Venezuela - Economic Briefing April 2004

Growth Recovering but Political Stalemate Limits Potential Rebound (continued)

External accounts bolstered by widening trade surplus
In the final quarter of 2003, the current account incurred a surplus of US$ 2.7 billion.  Even though this was below the third quarter surplus of US$ 2.9 billion, the figure was well above the US$ 1.9 billion surplus registered for the same quarter the previous year.  Consequently, the annual current account surplus increased from US$ 7.4 billion in 2002 to US$ 9.6 billion last year just above the US$ 9.4 billion figure anticipated by the Consensus Forecast.  The widening in the current account surplus was principally attributed to growth in the trade surplus, which widened from US$ 13.0 billion in 2002 to US$ 15.0 billion last year, as plummeting imports (2003: -21.4%) were only modestly offset by a less pronounced export decline (2003: -3.4%).  The current account surplus was more than sufficient to compensate for the US$ 3.2 billion deficit in the capital account (2002: US$ 9.4 billion).  For this year, Consensus Forecast participants expect the widening trend to revert again with the current account surplus narrowing to US$ 7.6 billion, as the resumption of domestic activity is anticipated to rekindle imports at a faster pace than exports.

Recall referendum on hold again as government seeks Supreme Court ruling
The National Electoral Council (CNE, Consejo Nacional Electoral) continues to draw out the deadline for the re-verification process of signatures gathered by the opposition for a referendum to recall president Chávez.  In March, the CNE had validated just 1.8 million signatures – short of the 2.4 million needed (20% of electorate) – and determined that an additional 876,017 signatures were subject to additional verification procedures.  In a parallel ruling of the judiciary, the federal electoral court ruled that the full tally of signatures valid and instructed the CNE to move forward with the organization of a referendum.  However, the government was quick to challenge the lower court ruling in the Supreme Court.  The appeal is not expected to be ruled on in short order and meanwhile the government is moving ahead with a proposal in the National Assembly to raise the number of Supreme Court justices from 20 to 32.  It is increasingly evident that the government is intent upon impeding the recall initiative where possible.  As a result, the current referendum process is likely to be drawn out beyond 19 August (one year past the mid-term for the current presidency).  If a referendum is held after that date and Chávez is recalled, then the constitution stipulates that the vice-president assumes the presidency until the end of the current regular presidential term in 2006.  Under this scenario, even with a new president, Chávez would remain a strong presence on the political stage albeit from behind the scene.  Thus, further political and social tension is likely to persist throughout this year and possibly beyond.  As a result the recovery of economic growth will proceed below potential.