Washington, DC: A new paper from the Center for Economic and Policy Research looks at the Venezuelan economy during the last eight years and finds that it does not fit the mold of an “oil boom headed for a bust,” as is commonly believed.
“There’s no obvious end in sight for Venezuela’s current economic expansion,” said economist Mark Weisbrot, Co-Director of the Center for Economic and Policy Research and co-author of the paper “The Venezuelan Economy in the Chávez Years.”
The paper notes that Venezuela’s economy was wracked by political instability for the first four years of President Hugo Chávez’s tenure, but has grown steadily and rapidly over the last four years, after political stability returned to the country following the oil strike of December 2002 to February 2003.
Since the bottom of that downturn in the first quarter of 2003, Venezuela’s real GDP has grown by 76 percent.
Moreover, the private sector is still a larger share of the economy than it was before President Chávez took office.
In real (inflation-adjusted) terms, social spending per person has increased by 170 percent during the period 1998-2006. But this does not include the state oil company PDVSA’s social spending, which was 7.3 percent of GDP in 2006. With this included, social spending was at least 314 percent more in 2006 than in 1998 (in terms of real social spending per person). This has brought about significant gains for the poor in health care, subsidized food, and access to education, some of which are detailed in the paper.
The official poverty rate, which measures only cash income and does not include such advances as increased access to health care and education, has dropped by 31 percent from 1998 to the end of 2006 – from 43.9 percent of households to 30.6 percent. Measured unemployment has dropped from 15 percent in June 1999 to 8.3 percent in June 2007.
The authors also look at fiscal, monetary, exchange rate and other government policies, as well as investment and the sustainability of the expansion. They note that the government faces significant challenges over the intermediate run in controlling inflation and bring Venezuela’s currency to a more competitive level. However, the country’s declining public debt (as a percentage of GDP), large current account surplus, and the accumulation of reserves have given the government considerable insurance against a decline in oil prices. This favorable macroeconomic situation has also left the government with much flexibility in dealing with inflation and the related imbalance in the exchange rate. The authors therefore conclude that – contrary to popular belief — there is no imminent threat to the country’s current economic expansion.