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President Chávez has reshuffled his economic
team. Both the new Minister of Planning and Development and the Minister of
Finance, have solid economic credentials and are likely to move quickly to
restore investor confidence by implementing fiscal and social security
reform and revising some of the more controversial economic legislation
approved late last year. Key to the new team’s success, however, will be the
support of Chávez without which confidence is unlikely to recover. |
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President Chávez
brings in new economic team
On 5 May, the president introduced his new economic team. Chávez replaced
the Minister of Planning and Development and one of the longest standing
members of the Chávez government, Jorge Giordani, with Felipe Pérez Martí,
a Chicago-trained economist, a firm social democrat and strong advocate of
improving the strained relationship the government currently has with the
private sector. In the past, Pérez openly criticised Giordani’s management
style and lack of a clear economic strategy. The new Planning Minister is
considered to have good relationships with multilateral institutions and
is likely to assume the role of Venezuela’s economic representative on the
international stage. In addition, Chávez appointed Tobías Nóbrega Soares
as the new Finance Minister to replace interim Finance Minister Jesús
Bermúdez. Nóbrega is an economist and a strong advocate of pension reform
and a proponent of opening the economy to investment via concessions. The
new Finance Minister was the head of the team of experts that consulted
the Constitutional Assembly in economic matters is considered to have a
good working relationship with the Assembly. Nóbrega hopes to implement a
broad ranging fiscal reform that includes changing the contributions of
state-owned oil company Petróleos de Venezuela S.A. (PDVSA) to the public
coffers, implementing pension reform, raising penalties for tax evasion,
broadening the tax base, lowering taxes and providing for more targeted
social programme funding. The new Finance Minister’s relationship with the
National Assembly is likely to make him the key negotiator on economic
matters between the executive and the legislature. Even though both
economic appointments have been well received by the markets as a positive
step towards a more coherent economic programme, Nóbrega is the clear
favourite of the business community, which hopes that he will be able to
assert his policy priorities in the new economic team.
… and
reshuffles some positions in his cabinet
On the political front, the president appointed Diosdado Cabello Rondón,
who had been replaced by José Vincent Rangel in the Vice Presidency
earlier in April, to the Ministry of Justice and Interior portfolio. The
appointment of Cabello was negatively received as he is the key person
responsible for organizing the so-called Bolivarian Circles, groups of
Chávez supporters, which were considered in part responsible for provoking
the violence on 11 April that led to the military coup. The Inspector
General of the Armed Forces Lucas Rincón Romero took over the Ministry of
Defence. The Rincón appointment is a clear effort at reconciliation with
the military and an effort to reintegrate opposition military officials
into the government. The improvement in support for president Chávez in
opinion polls is likely to give the president a temporary respite from
political pressures and may give his new cabinet members the leeway
necessary to begin to progress on implementing change in government policy.
Currency
volatile but continues strengthening
A combination of Central Bank intervention, an oil price related boost to
international reserves and increased US$ selling in light of the tax
season served to bolster the bolivar in March and April. According to
Central Bank data, the currency continued to appreciate in April, despite
the highly volatile political environment and continued capital flight.
Following a 19.0% nominal appreciation in March, the currency appreciated
another 6.3% by 30 April to close 838 bolivares to the US$. As a result,
the end of April exchange rate was just 7.8% weaker from its level
observed before the devaluation on 12 February. Currency fluctuations,
however, have remained high with variations in the exchange rate ranging
in the extremes between 5% depreciations and 4% appreciations daily. In
fact, further volatility caused the bolivar to depreciate 12.9% in the
week ending 10 May to close at 963 bolivares to the US$. The absence of
currency stabilization continues to reflect the volatile domestic
political and economic uncertainty marked by a lack of transparency in
fiscal policy, erratic monetary management and unclear prospects for
greater definition on the political front. The recent strengthening of the
currency is viewed as temporary by Consensus participants, who anticipate
more accelerated weakening of the bolivar throughout the year. A
persistence of the recently observed exchange rate volatility cannot be
dismissed, particularly if the Chávez government decides not to adopt a
more conciliatory tone with opposition forces and the new economic team
does not get the political support necessary to implement economic reform
proposals. As a result, economic activity is likely to be undermined as
domestic prices will fluctuate in line with the exchange rate and will
thus further undermine the ability of businesses to plan effectively.
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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