Mérida, September 3rd 2009
(Venezuelanalysis.com) – The increase in Venezuelan government spending
on public housing and education, and the re-opening of a General Motors
automobile factory are among signs that the Venezuelan economy may
be set to recover from its contraction of 1% in the first half of
the year. Meanwhile, monthly inflation rose slightly to 2.2% in August.
In recent months, Venezuela's National
Assembly approved more than 20 billion bolivars (US $9.3 billion) in
credits, increasing the estimated total budget for this year from 167
billion bolivars (US $77.7 billion) to 180 billion bolivars (US $83.7
A fifth of the credits were granted
to public education, for which a new Education Law that promises increased
funding was passed last month, one tenth were granted to the Housing
and Public Works Ministry, and nearly half of the credits were granted
to the state and local governments, while the rest went to health care
and agriculture, according to the Venezuelan daily El Universal.
This follows a period of conservative
spending over the first half of the year, when the government adjusted
its budget based on an expected average income of $40 per barrel of oil, and spent 5.2% less than
it did during the first half of last year. It also raised the sales
tax and increased its domestic debt to cope with a drop in oil prices
from nearly $150 per barrel the previous year.
Since then, however, oil prices have
risen. The average price of oil produced by the Organization of Petroleum
Exporting Countries (OPEC) has hovered between $65 and $70 per barrel
recently, and the average price of Venezuela's crude over the course
of this year is more than $50 per barrel, indicating a budget surplus
for the Caribbean country whose oil accounts for more than 90% of exports.
Meanwhile, General Motors announced
it had reached an agreement with the Venezuelan government for the issuance
of dollars at the official exchange rate of 2.15 bolivars, and will
thus re-open its auto factory in Valencia, Carabobo state next Monday.
The factory had been closed in June due to a lack of auto parts which
could not be imported because the supply of government-issued dollars
had been tightened.
Nelson Merentes, the president of the
Central Bank of Venezuela (BCV), said the government's resolution
of a series of imbalances in the supply of government-issued dollars
and its payments to solicitors of these dollars is a sign that
the economy is poised for a turnaround.
"The reality is that the oil prices
continue to rise, CADIVI [the agency which manages the dollar supply]
is improving its operations, and there is a strong relationship between
the BCV and the Finance and Planning Ministries, where we are working
hard so that the economy continues to grow in the coming months,"
said Merentes in a recent televised interview.
The president of the National Statistics
Institute (INE), Elias Eljuri, explained that "Venezuela during this
whole period [of the world economic downturn] has maintained its growth
and its savings of important resources that have allowed it to maintain
social spending and not decrease its investments."
Merentes also said the government is
discussing measures to reduce the gap between the official value of
the dollar and the informal market value of the dollar, which approached
seven bolivars recently. These measures are expected to be announced
later this month.
"The parallel dollar has a great
impact on inflation," Merentes said.
In August, monthly inflation was 2.2%,
a slight acceleration relative to the 2.1% monthly inflation in July,
according to the INE. This brought the accumulated inflation this year
to 15.6%, which is less than 19.4% the accumulated inflation over the
first eight months of last year.
In addition, the INE reports that Venezuela's
unemployment rate at the end of July was 8.5%, an increase over the
average unemployment rate of 7.9% over the first half of the year.
Also, as of September 1st,
Venezuela's minimum wage officially increased by 10% to 960 bolivars
(US $447) per month. The increase completes the government's promise
to increase the minimum wage by a total of 20% in two stages beginning
last May 1st.
The minimum wage increase is understood
to largely be an adjustment to Venezuela's high inflation rate relative
to the region. Inflation was spurred by more than twenty quarters of
consecutive GDP growth prior to this year's contraction. The wage
increase was accompanied by a year-long prohibition of layoffs of workers
earning the minimum wage without just cause.