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External balances reverting due to oil and lacking confidence.
External accounts figures from the second quarter corroborate lower oil
activity. The Central Bank reports that current account surplus shrunk to
US$ 1.6 billion from US$ 2.8 billion in the second quarter of 2000. Chief
behind the narrowing in the current account was the trade balance, which
dropped to a US$ 2.6 billion surplus from US$ 4.0 billion surplus in the
second quarter of last year, due to lower exports, which were down 13.1%
over the same quarter in 2000. Declining oil production caused oil
exports to plummet 15.4%, while non-oil exports also dropped 0.9%.
Imports, on the other hand, continued to expand at a solid 6.9% because of
continued healthy domestic demand. The strong growth in imports prompted
the government to announce that it would adopt protectionist measures in
the form of quotas and tariffs to curtail imports by 20% in order to avert
further adverse developments in the external balances. Panellists, expect
the current account surplus to shrink further in the second half of the
year and anticipate that the annual surplus will reach US$ 6.9 billion.
The anticipated lower oil price next year is likely to prompt further
deterioration in the current account, which is expected to reach a US$ 5.2
billion surplus.
Capital accounts data indicate that outflows
persisted in the second quarter as confidence in the government continued
to wane. The capital account balance deteriorated from a US$ 39 million
surplus in the second quarter last year to a US$ 1.1 billion deficit in
the second quarter of this year. Capital flight - estimated to have
reached US$ 3.7 billion in the first half of the year - was the key driver
behind the substantial widening of the deficit.
Bolivar depreciation prompts intervention.
The monthly depreciation rate of the Bolivar continued to accelerate in
August, with the Bolivar depreciating an additional 1.6% to the US$,
following the 0.9% loss of value in July. The July and August
depreciation rates remained well above the 0.58% depreciation rate allowed
under current exchange rate policy. The currency weakening accelerated
further through 7 September, with the Bolivar losing an additional 1.2
percent to the US$. The persistence of currency weakening over the past
two months prompted the Central Bank to intervene several times in the
foreign currency market to boost the Bolivar. Consequently, international
reserves (excluding the US$ 6.8 billion in the Macroeconomic Stabilization
Fund, FIEM) have dropped 10.2%, from US$ 13.5 billion by the end of July
to just over US$ 12.1 billion on 7 September. The government claims that
the current deterioration is the result of currency speculation; however,
it also reflects the continued lack of confidence in the current economic
policy of the Chávez administration and the President’s increasingly
volatile tone with investors. The persistence of the current exchange
rate volatility and international reserve loss may force the government to
either adopt further capital controls or consider an adjustment to the
current currency regime. Participants have not undertaken any major
adjustments to their forecasts; adjusting the year-end exchange rate
projection only modestly by 0.8%. Furthermore, panellists expect the
exchange rate to depreciate 7.0% this year, a notch the 7.2% envisioned by
the current exchange rate regime. Nevertheless, next year the currency is
seen loosing more substantial ground, depreciating by 11.3% - almost
twice the permitted rate - and closing the year at 848 Bolivares to the
US$, which would bring the average to 800, well above the government’s
budgeted target of 770.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here.
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