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The Impact of the Attacks on the
Venezuelan Economy
1.
Oil price decline is worrying.
The high oil prices of the past two years have generated abundant revenues
and have thus enabled the government to avert important reforms to
diversify the economy in order to lower the country’s dependence on oil.
In 2000, the oil sector accounted for 27.5% of total GDP, 84.4% of total
exports and 51.8% of central government fiscal revenues. The anticipated
global recession is likely to put further downward pressure on oil prices,
which plummeted at the end of September and will serve to lower economic
activity.
2.
US downturn will affect export performance.
Venezuelan exports to the United States
represent 48.5% of total exports and the expected recession in the United
States will negatively affect external balances. Lower US energy demand
is likely to scale down oil exports to that country, which represent 42.9%
of total oil exports. Similarly, non-traditional exports are likely to
decline, since the US market absorbs some 40.1% of Venezuelan sales.
3.
Further declines in capital flows likely.
Capital inflows to Venezuela have all but dried up in the past two years
because of lacking confidence in the government’s economic policy agenda.
The spreads on Venezuela's benchmark sovereign bonds on average have
remained well over 100 basis points above sovereign bond spreads for other
Latin American borrowers bonds since the end of 1998. In addition,
balance of payments data show that net investment (excluding foreign
direct investment) has dropped US$ 14.8 billion since 1998. Because of
investor aversion, the government has substantially increased the share of
internal debt as a share of total public debt from 14.0% in 1998 to
approximately 25.3%in 2000. This may serve to shield the government from
the international liquidity squeeze. However, the likely flight to
quality resulting from the current international environment may further
accelerate the deterioration in capital inflows.
4.
Additional currency deterioration possible in flight-to-quality scenario.
Annual inflation still
remains well in excess of the new rate of depreciation and consequently
the Bolivar is likely to continue appreciating in real terms relative to
the US$. The resultant overvaluation (by most conservative estimates some
35-40%) is likely to keep the currency vulnerable to speculative attacks
if international reserve levels deteriorate as a result of investor
withdrawals and lower oil revenue inflows.
5.
Tourism unlikely to be affected.
The most recent data from the World Tourism
Organisation (WTO) shows that tourism receipts in Venezuela account for
1.6% of GDP. Additionally, the tourism industry has shown a steady
decline as a destination for foreign travellers. WTO figures indicate
that the arrivals of tourists from abroad have dropped by 9.5% on average
from 1995 to 2000 and that US nationals accounted for just 1.6% of total
inbound arrivals in 2000. Thus, any drop in US tourism is unlikely to
affect the tourism industry significantly let alone the economy as a whole.
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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