12-27-07, 9:29 am

Paraguaná, December 20, 2007, (venezuelanalysis.com) - The Venezuelan economy enters its fifth consecutive year of sustained growth in 2008, according to predictions from the Economic Commission for Latin America (CEPAL). Venezuela had the third fastest growing economy in the region for 2007, but the growing demand of the domestic market could create problems of undersupply in 2008, say some analysts.

Venezuela led the region in 2007 with a growth rate of 8.5 percent, surpassed only by Argentina (8.6 percent) and Panama (9.5 percent), a CEPAL report said last week. The region as a whole grew by 5.6 percent, finishing its fifth consecutive year of economic expansion, in spite of high levels of inflation and social spending that were criticized by some experts.

The economic expansion is the greatest in 40 years and should continue through 2008, although at a slightly slower rate, said the report. CEPAL attributes the growth in part to the growing demand from China and India, as well as the recovery of Brazil. As a result, since 2003, around 31 million Latin Americans have been able to pull themselves out of poverty.

The economic growth has allowed Venezuela to improve in many respects, including an improved purchasing power among its population of around 8 percent annually from 2004-2007, only surpassed by Uruguay at 10 percent annually.


The unemployment rate reached its lowest point in November at 6.3 percent, according to the National Institute of Statistics (INE), a decrease of 2.5 percent from 2006, and the formal sector of the economy showed an increase from 2006, reaching 55.6 percent of the work force. Venezuela also maintains one of the highest minimum wages in the region.

The situation has also allowed Venezuela to drastically increase its social spending, as well as reduce its external debt. Venezuela led the region in social spending with an expansion of 37 percent in 2006-2007, surpassed only by Argentina with 43 percent.

The Venezuelan government has approved a budget for 2008 of Bs. 137.5 billion (US$ 63.9 billion) with an emphasis on increased social spending. 46 percent of the 2008 budget is directed toward social programs and projects, reported Prensa Latina, with the government “missions” alone receiving Bs. 5.6 billion (US$ 2.58 billion), a 61.5 percent increase from the 2007 budget.

External debt was reduced by US$ 1 billion during 2007, according to the director of the National Office of Public Credit, Luis Davila. Total external debt is currently US$ 26 billion, said Davila, and will not be increased in 2008. Internal debt will also be maintained around the current level of US$ 6 billion in 2008, he said.

But Venezuela’s sustained growth has created an increased demand among the population that could create problems in 2008, according to some analysts. Ex-director of the Central Bank of Venezuela, Domingo Maza Zavala, warned that 2008 will be a “difficult, complicated, and unpredictable” year for Venezuela for various reasons, and recommended that the government change its policy on price controls.

Zavala warned about the increase of imported goods in recent years, and insisted that the government needs to take measures in 2008 to assure supply in the domestic market. In his opinion, the most urgent measure to be taken is increased flexibility in the government price controls.

“If effective measures aren’t taken to supply the market of the most-demanded goods, the situation will continue as it is now, with the consequence that the sectors with lowest income suffer the most,” he said.

The ex-director of the Central Bank insisted that the government will need to have dialog with the various productive sectors of the economy to achieve a successful policy of price controls and supply. He also warned of continued high inflation (18.6 percent in the first 11 months of 2007) for which he said the causes have not been attended to.

However, Venezuelan Finance Minister Rodrigo Cabezas announced on Wednesday that the national government was analyzing the possibility of increasing the flexibility of price controls on some goods. Although he didn’t give details, Cabezas explained that they would be developing an “extraordinary plan” for 2008 to supply the domestic market and control inflation.

Cabezas noted that last week’s decision to loosen the price controls on some types of milk is a part of the government’s plan to make price controls in general more flexible, but he assured that they would not totally remove controls.

Since 2003, the national government has maintained price controls on around 400 basic goods and services to guarantee their supply to all sectors of the population. National production has increased in recent years, but imports have also increased due to the growing purchasing power and demand of the Venezuelan population.

The Venezuelan economy is expected to continue to grow in 2008 at a rate of between 7 and 8 percent.

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