As expected, the Venezuelan economy had an amazing 15.8% growth in the third quarter of 2004 compared to the same period of the previous year
But that’s not all: the recovery in the first months of 2004 reached 20.4%, according to preliminary estimates of the Central bank of Venezuela (BCV).

"The evolution of the country’s economy in the third quarter was basically determined by the activities not related to the oil business, whose added value grew by 18.6%, while the oil related activity grew by 2.7%", reported the BCV.

Additionally, the BCV reported that the private sector grew by 17.4%, while the public sector grew by 11.2% this year. Our country has benefited from the high oil prices, which have helped increase the public treasure. Some government officials estimate that by the close of 2004, the additional income from oil exports will reach between five and six billion U$; figures not at all negligible.

In this context, the government has said that these funds are being used to increase social investment among the neediest sectors of the country, that unfortunately represent the majority of the population.
President Hugo Chávez and his team have been severely criticized, accused by oppositionists of having increased public spending as part of his proselytism campaign to win popularity in the face of the recall referendum held against him last August 15th. They claim that this increase may raise inflation, which will close near 20% this year.
One of the sectors of the country that did well is construction, usually the most sensitive to rises and drops in the country’s economic cycles, since it involves many other sectors and creates great numbers of direct and indirect jobs.

This sector grew 40.3% “as a result of an important demand from the government and public companies, as well as from the private sector; for construction works.”

Financial institutions are next with 27.2% growth; followed by transportation and storage with 25.5%; commerce and repair services with 24.8%, and manufacturing with 20.7%.
The BCV reports that overall demand increased 22.5% in the third quarter, “mostly due to greater spending by final private consumers (16.4%), government spending (20.9%), fixed gross investment (46.5%), and exports (2%).
The government has said that it estimates 11% growth by the close of 2004, after the dramatic contractions in the two preceding years.

A sound economy

The BCV also informed that at the close of the third quarter, the trade balance current account had positive figures, 4,823 million of the Financial and Principal Account”.

This surplus in the current account, was greater than the one for the third quarter of 2003, which was 3,819 million dollars.
The institution explained that the increase in the surplus was linked to “the substantial improvement of the goods trade balance, as a result of the increase in the value of total exports to 10,480 million, 35.4% above last year’s.”
The import of goods during this period, 4,435 million U$, was 60% higher than that of the third semester of 2003.

Imports increased as a result of the economic activity and the increasingly flexible currency exchange control, that despite being very stern at the time it was implemented last year, it has gradually been allowing the flow of dollars into the local economy, highly dependent on imports of goods and raw material.

Goods exports increased mainly because of a 37.1% rise in the oil prices and a 29.8% increase in sales abroad by the non oil business sector.

The rest of the items in the current account, such as services, rents, and transfers, still show their habitual deficits -said the BCV- although sharper than last year, due to an increase in freight expenses, in payments of insurance for imported goods, passenger transportation and travel expenses, and to higher revenues of the direct foreign investments of the private sector.

The outcome in the principal and financial account was determined by the deficits in its three categories. The portfolio investment had a 2,821million U$ deficit, due to an increase in the assets in short term negotiable deposit certificates and structured notes from financial institutions; to the repurchase, by the public sector, of bonds in international markets; and to the reduction in liabilities payable to non resident investors, represented in stocks negotiated in the local market, explained the BCV.

The behavior of the current and financial transactions described, yielded a total deficit of 1,608 million in the trade balance, which placed the net international reserves at 21,750 million, out of which 706 million correspond to the Currency Stabilization Fund (FEM).

Published in Quantum N.41

Maitane Larrañaga