Venezuela's Economy Grows Stronger Than Expected in 1st Trimester

The Venezuelan economy will grow above 10% of the GDP for the first trimester of 2004, instead ot the 6.5 forecasted. Industry and agricuture sectors benefit from government support

By Martín Sánchez - Venezuelanalysis.com
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Venezuela's international reserves continue to grow. Part of the reserves could be used to promote agricultural and industrial growth through low interest loans.
Source: Central Bank of Venezuela

Caracas, Venezuela. Apr 3 (Venezuelanalysis.com).- Venezuelan Central Bank director Armando Leon said on Thursday that the Venezuelan economy will grow above 10% of the GDP for the first trimester of 2004. The Venezuelan government and independent economic experts had expected the economy to grow between 6.5 and 8 percent.

Leon's statement coincides with those of Central Bank President Domingo Maza Zavala, who recently forecasted a similar growth. Definite data on the GDP growth will be released in upcoming weeks.

"There are several early indicators of recovery such as the increase in the IVA (Value-added) tax collections, the recovery of the customs tax collections, and the increase in economic activities linked to the importation of goods and services," said Leon.

Another sign of strong recovery is the behavior of the Bank Transactions Tax (IDB), which has increased in spite of the fact that the rate was recently reduced. "There has been a series of operations, payments, and transfers among the country's economic sectors, which indicates that the economy is strongly recovering," said Leon.

Leon said that the sectors of the economy that have grown at a faster pace are those related to energy and petroleum, but he hopes the construction sector will start frowing in the second trimester.

Exports grow

Elías Eljuri Abraham, president of the National Institute of Statistics (INE), said that exports have grown by 48% in the first trimester of 2004 when compared with the same period in 2003. Meanwhile, imports fell by 2.9% in the same period, largely due to currency exchange controls implemented since last year to curb capital flight after a devastating business lock-out, strike and sabotage of the oil industry aimed at toppling President Hugo Chavez.

Support for small businesses

Government support for small and medium sized businesses has accelerated within the last year. Low interest loans from government institutions that promote industrialization and development has tripled, according to the president of the Economic and Social Development Bank (Bandes), Nelson Merentes.

A recent report by the Ministry of Finances said that in January and February Venezuelan banks (state and private) have given out loans totaling 263 billon Bolivars (137 million dollars) to small businesses.

In March 31st, President Chavez participated in a ceremony in which micro entrepreneurs received 14 billion Bolivars (7.3 million dollars) in low interest loans from different state banks and institutions that promote industrial development. The 1,936 loans destined for new entrepreneurs and cooperatives in sectors such as commerce, tourism, small mining, textiles, agriculture, and crafts, are expected to generate 3,430 direct new jobs.

The government Fund for Industrial Credit (Foncrei) hopes to give 120 billion Bolivars (62.6 million dollars) this year. The government hopes that the financing and promotion of small and medium-size industry will help lower unemployment, and foster long term economic growth.

Support for agriculture

In the first two months of this year, Venezuela’s agriculture sector has received loans totaling 1.3 billion Bolivars (725 million dollars). Through an accord between private banks, the Central Bank and the Ministry of Finances, starting Jan 29, banks must destine at least 12% of loans to the agriculture sector.

Interest rates for agricultural loans have been lowered by 10% in a year, in order to foster farming operations.
Source: Central Bank of Venezuela

Venezuela imports 70% of the food it consumes. As a way to lower the country's dependency on imports, the government implemented last year an aggressive program to develop agriculture. The agricultural development plan know as Plan Zamora invested 70,000 million Bolivars (43 million US dollars) in 2003, benefiting 17.000 farmers, and activating 21,000 new hectares by providing loans, tractors, plows and other farm machinery.

Interest rates for agricultural loans have been lowered by 10% in a year, in order to foster farming operations.

Hector Garzon, vice-minister of Agriculture and Land, announced on Friday that the government will transfer its 12% stake in the Mandioca yucca root processing plant to organized farmers. Yucca is an indigenous product widely used by Venezuelans, and is a source of starches used in dozens of food products, and fiber for paper and carton. Juan Carlos Carpio, president of Mandioca welcomed the government's interest in the promotion of local agricultural development, specifically the yucca root sector. He forecasts 33,000 new direct jobs generated by the revival of the yucca industry in six years.

A yucca development commission (Junta Nacional de la Yuca) was recently created to oversee the development of that sector. The commission is comprised by industry executives and farmer union leaders. 14 other commissions for the development of other crops have been setup since last year.

Currency exchange controls relaxed

The recent relaxation of currency controls has contributed to increase the amount of foreign currency authorized for transactions. The strong requirements and slow processing of the applications to obtain currency, negatively affected local industry last year, as companies had difficulties to import raw material for production.

In the first three months of 2004, the foreign exchange agency CADIVI has approved 4.6 billion dollars, which is almost half of the 10.2 billion dollars approved in all of 2003.

Recently, credit card operations for foreign purchases have been authorized with yearly caps, benefiting those in the upper classes and corporate executives who regularly travel overseas. The telecommunications sector, heavily dependent on imports, will also benefit from recent regulations to facilitate the purchase of currency for equipment, services and software.

International reserves hit new highs

Venezuela's relatively low debt as a percentage of the country's GDP, and its strong international reserves, has prompted international analysts at Deutsche Bank, JP Morgan and Fitch Ratings, to assert that Venezuela's capacity to serve its debt remains very strong.

The country's international reserves have hit new highs. By April 1st, Venezuela's reserves reached 23,316 million dollars. The government hopes to reach an agreement with the Central Bank to use part of the reserves for loans aimed at promoting agricultural and industrial growth. According to Chavez, up to 4 billion dollars could be used, and this process would be monitored by the private sector and the government.

Venezuela's economy continues its high-paced growth after numerous political events that have impacted it and made it contract by 9% in 2003.

The government support for private industry, small businesses and cooperatives contradict reports by local political opponents who publicly accuse Chavez of implementing a “Castro-communist” dictatorship. The government argues that the wealthy sectors of the opposition and the commercial media, which Chavez labels as “oligarchs”, are spreading negative news and promoting political instability in order to advance their political agenda of returning to power. The opposition collected signatures to demand a recall referendum on Chavez. If enough signatures were collected, the recall could take place this summer.

Information from the National Institute of Statistics, the Central Bank, CADIVI, and the Ministry of Planning and Development were used in this report.

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