Venezuelan Economy Stays Strong Despite US Financial Crisis

The Venezuelan economy is solid, in contrast to current world financial turbulence and despite the drop in oil prices, Venezuelan president Hugo Chavez said in a press conference yesterday.
President Chavez speaks to the press informally following the press conference (Prensa Presidencial)

Mérida, September 17, 2008 (– The Venezuelan economy is solid, in contrast to current world financial turbulence and despite the drop in oil prices, Venezuelan president Hugo Chavez said in a press conference yesterday.

Chavez categorized the collapse of the US investment bank Lehman Brothers as a "financial collapse of global capitalism that affects Europe, the United States, and all those who are snagged on the United States economy."

Lehman Brothers was the fourth largest investment bank in the US and the announcement of its bankruptcy on Monday saw share prices fall sharply around the world.

Chavez took the opportunity to dismiss the bank's past criticism of the Venezuelan government's handling of the economy.

"They were always producing negative reports about Venezuela," he said, "They forgot about themselves … and 'boom!' they were bankrupt."

Lehman had questioned the strength of Venezuela's fast growing economy, saying it relied too heavily on oil exports and was failing to attract foreign investment.

According to the EMBI+ index, which is often used to measure the risk of investing in a country, Venezuela had risen 45 points on Tuesday, to 935 units, making it the riskiest nation.

On this, Chavez commented, "It would be good to look at the reports from the last 5 years by Lehman Brothers about Venezuela, alerting investors. But really where you can't invest now…is in the United States, it is collapsing."

"Investing in the United States isn't worth it."

"Fortunately we have an economy that doesn't depend on the fluctuations of the United States economy," he said.

Chavez added that Latin America is creating its own system, involving international agreements with other countries. He gave examples of projects to create joint financial entities with Iran and Russia, investment funds with China and Argentina, and the already existing Bolivarian Alternative for Latin American and the Caribbean bank (ALBA).

"Rest in peace [Lehman]," he said at the press conference, whilst assuring that "we're not glad" and that the loss of 600 thousand million dollars is "horrible."

Oil price drop

Neither did Chavez express fear in face of the drop in the price of oil in the international market, saying that there was no threat to Venezuela.

Venezuela is the number one producer of crude oil in South America and oil is its largest export.

"If the price of oil stays at around 100 dollars (per barrel), if it stabilises around there, it's alright." He said that the price of Venezuelan crude closed at $88.75 per barrel on Tuesday and that this "is a situation that doesn't alarm us."

"We should keep checking the map and monitoring, to see how the market volatility evolves."

Chavez reminded the press that in the period from August 2006 to February 2007 the oil market registered a price drop of 35%, which was attributed to the normal cycles of volatility in the market.

"This isn't new," he said, reiterating that the government is satisfied with the international prices.

Continued financial relations with the US

Despite the financial problems the US is experiencing, the drop in oil prices, and the recent expulsion of their respective ambassadors, Chavez declared that Venezuela has no intention to end commercial relations with the US.

Also, he reassured that as soon as the new administration is chosen in the US elections, the government would re-establish the diplomatic process.

Last week Chavez expelled the US ambassador in Venezuela, Patrick Duddy, in a gesture of solidarity with Bolivia. The move was then reciprocated and the Venezuelan ambassador to the US, Bernardo Alvarez, whom Chavez had already asked to return, was expelled.

"We're prepared to send our ambassador. That's where all our staff, all those in charge of business are… and we are still working on all the projects that we have in connection with the United States, which are quite broad: commercial, energy, and social projects."

Alvarez said that the financial links between the two countries are being maintained and he hopes they continue.

According to him, between 2004 and 2007 trade between the US and Venezuela increased by 72.4% to $50 billion dollars.

Furthermore, Finance Minister Ali Rodriguez said that the government is considering the current turbulence in the global financial market as a good time to repurchase debt and they will decide in the next few days.

The government is planning to repurchase at least $1.5 billion of external public debt to improve its financial profile.