflation and unemployment have both dropped three points over the last year, according to the National Institute of Statistics (INE). This means Venezuela remains one of the world’s fastest growing economies. It has grown consistently for almost three years now.
Sustained high oil prices have provided a bonanza in dollars for the government and that undoubtedly fuels the rest of the economy. But growth in the oil industry—aside from actual oil production—was slow at 1.8%, while the non-oil sector grew by 9.9%. And, contradicting the socialist rhetoric of President Hugo Chávez the private sector grew by 10.3%, more than twice as fast as the public sector, which grew at only 4.6%.
However, though unemployment did fall 3 points over the previous twelve months from 12.6% to 9.6%, there aren’t enough jobs being created to absorb the young people leaving schools and universities. So, even though some 280,000 new jobs were created last year in the formal sector, 400,000 young people joined the world of work.
High growth rates are often associated with an increase in inflation due to the increase in demand for goods. And there has been an increase in that demand, but the Venezuelan government has battled with inflation, using exchange controls to fix the Bolívar (the local currency) at 2,150 to the dollar and regulating the banks so as to control the money supply. Price controls on food staples and the low price government subsidised Mercal stores also keep prices down. Mercal stores now account for about 50% of Venezuela’s grocery sales. Consequently, inflation has fallen from 14% to 11% over the last twelve months.
The artificially low value of the Bolívar has costs, however, as it makes imports cheaper relative to domestic goods. This may account for the relatively low 6.9% growth in domestic manufacturing.
“Overall, there are no significant investments in the manufacturing sector. This sector is using more than their installed capacity, but you can notice that in Maracay and Valencia (two north-central Venezuelan cities hosting major industrial zones) no new manufacturing plants have been built,” said Emilio Medina, economist at Carabobo University.
For an example of this, look no further than the balance of trade with the United States. Chávez may refer to President George W Bush as “Mr. Danger” and Bush may call Chávez a dictator, but trade between the two countries is soaring, reaching over $40 billion last year. Oil accounts for most Venezuelan exports to the US, but non-oil exports also increased by 116% in 2005.
In return, Venezuela imports many industrial products from the US. Car imports have significantly increased over the last year. General Motors sales have risen 28%. Computers and construction equipment imports have also grown from $4.8 billion to $6.4 billion.
So it would seem that capitalism is alive and kicking in Venezuela. But Chávez is a contradictory character. CANTV, the main Venezuelan telecommunications company, is in a dispute with its workers over pensions payments. The courts sided with the workers over the dispute, but the company has still failed to pay. Chávez intervened, saying, “If they don’t fulfill what is required, I’m going to nationalize CANTV.”