Government and Business Leaders Commit to Economic Plan for Venezuela

The Venezuelan government has planned new measures to decrease its external debt and to continue the fight against inflation, announced Venezuela's Finance Minister Rodrigo Cabezas.

Mérida, July 19, 2007 (— The Venezuelan government has planned measures to decrease its external debt and continue the fight against inflation. Venezuela’s Finance Minister Rodrigo Cabezas announced some of the economic measures being taken by the government yesterday after a meeting with several private sector business leaders. Cabezas assured that continued growth and increased productivity are the best "medicine" to fight inflation.

The finance minister met with more than 30 private sector business leaders on Tuesday to discuss the government’s future economic plans. The minister considered the meeting to be "highly productive" and emphasized the importance of the involvement of the private sector in order for the economic policies to take effect. Business leaders agreed to contribute to the continued economic growth with increased private investment.

"We have three years of sustained growth in our country," said Alejandro Uzcátegui of Businessmen for Venezuela (Empreven). "Now there is more thanks to the economic strategy of the President and his cabinet. Now there is more consumption and we are going to contribute so that the business sector can take part in maintaining this growth through investment and combating inflation."

One of the measures announced by the minister is a strategy to continue to decrease the balance of external debt. Cabezas stated that the government might carry out another buying of bonds later this year as it did toward the end of 2006 when it bought outstanding Brady bonds. Last year the government bought US$ 3.9 million in external debt, reducing the total by 15.2% and bringing it down from US$ 31 billion to US$ 26 billion.

"We plan to continue forward with a series of operations within the framework of debt management which will allow us to reduce our balance," said Cabezas. He went on to say that the government will continue to pay the external debt it they can bring it down to only 10% of GDP, expected by 2010.

Cabezas also announced that the government does not have plans to devalue the currency in 2007 or 2008. He added that it has not decided about currency adjustments after that point.

"In the near future there will not be any devaluations and it is also not planned for 2008," said the finance minister. "And I don’t know if in four years, if in the long run there will be adjustments, that I do not know. Eventually there might be an adjustment in 2009 or 2010, we’ll see," he said.

The Venezuelan currency, the Bolivar, has been fixed in relation to the dollar since 2003. The rate has remained at 2,150 Bs. per dollar since 2005, even though the dollar is almost twice as expensive on the black market.

Cabezas defended the currency controls, however, recalling the situation in the 1980’s, when Venezuela lost US$ 22 billion in "massive capital flight." The minister explained that the current controls have allowed the government to prevent this type of capital flight in the private sector.

The minister and private sector business leaders agreed to fight inflation in the country through continued economic growth and investment. The President of Empreven stated that business leaders would continue to hold meetings with the government in order to fight any bottlenecks in the economy that might affect growth.

"In the long run we will defeat [inflation] with sustained growth and social inclusion, and with growth in productivity through scientific and technological growth," said Cabezas.

The government plans increase the supply in the market both through increased imports of some products and in increased agricultural production through agricultural subsidies. Cabezas announced Bs. 251 billion (US$ 116.7 million) for subsidies in rice, milk, and sorghum to guarantee more production. The government also plans to increase the amount of food distributed through the state-owned food network Mercal to help meet demand. Cabezas assured that the government would meet its goal of only 12% inflation this year, even though the annualized rate for the first half of the year is at 19.4%.

"It is a war against inflation that the government, the business sector, and the general population are assuming," said Uzcátegui of Empreven. "Measures have been established such as the reduction of the sales tax, the control of liquidity according to growth, but we can’t reduce investment. The finance minister informed us how the government is investing and how in the long run Venezuelans are going to feel it."