Caracas, January 7, 2008(venezuelanalysis.com) – Venezuela's newly named Finance Minister, Rafael Isea, said yesterday that reducing inflation from 22.5% in 2007 to 11% in 2008 "has become our primary objective." This reduction is to be carried out without compromising social wellbeing, said Isea.
One of the main means for achieving this would be by ending food shortages, which have plagued the economy over the past few months, particularly in the areas of milk, beans, and chicken. One of the main reasons for the shortages is the increase in consumption, without a corresponding increase in production of basic staples.
Producers "don't have thecapacity to expand in the short term to meet increased demand," said Isea.
A devaluation of the Venezuelan currency, the Bolivar, would not be part of the plan, though. Since Venezuela imports over 70% of its food needs, a currency devaluation would further contribute to inflationary pressures.
In the past, other anti-inflationary measures included the sale of bonds, so as to soak up excess cash liquidity in the economy, which is currently seen as the main cause of inflation.
With GDP growth coming in at 8.4% for 2007, Venezuela's economy has been growing for four consecutive years, the longest expansion period in recent Venezuelan history. This has tremendously expanded the amount of cash in the economy, and thus of demand. Without a similar expansion of supply, this drives up prices.
Reducing spending on social programs, though, will not be part of the anti-inflation plan, said Isea during a ceremony on his first full day on the job as newly appointed Finance Minister.
President Chavez has also implied that the elimination of three zeros from the Venezuelan currency would help combat inflation because of its psychological effect of increasing confidence in the currency. The new version of the Bolivar, which during a six-month transition period is called the "strong Bolivar," was launched on January 1 of this year.