Oil Wars

The advertisement shown above was taken out by the Venezuelan government to trumpet the excellent economic news this year. “The Bolivarian economy accelerates its motors” it reads. To back up the “half year of pure growth” it it gives, above the cylinders, various aspects of the stellar economic performance. Inflation has decreased from 12.6% last year to 8.9% this year (remember these are half year numbers); GDP growth so far this year is 9.3%; employment has grown by 3.7% or 326,000 new jobs.

The government does indeed have much to brag about – this performance is simply spectacular. Most Venezuelans weren’t even born the last time their economy performed this well.

Lets look at some of the economic news not mentioned in the add:

One of the problematic areas for the Venezuelan economy in the past few years has been its level of debt. While overall debt was going down for the first few years of the Chavez administration it ballooned in 2002 and 2003 as the opposition efforts to sabotage the economy went into full swing. For example when the oil industry was shut down the government had to borrow money to import gasoline and cooking oil (imagine, oil rich Venezuela having to import these things; but that is what the opposition did to Venezuela). And as the economy went into a deep depression more money had to be borrowed for the government to function and even for old debt to be paid off. So bad were things that in 2003 Venezuela had a total debt equivalent to 50.4% of GDP.

Fortunately, things have turned around and even foreign financial organizations like Deutsche Bank are recognizing it. According to their report Venezuela’s debt is going down such that it will only be 33.2% of GDP in 2005. That is a drop of 6.9% percentage points from the 40.1% that it was in 2004. Further, it is expected that the debt will drop in absolute terms, not just in relation to GDP. It is numbers like this that probably influenced Standards and Poor’s to increase Venezuela’s credit rating from B to B+.

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Of course, debt going down is helped by the government running a surplus. And according to El Universal the Venezuelan government is running quite a large surplus. They report that government expenditures through the first six months of the year have totaled 34.2 trillion bolivares (about $15 billion) while their revenues have been 48.3 trillion bolivares (about $21 billion) for the same period. So from this it looks like the Venezuelan government might be able to pay down its debt even a lot more than Deutsche Bank expects.

This same article also pointed out that imports are up 52% so far this year in comparison to last year. This is actually one number that can be taken as both a sign of strength and weakness. Clearly it is a sign of strength in that with its economy recovering and oil revenues increasing Venezuela can afford to import a lot more. However, this can be problematic in that it means a lot of the purchasing that is being done isn’t helping Venezuelan industry. Ideally, the government would like for more of the items consumed in Venezuela to actually be produced in Venezuela. This number indicates that so far that isn’t happening. The primary reason for this is likely the Bolivar being overvalued in comparison to the dollar which gives people an incentive to buy imports rather than Venezuelan products.

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Underpinning a lot of this good news are the vastly increased revenues from oil exports. In Sunday’s Panorama newspaper the Vice-President of PDVSA, Eudomario Carruyo, said that he expects total revenues for the State oil company to be over $70 billion this year. According to Carruyo through the middle of August revenues have totaled $38 billion.

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Lastly, a very small statistic, also from Panorama. Tourism in Venezuela so far this year is up 23.7%. Tourism is a very small part of the Venezuelan economy so this number doesn’t mean a whole lot. But, it is a positive number and it does go to show that these days the Venezuelan economy is indeed running on all cylinders.
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