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Government imposes price controls amid rising inflation
Consumer prices rose 2.9% in January, the highest monthly increase since
September last year. As a result, the annual inflation rate rose from
31.2% in December to 33.8% in January. The strongest monthly increases
were observed in transportation, food/beverages and health costs, which
rose 5.5%, 4.8% and 4.0% respectively. Concerned about rising prices in
basic goods and services, the Chávez administration decided on 5 February
to implement price controls for items considered of basic necessity,
including:
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Basic food items.
Prices for rice, oats, flour, infant preparation, chicken, milk, cheese,
potatoes and sugar among others will be limited to monthly price
increases.
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Health services and goods.
Medicine, medical supplies, personal hygiene products, educational
materials among others will also be subject to price controls.
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Public services.
Increases in the costs of water, electricity, gas, telephone, wastewater,
health and public transportation will be regulated.
The national consumer protection institute (INDECU, Instituto para la
Defensa y Educación del Consumidor y Usuario) will be responsible for the
administration, evaluation and revision of prices. The planned system of
price controls renders an accurate inflation forecast particularly
difficult as arbitrarily set prices will determine the general price
level. That said, panellists anticipate inflation to accelerate moderately
this year, despite the government’s new controls. Furthermore, the
forecast of 36.2% for this month has been raised by 8.0 percentage points
from last month and is now well above the government’s 26% to 28% forecast
in the 2003 budget.
Opposition cedes and returns to work but economy devastated
On 3 February, the crippling two-month strike (for details see January
edition) finally came to an end and most businesses reopened. The oil
industry, principally the state-owned oil company Petróleos de Venezuela
S.A. (PDVSA), remains on strike but the government has managed to revive
production with the assistance of the military, foreign experts and
nationals not siding with the opposition. Nevertheless, the virtual
standstill across all sectors at the end of the year is anticipated to
have dragged down the gross domestic product (GDP), which is estimated to
have declined 9.7% in the final quarter of 2002 over the same quarter in
2001. This month’s figure is a 0.1 percentage point below last month’s
forecast. As a result, the economy is likely to have contracted by 7.7% in
2002. Moreover, with the economy stalled in the first month of the year
and political turmoil likely to persist through the end of the year, the
prospects for 2003 do not look very promising. Even if elections are
called, the electoral process and its corresponding uncertainty are likely
to continue to overshadow the economy. Therefore, the outlook for this
year has worsened drastically. Consensus Forecasts participants anticipate
the economy will contract another 7.5%, which is down a whopping 6.5
percentage points from last month. Forecasts for this year continue to
exhibit great uncertainty as they range from 3.3 on the optimistic of the
forecast range to a double digit decline in activity on the pessimistic.
Government averts political demands of opposition and political solution
before August remote
The opposition efforts to hold a non-binding consultative referendum on 2
February failed. Even though an unofficial poll - unsanctioned by
electoral authorities - was held, the 4 million gathered signatures in
favour of a referendum (opposition estimates) do not have any bearing on
the resolution to the current political stalemate. A Supreme Court ruling
confirmed that an official referendum for new elections cannot be held
until the mid-term of the Chávez presidency, which would be 19 August of
this year. If the referendum is approved and remains unchallenged by the
government, the administrative process to organize new national elections
is likely to draw out the electoral process through the end of 2003. As a
result, the political uncertainty and economic policy ambiguity will
remain high this year.
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