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External balances weakening along
with oil price and failing confidence
Third quarter external accounts figures
reflect the deceleration in oil output and prices. The Central Bank
reports that the annual current account surplus shrank to US$ 8.2 billion
from US$ 11.6 billion in the third quarter of 2000. This was primarily
owing to a narrowing of the trade balance. The marked deceleration of the
global economy and the drop in international oil prices prompted export
earnings to fall by 16.9% in the third quarter over the same quarter in
2000. The drop in oil output and prices caused oil export earnings to
tumble 21.8%, although this was partially offset by a strong 11.1% growth
in non-oil exports.
Imports growth, on the other hand, accelerated
at a robust 19.2% as domestic demand remained healthy. As a result, the
trade surplus narrowed from a US$ 15.8 billion surplus in the third
quarter 2000 to a US$ 13.0 billion surplus in the third quarter this
year. Panellists expect the current account surplus to shrink further as
the prospect of a rapid rebound in oil prices and the global economy
appears increasingly remote. As a result, the trade surplus is expected
to narrow further to reach US$ 11.1 billion this year. Lower oil prices,
domestic energy shortages and declining international demand are likely to
contribute to a further deterioration in the trade balance next year with
the surplus falling to US$ 8.3 billion. As a result, the current account
surplus is likely to drop from US$ 6.3 billion in 2001 to US$ 4.0 billion
next year.
In the Capital account, outflows persisted in
the second quarter as investor confidence in the government continued to
wane. The annual capital account widened from a US$ 2.3 billion deficit
in the third quarter of 2000 to a US$ 2.8 billion deficit in the third
quarter of this year as capital flight persisted. Capital outflows this
year are now estimated to total over US$ 6.0 billion for the first nine
months of the year.
Political tensions mounting
Over the past year, the domestic business
community and international investors alike have lamented the slow pace at
which the government has been working to implement some 44 new laws
included in the special ‘fast track’ Enabling Law granted to Chávez in
November of 2000. The Enabling Law authority permitted the government to
legislate without Congressional approval on a host of pressing laws that
needed approval to comply with requirements mandated by the 1999
Constitution.
The new laws would provide an important
backbone of the legal, tax and regulatory framework underlying the
investment in Venezuela. By 13 November, only 25 new laws had been
enacted. Key laws, including the new Hydrocarbons Law, Land Law, Tourism
Law, Income Tax Law and Banking Law, had not been published and were
rushed through by the Chavez administration in the last minute to comply
with the 15 November deadline. The private sector was outraged by the
government’s lack of consultation with a broader cross-section of the
business community in drafting the new laws.
Major business organizations and unions have
called for a nationwide strike against the government on 10 December.
Even though the private sector has felt antagonized by the current
administration, so far, aversion to the government’s policies had been
manifest by low investment and capital flight. However, the frustration
now seems to have spilled over to political arena and the prospects for an
easing of tensions appear slight for the immediate future, unless the
executive, in concert with the private sector and related interest groups,
revisits the new laws. In fact, the broad-spread anger has prompted
business associations and unions to unite against the government and to
call a general strike on 10 December.
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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