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Recovering oil production is the key to economic well-being
The nationwide strike that plagued the Venezuelan economy in December and
January brought oil production to a virtual standstill. The pace at which
pre-strike oil output levels will be reached is a key determinant of the
longevity of the current economic depression. The government claims that
Venezuela was producing 2.6 million barrels per day (bpd) for export at
the end of November – just below the 2.8 million bpd quota agreed to with
the Organization of the Petroleum Exporting Countries (OPEC). The
following month, however, civil unrest laid the oil industry lame and
production dropped to as low as 150,000 bpd in December. Since January,
production figures have been the subject of scrutiny among analysts, since
the government and opposition – which includes a host of fired oil
industry executives – differ on the output figures. The government states
that oil production reached its pre-strike levels at the end of March,
while opposition forces argue that output remains at only half that level.
If in fact production levels have reached original levels then the
improvement should be reflected in Central Bank oil-related inflows from
the state-owned Petróleos de Venezuela S.A. (PDVSA). However, according to
Central Bank data, inflows through the first quarter of this year were
just 17.5% of the US$ amount that should have been deposited. Last year,
PDVSA deposited an average of US$ 1.5 billion a month at the Central Bank.
This figure has dropped to a monthly average of US$ 263 million in the
first quarter, despite the fact that oil prices have risen – the average
price on the Venezuelan basket of crude oil in the first three months of
this year was 35.8% above last year’s level. With January wiped out as a
productive month and February used to ramp up production, initial
estimates point to an economic contraction in the oil industry of between
40% and 50% in the first quarter.
Restoring foreign exchange market essential to non-oil economy
In addition to rising unemployment induced by large scale business
closures and the virtual absence of credit, the foreign exchange controls
implemented by the government in on 6 February are providing an additional
impediment to economic activity. The guidelines adopted by the government
body responsible for coordinating, administrating and controlling the new
exchange rate regime, the Foreign Currency Administration Commission (CADIVI,
Comisión de Administración de Divisas), served to stall the delivery of
foreign exchange through the month of March. On 31 March, the Central Bank
approved the transfer of US$ 1.32 billion to the CADIVI. CADIVI plans to
use the funds to deliver an average of US$ 60 million daily in April but
only for what the government considers essential imports, such as
medicines and basic foods. Businesses not included in the approved lists
will be forced to purchase foreign currency for essential material inputs
in the black market at premiums that are estimated at 30% to 40%. The
resulting increase in costs could drive even more businesses into
bankruptcy, further undermining the already fragile financial system and
economic activity. The non-oil economy is seen as having contracted 15% to
20% in the first quarter.
Panellists estimate that the current adverse pressures in both the oil and
non-oil economy are likely to have driven down economic activity by 30.7%
in the first quarter, a historical decline. The economic recession is
expected to bear down on growth prospects throughout the year with
positive growth not anticipated to return until the final quarter of this
year. As a result, economic forecasts were lowered another 1.5 percentage
points from last month. Growth is expected to recover strongly next year
but the healthy expansion expected by participants – down 2.4 percentage
points from last month - reflects the low comparison base this year rather
than more sound economic fundamentals. |
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