Caracas, December 31, 2009 (Venezuelanalysis.com) – After five years of economic growth fuelled by high oil prices, Venezuela’s economy entered into recession at the end of 2009 with a decline of 2.9 percent, according to a central bank report released Tuesday. Despite the recession Venezuelan President Hugo Chavez has vowed to maintain social spending.
“According to estimates by the Venezuelan Central Bank, the Gross Domestic Product (GDP) experienced, in real terms, an inter-annual contraction of 2.9 percent in 2009,” the bank's end-of-year report said.
Venezuela experienced 4.8 percent expansion in 2008, but moved into recession earlier this year as oil prices plunged.
Chavez characterised 2009 as the toughest struggle yet against capitalism's global systemic crisis, in his end of year address to the country on Wednesday.
The oil sector was hit hardest by the global economic downturn, with a contraction of 6.1 percent, while the non-oil sector shrank 1.9 percent from the previous year.
The average price for oil exports in 2009 fell 34 percent to $56.88 a barrel, down from the $86.49 average the previous year.
The country also held back the volume of oil shipments by 3.1 percent to comply with "cuts implemented by the Organization of the Petroleum Exporting Countries, in a context of weak energy demand, as a result of the global economic crisis," the BCV report said.
Overall oil export revenues dropped 35.3% in 2009 to USD 57.61 billion, down from USD 89.1 the previous year, the bank said.
Export revenues from both the public and private non-oil sector declined 44.7 percent compared to the previous year, dropping to USD 3.32 billion, with the biggest decreases reflected in base metals production, chemicals and rubber products.
Total export revenues dropped from USD 95.13 billion in 2008, to USD 60.93 billion, a contraction of 35.9 percent.
Imports also declined by 22 percent, from USD 49.48 billion in 2008 to USD 38.5 billion in 2009.
Manufacturing dropped 7.2 percent, overall trade was down 8.2 percent, and transport declined by 8.5 percent.
According to the central bank the non-oil sector is suffering the impact of declining consumption and investment, "the uncertainty regarding the recovery of the global economy and the contraction of imports during the year, particularly in the third and fourth quarters."
Consumption registered a drop of 1.8 percent in 2009, while investment decreased by 7.6 percent.
However, the economy showed growth of 3.1% in the construction sector, communications also soared by10.1 percent, and electricity generation and water increased by 4.6 percent. Public spending increased 2.1 percent.
Accumulated inflation for the year, though still high at 23 percent, was down from 27.6 percent last year, while unemployment rose from 7.4 percent in 2008 to 8 percent.
Meanwhile, the BCV noted that Venezuela’s current-account surplus fell to $12.4 billion this year from 37.4 billion in 2008, and the combined current, capital and financial account registered a deficit of $11 billion (equivalent to 5.5 percent of GDP).
Venezuela has USD 35 billion in international reserves the report said.
Government intervention into eight small private banks over November and December to protect the savings of Venezuelans also brought stability to the system the BCV said.
Despite the economic contraction the BCV report said the government’s social policies would protect the living standards of Venezuelans and together with the national executive the bank would, “continue laying the groundwork for the transformation of economic and social model.”
The last time Venezuela experienced recession was in 2003, when the economy contracted 7.8 percent, due predominantly to an oil industry shutdown as part of a failed opposition campaign to oust the democratically elected Chavez.
However, since then government policies have reduced extreme poverty from 20.2 percent to 11.8 percent in 2008 the central bank noted.
During his address Chavez said the traditional method of measuring GDP data is based on distorted “capitalist” methodology that fails to take into account the government’s free social programs in areas such as health and education, among other factors.
Chavez also sustained that the economic problems Venezuela is experiencing are a symptom of the “failure of capitalism.”
“We must remember that what is in deep, structural and general crisis is the capitalist system that we are confronting…We have to explain with hard facts how the capitalist model and the logic of capital works… because we're still heading toward socialism, but we do not yet live in socialism,” he explained.
“The project offered by the Venezuelan opposition is neoliberal capitalism which they dream of reinstalling in the country and they have the support of the U.S. Empire, which we are confronting, and which is doing everything it can to contain the Bolivarian Revolution and the changes that are occurring in Latin America and the Caribbean,” the Venezuelan president continued.
In contrast, the economic policy of the government is based on preserving and protecting the interests of the Venezuelan population, safeguarding employment, wages and social needs and priorities such as food, health and security, he stressed.
Despite the ravages of the global economic crisis Venezuela maintained social spending in 2009 Chavez pointed out.
“We’re not going to touch social spending, for us that is sacred,” he said. In addition, Venezuelan public sector and minimum wage workers received a two phase wage increase of 20 percent over 2009.
“We achieved the recognition of the rights of workers in many collective agreements in the midst of a worldwide crisis, with low oil prices,” Chavez said.