Saturday, April 15, 2006

Venezuelan economic notes 

The good economic news keeps on pouring in. First, it appears the economic will grow much faster than expected this year:

Venezuela's oil-driven economy grew sharply in the first three months of this year -- even more than the annualized rate of 7.9 percent growth logged during the same period last year -- a central bank official said Friday.

"Growth in the first quarter of 2006 will be superior to that of the same period last year," Domingo Maza Zavala, one of the bank's seven directors, told the government run Bolivarian News Agency.

He did not give a precise figure for first-quarter gross domestic product growth. Official data are due out in late April or early May.

The bank's preliminary estimates showed the strongest growth in the non-petroleum sector, particularly construction, Maza Zavala said.

The Finance Ministry has forecast the economy will grow 5 percent in 2006, a slowdown from 2005's 9.3 percent expansion

The same thing happened last year where the government gave a very conservative forecast for economic growth which was then greatly exceeded. This year looks to be shaping up the same way. It will certainly be very good if they can even beat last years strong growth. Can't wait until the official numbers come out.

A couple of months ago Venezuela announced it would use some of its current account surplus (that is the excess revenue from Venezuela selling more to other countries than it buys from them - something people in the U.S. can only fantasize about) to pay down its foreign debt in the amount of about $4 billion. They have now done much of that:

Venezuela said Wednesday it has completed 75 percent of a planned buyback of US$3.9 billion (euro3.22 billion) in bonds as the world's fifth-largest oil exporter pushes ahead with efforts to reduce its public debt amid high oil prices.

Venezuela announced its plan to repurchase Brady bonds in late February as part of an aggressive strategy to ease its debt load.

To date the government has made payments totaling US$2.33 billion (euro1.92 billion), euro473.2 million (US$573.76 million) and 59.2 million Swiss francs (US$45.5 million; euro37.53 million), the Finance Ministry said in a statement.

It will make additional payments on April 24, May 19 and May 31, it said.

That will save the country US$676 million (euro557.53 million) in debt servicing this year and slash its total outstanding debt by 10 percent to US$41.85 billion (euro34.52 billion), it said.

The government plans to use the money released from collateral held by the Brady bonds to continue funding President Hugo Chavez's popular social programs.

Venezuela is using its surging oil revenues to reduce its public debt. Chavez says such debts often benefit rich creditors while saddling poorer countries with crippling interest payments.

In the coming months, the country has said it also plans to pay off US$779 million (euro652 million) in multilateral debt, including roughly US$200 million (euro167 million) in World Bank loans.

Its good to see that with high oil prices Venezuela not only has a booming economy with ever expanding social programs, to pay down the social debt, but it is also beginning to pay down its foreign debt. The savings of $676 million in interest payments this year alone will be put to good use I'm sure. They can probably fund a couple entire Missions with that money. Also, I never knew they had money tied up as collateral for the Brady bonds but having that freed up will also be a positive.

Also, this is not the only debt being paid down as shown in todays edition of Panorama newspaper. Under prior administrations the state oil company, PDVSA, was also put into debt. In 2001 it had $8.427 billion in debt. That has now been reduced $3.165 billion in outstanding debt. The opposition only notes the fact that PDVSA won't have to file statements with the SEC anymore due to it no longer having any outstanding debt in the U.S. They neglect to mention that debt held by a state oil company is really debt held by a country and that the Chavez administration has now reduced this debt by more than $5 billion. Not bad!!

Lastly there was a rather curious article in BusinessWeek. They mentioned that more than $3 billion in contracts were given to Italian firms to build new rail lines:

The Italian construction firm Impregilo SpA said Thursday it won contracts worth US$3.7 billion (euro3.06 billion) to build two new railway lines in Venezuela and extend a third.

The two new lines will cost US$2.2 billion (euro1.8 billion) and the third line, already under construction, another US$1.5 billion (euro1.24 billion), Impregilo said in a statement. The contracts also include options for US$1 billion (euro830 million) to design and build systems such as signaling, controls, telecommunications and trains.

Venezuelan officials had previously announced plans to work with Impregilo to build the two new lines, one connecting San Juan de los Morros with San Fernando de Apure and the other linking Chaguaramas with Cabruta in central Venezuela, to span a total distance of 200 kilometers (125 miles).

Very strange. Spending so much money on projects that, as we've previously seen, are all imaginary.


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