[News] Chávez Administration at 10 Years: The Economy and Social Indicators

[Anti-Imperialist News]

The Chávez Administration at 10 Years: The Economy and Social Indicators

http://www.venezuelanalysis.com/analysis/4182
February 6th 2009, by Mark Weisbrot, Rebecca Ray and Luis Sandoval - CEPR

For the full report in its original PDF format, 
<http://www.cepr.net/documents/publications/venezuela-2009-02.pdf>click here.

Executive Summary

This paper looks at some of the most important 
economic and social indicators during the 10 
years of the Chávez administration in Venezuela, 
as well as the current economic expansion. It 
also looks at the current situation and challenges.

Among the highlights:
    * The current economic expansion began when 
the government got control over the national oil 
company in the first quarter of 2003. Since then, 
real (inflation adjusted) GDP has nearly doubled, 
growing by 94.7 percent in 5.25 years, or 13.5 percent annually.
    * Most of this growth has been in the non oil 
sector of the economy, and the private sector has 
grown faster than the public sector.
    * During the current economic expansion, the 
poverty rate has been cut by more than half, from 
54 percent of households in the first half of 
2003 to 26 percent at the end of 2008. Extreme 
poverty has fallen even more, by 72 percent. 
These poverty rates measure only cash income, and 
does take into account increased access to health care or education.
    * Over the entire decade, the percentage of 
households in poverty has been reduced by 39 
percent, and extreme poverty by more than half.
    * Inequality, as measured by the Gini index, 
has also fallen substantially. The index has 
fallen to 41 in 2008, from 48.1 in 2003 and 47 in 
1999. This represents a large reduction in inequality.
    * Real (inflation adjusted) social spending 
per person more than tripled from 1998-2006.
    * From 1998-2006, infant mortality has fallen 
by more than one third. The number of primary 
care physicians in the public sector increased 
12fold from 1999-2007, providing health care to 
millions of Venezuelans who previously did not have access.
    * There have been substantial gains in 
education, especially higher education, where 
gross enrollment rates more than doubled from 1999/2000 to 2007/2008.
    * The labor market also improved 
substantially over the last decade, with 
unemployment dropping from 11.3 percent to 7.8 
percent. During the current expansion it has 
fallen by more than half. Other labor market 
indicators also show substantial gains.
    * Over the past decade, the number of social 
security beneficiaries has more than doubled.
    * Over the decade, the government's total 
public debt has fallen from 30.7 to 14.3 percent 
of GDP. The foreign public debt has fallen even 
more, from 25.6 to 9.8 percent of GDP.
    * Inflation is about where it was 10 years 
ago, ending the year at 31.4 percent. However it 
has been falling over the last half year (as 
measured by three month averages) and is likely 
to continue declining this year in the face of 
strong deflationary pressures worldwide.
The current situation and challenges:

Venezuela's most important immediate challenge 
is, as for most countries, the world economic 
recession. This affects Venezuela's economy 
mainly through oil prices, which have fallen 
about 70 percent from their July peak last year. 
At oil prices below $45 per barrel (for 
Venezuelan oil), Venezuela would begin to run a 
current account deficit. However, because 
Venezuela has an estimated $82 billion in 
reserves, it could finance a modest current 
account deficit for some time - e.g. even if oil 
prices were to remain at their current depressed 
levels for the next two years. But economists and 
the futures markets are not predicting oil prices 
to remain at current levels for that long: 
futures markets are pricing oil at above $60 per barrel in December 2010.

With balance of payments constraints unlikely, 
Venezuela's main challenge in the near future 
will be to come up with an adequate fiscal 
stimulus package. Over the intermediate run, it 
will also want to adjust its exchange rate to a 
more a competitive level, in order to diversify 
its economy away from oil. However, because of 
its ample reserves, the government is unlikely to 
suffer a forced devaluation in the foreseeable future.

Introduction

Hugo Chávez Frías was first elected president of 
Venezuela in December 1998 and took office ten 
years ago, in February of 1999. Chávez is a 
controversial figure, and most discussion of his 
tenure is polarized or otherwise ideological, and 
mostly negative. This paper looks briefly at some 
of the most important economic and social 
indicators over the last decade, and also at the 
current situation and challenges. It relies on 
data that are not in dispute. Some of the most 
important data have been largely unreported, 
although they are publicly available.

Economic Growth

Figure 1 shows Venezuela's real quarterly GDP 
from 19982008 (second quarter).[1] As can be seen 
from the graph, growth appears to be heavily 
influenced by various shocks, including political instability and strikes.

[]




There are different ways to evaluate the growth 
performance of the Venezuelan economy during the 
Chávez years. One is to simply look at GDP growth 
since Chávez became president in the first 
quarter of 1999. The latest (seasonally adjusted) 
data available are for the second quarter of 
2008. On that basis, the economy has grown 47.4 
percent, or 4.3 percent annually over 9.25 years. 
On a per capita basis, this is about 18.2 
percent, or 1.9 percent annually. Although this 
is a vast improvement over the two decades of 
economic decline that preceded Chávez, it is 
modest growth, about the same as the regional average.

However, looking at the entire decade is 
misleading because the Chávez government did not 
control the state owned oil company until the 
first quarter of 2003. So for the first four 
years, the state owned oil company (PDVSA), which 
at the time accounted for more than half of 
government revenue and 80 percent of export 
earnings, was controlled by people who were 
hostile to the government. Furthermore, the 
managers of the company actually used their 
control over these vital resources to destabilize 
and even topple (temporarily) the government. 
Under these circumstances there was not much that 
the government could do to promote economic growth.

We could therefore measure growth from the time 
that the government got control over PDVSA, in 
the first quarter of 2003. This has the 
disadvantage that part of the growth since that 
time is a rebound from a deep recession. 
Nonetheless it is a better measure to evaluate 
the performance of the Chávez administration than 
is the whole ten year period. Also, it could be 
argued that this measure is relevant because even 
the early part of the recovery was a difficult 
achievement for the government. This was not a 
normal business cycle but a deep economic 
recession that involved considerable sabotage in 
the oil industry. When the strike ended, analysts 
quoted in the business press predicted a slow and 
painful recovery, with much difficulty restoring oil production.

Looking at growth from the first quarter of 2003, 
real GDP grew by 94.7 percent over 5.25 years, or

13.5 percent annually. This is extremely rapid 
growth by any historical or international 
comparison. On a per capita basis, it was 78.8 
percent, or 11.7 percent annually.

Finally, another way to measure growth that 
cancels out the effect of the rebound from the 
20022003 oil strike is to start from the point 
where GDP reached is pre recession peak. This 
would be the third quarter of 2004. On this 
basis, GDP grew 37.2 percent over 3.75 years, or 
8.8 percent annually. On a per capita basis, this 
is 28.2 percent, or 6.9 percent annually. This is 
also very rapid growth by almost any international or historical comparison.

[]




By any reasonable comparison, then, the growth 
experience of the Venezuelan economy during the 
Chávez years has been very successful. Of course 
this is even more true if we compare to the two 
decades prior to Chávez's election, when the 
Venezuelan economy actually suffered a decline in 
per capita GDP, and one of the worst in the world 
during this period. From 19781998, Venezuela's 
per capita GDP declined by 21.5 percent.

Figure 1 shows some detail about how the economy 
was influenced by external shocks, especially 
those related to political instability. Chávez 
took office with the lowest oil prices in 22 
years; the first year was marked by negative 
growth. This trend reversed by the first quarter 
of 2000, and the economy grew until the third 
quarter of 2001, a time of great political 
instability. In December of 2001 the Venezuelan 
Chamber of Commerce (FEDECAMARAS) organized a 
general business strike against the government. 
This political instability, with much capital 
flight, continued through April 2002, when the 
elected government was overthrown in a military 
coup. The constitutional government was restored 
within 48 hours, but stability did not return, as 
the opposition continued to seek to topple the 
government by extralegal means. Growth remained 
negative through the summer and fall of 2002, and 
then the economy was hit with the opposition led 
oil strike of December 2002 - February 2003. This 
plunged the economy into a severe recession 
during which Venezuela lost about 24 percent of 
its GDP. The economy began to recover in the 
second quarter of 2003 and has grown very rapidly 
since then, with one dip in the first quarter of 2008.

Components of Economic Growth

As can be seen from Figure 2 and Table 2, the non 
oil sector has accounted for the vast majority of 
the growth during the current expansion. In fact, 
the oil sector had negative growth for 20052007, 
after a 13.7 percent jump in 2004 after 
production was restored following the strike. 
Even in 2004, however, the non oil sector grew faster than the oil sector.

It is also worth noting that in spite of the 
expansion of government during the Chávez years, 
the private sector has grown faster than the 
public sector. This has also been true throughout 
the current expansion, with the exception of 
2008, where the public sector accounted for 
almost all of the growth in the first three quarters.

The fastest growing sectors of the economy have 
been finance and insurance, which has grown 258.4 
percent during the current expansion, an average 
of 26.1 percent annually; construction, which has 
grown 159.4 percent, or 18.9 percent annually; 
trade and repair services (152.8 percent, or 18.4 
percent annually); transport and storage (104.9 
percent, or 13.9 percent annually); 
communications (151.4 percent, or 18.3 percent 
annually). Manufacturing grew 98.1 percent during 
the expansion, or 13.2 percent per year.

[]





Poverty and Inequality

As can be seen in Table 3, there has been a huge 
decline in poverty and extreme poverty during the 
current economic expansion. The percentage of 
households in poverty declined by more than half, 
from 54 percent in the first half of 2003, to an 
estimated 26 percent at the end of 2008. The 
percentage of households in extreme poverty fell 
by even more: a 72 percent decline, to seven 
percent of total households. This is a 
significant achievement, and puts Venezuela 
within reach of eliminating extreme poverty 
altogether. It is worth noting that the United 
Nations' Millennium Development Goals call for a 
reduction in extreme poverty by half over the period 19902015.

If we take the first half of 1999 as the starting 
point, the percentage of households in poverty 
has been reduced by 39 percent, from 42.8 percent 
to 26 percent. Extreme poverty fell by over half, 
from 16.6 percent to seven percent.

There has also been a sharp drop in inequality, 
as measured by the Gini index. Since Chávez's 
election, the Gini index has dropped by almost 
six points, from 46.96 to 40.99. In this most 
recent expansion, the drop has been even greater: 
over seven points, from 48.11 to 40.99. For a 
rough idea of the size of such a change in the 
distribution of income, compare this to a similar 
movement in the other direction: from 19802005, 
the Gini index for the United States went from 
40.3 to 46.9,[2] a period in which there was a 
large (upward) redistribution of income.

[]





Health and Education

Health

Venezuelans, especially children, have benefited 
from the government's social policies over the 
past decade through improved health outcomes. As 
shown in Figure 4, infant mortality has decreased 
by over onethird, falling from 21.4 to 13.7 
deaths per 1,000 live births. Likewise, child 
mortality has fallen by over onethird, from 26.5 
to 17.0 deaths per 1,000 live births. The 
greatest benefit has been for children between 
the ages of one and eleven months: post neonatal 
mortality has been cut by more than half, falling 
from 9.0 to 4.2 deaths per 1,000 live births.

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Venezuelans have seen a similar improvement in 
food security. Average caloric intake has risen 
from 91.0 percent of the recommended levels in 
1998 to 101.6 percent in 2007. Even more 
importantly, malnutrition related deaths have 
fallen by more than 50 percent, from 4.9 to 2.3 
deaths per 100,000 in population between 1998 and 
2006. Two new programs have helped reach this 
goal. First, the PAE school feeding program, 
which provides a free breakfast, lunch, and 
snack, began in 1999 serving a quarter million 
students and has risen to over four million students in 2008.

Secondly, the Mercal network of government food 
stores began in 2003 selling 45,662 metric tons 
of deeply discounted food and has risen to a 
level of 1.25 million metric tons in 2008.[3]

A third improvement in health outcomes has seen 
potable water and sanitation accessible to many 
more Venezuelans than before Chávez's election. 
As Figure 5 shows, in 1998, 80 percent of 
Venezuelans had access to drinking water and 62 
percent had access to sanitation. In 2007, 92 
percent had access to drinking water and 82 
percent had access to sanitation. Compared to 
1998, then, roughly four million more Venezuelans 
now have access to clean drinking water, and over 
five million more Venezuelans now have access to sanitation.

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These achievements have been facilitated by a 
large expansion in access to medical care. From 
1999 to 2007, the number of primary care 
physicians in the public sector increased more 
than twelve times, from 1,628 to 19,571, 
providing health care to millions of poor 
Venezuelans who previously did not have access to 
health care. In 1998 there were 417 emergency 
rooms, 74 rehab centers and 1,628 primary care 
centers compared to 721 emergency rooms, 445 
rehab centers and 8,621 primary care centers 
(including the 6,500 neighborhood clinics, 
usually in poor neighborhoods) by February 2007. 
These new community healthcare centers have had 
over 250 million healthcare consultations: nearly 
37,000 each since the program began. Since 2004, 
399,662 people have had eye operations


that restored their vision. In 1999, there were 
335 HIV patients receiving anti retro viral 
treatment from the government, compared to 18,538 in 2006.[4]

Education

Improvements in education are visible for both 
young and nontraditional age students. 
Traditionalage enrollment has risen 
significantly, as shown in Figure 7. Net 
enrollment at the basic (grades 19) level has 
risen from 85 percent to 93.6 percent, and 
secondary enrollment has risen even more, from 
one fifth to over one third of the population.

The increase in basic education enrollment 
represents 8.6 percent of children age 5 through 
14, or nearly a half million children in school 
who would otherwise be without education. For 
secondary education, the increase means that 14.7 
percent of children ages 15 through 19, or nearly 
400,000 children, have been able to stay in 
school as a direct result of improved social investment.[5]

The largest gains have been seen in higher 
education: from the 19992000 school year to 
20062007, enrollment increased by 86 percent; 
estimates for the 20072008 school year put the 
increase at 138 percent from the 19992000 base.[6]

The Chávez administration has also initiated the 
Ribas Mission to provide secondary education for 
returning adult students. The Ribas Mission began 
in 2003 and its first students graduated in 2005. 
In its first three years of operations, the 
program has graduated over half a million 
students - about three percent of the country's 
adult population.[7] The government also carried 
out a large scale literacy training program, Mision Robinson.[8]

Labor Market and Social Security

Labor Market

Venezuelan workers face a substantially better 
labor market than a decade ago, as shown in Table 
4. There are now 2.9 million more jobs than in 
1998, which represents a one third increase. The 
unemployment rate has dropped from 11.3 percent 
to 7.8 percent; it rose to 19.2 percent in 2003, 
but has fallen by over half since that time. 
There has also been a significant increase in job 
quality, as measured by formal sector employment. 
Over half of the labor force - 51.8 percent - is 
now employed in the formal sector, up from 45.4 
percent in 1998. Most of the job growth have been 
in the private sector, but both sectors have 
outpaced the growth in the labor force: the 
decade has seen a 47.2 percent increase in public 
sector jobs and a 30.6 percent increase in private sector jobs.

Also, the rate of employment (employed as a 
percentage of the labor force) has increased 
enormously during the current expansion, from 
80.8 percent to 92.2 percent. Measured from 1999 
it is much less but still substantial, increasing 
from 88.7 percent. In sum, the labor market 
indicators, by any comparison, all show 
substantial improvement during the Chávez 
administration. These are consistent with the 
reduction in poverty as measured by cash income.

[]




Social Security

For those beyond employment age, widowed, 
orphaned, or unable to work due to a disability, 
the social security programs have vastly expanded 
their protection, as shown in Figure 8. The reach 
of old age, disability, and survivors benefit 
programs has more than doubled since 1998. Among 
the entire population, this figure has risen from 
1.7 percent receiving benefits to 4.4 percent. As 
is the case for other indicators, social 
security's performance was slow at the beginning 
of Chávez's term, actually fell slightly during 
the oil strike, and has grown very rapidly since 
2003, when Venezuela recovered from the oil 
strike and the government gained control over the oil sector.

[]





Government Finance and Current Account

Government revenues have benefited enormously 
from the rising price of oil until last year; 
world oil prices rose from an average of $19.3 
per barrel in 1999 to $99.7 per barrel in 
2008.[9] However, it is worth noting that nonoil 
revenue also increased significantly as a 
percentage of GDP over the decade, from 11.7 
percent of GDP in 1998 to 14.2 percent of GDP in 
2007. This was due to improved tax collection.

Revenue and spending are shown in Table 5. As can 
be seen, revenue increased from 17.4 percent of 
GDP in 1998 to 28.7 percent of GDP in 2007. 
Spending also increased, from 21.4 to 25.7 
percent of GDP over this period. The government 
ran a fiscal surplus of 3 percent of GDP for 
2007; there are still no official figures available for 2008.

It is important to note that not all government 
spending is included in these figures for central 
government finances. Much of the government's 
spending has, in recent years, been carried out 
directly from PDVSA, the state oil company. For 
example, in the first three quarters of 2008 
(January through September) PDVSA had $13.9 
billion, or 6.1 percent of GDP in public expenditures.

It is also worth noting that real (inflation 
adjusted) social spending per person more than 
tripled from 1998-2006.[10] Over the decade, the 
government's total public debt has fallen from 
30.7 to 14.3 percent of GDP. The foreign public 
debt has fallen even more, from 25.6 to 9.8 percent of GDP.

[]


[]


[]





Inflation and the Exchange Rate

Figure 10 shows the monthly year over year 
inflation over the past decade, as measured by 
changes in the Caracas Consumer Price Index. 
President Chávez took office with inflation at 
29.5 percent. This dropped to 12.3 percent over 
the next three years, then soared to a peak of 
38.7 percent in February of 2003 as a result of 
the economic destruction caused by the oil strike 
at that time. After the strike ended in that 
month, the economy grew very rapidly while 
inflation declined sharply to a low of 10.4 
percent in May of 2006. It then began an upward 
climb that, except for a dip from 
FebruaryDecember 2007, brought inflation to a 
peak of 36 percent in September of 2008, from 
which it has since declined to 32 percent.

[]





However, the year over year numbers give only a 
rough picture of current trends. For a more 
detailed picture, it is better to look at three 
month intervals and separate out the core 
(excluding food and energy) from headline 
inflation. This is especially important because 
food and energy prices surged worldwide in the 15 
months from April 2007 to July 2008, and then fell back sharply.

As can be seen in Figure 11, headline inflation 
in Venezuela during the year ending July 2008 
averaged 33.7 percent with core inflation 
averaging 28.7 percent over the same period. Both 
figures are significantly higher than they were 
in the two previous years -17.2 and 16.5 percent 
respectively. However, recent inflation has been 
concentrated in the first half of 2008 and has 
abated considerably in the second half. The three 
month average headline inflation peaked in 
January at 54.3 percent and for the three months 
ending in December ran only 31.4 percent. Core 
inflation also peaked at 43.8 percent in the 
three months ending in January, but now stands at 24.7

percent. While this rate of inflation is still 
much higher than the previous couple of years 
(although still low by Venezuela's historical 
standards) the considerable deceleration of 
inflation during 2008 does not appear to be 
cyclical, but rather the passing of temporary price shocks.

Given the trajectory of the regional and world 
economy, inflation is likely to continue 
declining this year, in the absence of 
unanticipated events and/or serious shortages. 
Inflation itself, then, does not seem to be a 
direct threat to economic growth in Venezuela, 
although the government will want to bring it down over time.[11]

[]





The more serious problem posed by Venezuela's 
inflation is that, due to Venezuela's fixed 
exchange rate regime, it contributes to a growing 
and ultimately unsustainable overvaluation of the 
country's real exchange rate. The bolivar is 
pegged at 2,150 to the dollar; it was fixed at 
1,600 in February 2003 when the government 
implemented foreign exchange controls. If we 
assume that the currency was neither overvalued 
nor undervalued when the exchange controls were 
implemented - more likely it was already 
overvalued - we would expect a depreciation to 
about 4,200 (or 4.2 Bolivares Fuertes) as a result of Venezuela's inflation.

Thus the Venezuelan currency is at least 49 
percent overvalued relative to the dollar. It is 
worth noting that this is not necessarily 
overvalued to the extent indicated by the 
parallel market rate, which fluctuates 
considerably and is currently at about 5,400 
bolivares to the dollar. Nonetheless the currency 
is still very overvalued. This is something that 
will have to be remedied if Venezuela is going to 
pursue a long term development strategy that 
diversifies the economy away from oil. An 
overvalued currency discourages the development 
of non oil sectors, exports and import competing 
sectors, and especially manufacturing. It makes 
imports artificially cheap and the country's 
exports more expensive on world markets, thus 
putting the country's tradable goods at a serious 
disadvantage in both international and domestic 
markets. As can be seen from the data on sectoral 
growth, manufacturing did not grow. This is a 
serious long term development problem. There are 
also distortions and inefficiencies associated 
with the system of exchange controls and the parallel market.

The overvalued fixed exchange rate, combined with 
present levels of inflation, thus presents a 
significant intermediate term problem. Even if 
inflation is stabilized and begins to be reduced, 
so long as it remains at or near current levels 
and the nominal exchange rate remains fixed, 
Venezuela's currency will become increasingly 
overvalued in real terms. This will increasingly 
squeeze domestic production outside of oil and 
non tradables, and would eventually become 
unsustainable. It is worth noting that the growth 
in manufacturing has fallen sharply in 2008 (see 
table 2 above); it is possible that the 
overvalued exchange rate has contributed to this 
decline, and very likely that it has limited the 
overall growth of manufacturing relative to other 
sectors of the economy (see above) during the current economic expansion.

Nonetheless, Venezuela's overvalued exchange rate 
does not present the kind of immediate threat 
that e.g., overvalued exchange rates in 
Argentina, Mexico, Brazil, or Russia presented in 
the 1990's, where a sudden and forced devaluation 
was imminent. The Venezuelan government still has 
a number of options for bringing the currency to 
a more competitive level over time. There is no 
reason to think that the government would be 
forced to devalue, nor would a devaluation 
necessarily have to be sudden or drastic.

The Current Situation and Looking Forward

The Venezuelan economy slowed in 2008, to an 
estimated 4.9 percent growth rate, from 8.4 in 
2007. The slowdown was probably at least partly 
due to government efforts to slow inflation in 
2007. From February to September 2007, monthly 
year over year inflation dropped from 20.4 to 
15.3 percent (see Figure 10, above), before 
rising again. Another change that may have 
contributed to the slowdown in growth was a 
decline in public sector capital formation. Table 
7 shows that public sector capital formation 
slowed sharply in 2007. It had previously grown 
quite rapidly throughout the expansion, although 
not as fast as in the private sector. For 2008, 
there is not yet a breakdown between public and 
private capital formation, but total capital 
formation (public and private) actually declined 
by 1.5 percent. This is a problem that will have 
to be addressed if the economy is to continue at 
a healthy rate of growth; right now it appears 
likely that the government will address this 
problem in the near future through a stimulus 
program that includes public spending on 
infrastructure and other public investment.

[]





Like almost all developing countries, Venezuela 
faces a number of challenges in 2009. World 
economic growth is falling drastically; the IMF 
has now lowered its estimate for World GDP growth 
to 0.4 percent, the lowest since World War II and 
down from an actual GDP growth of five percent in 
2007. The ILO estimates that between 30 and 50 
million people will be added to global 
unemployment. The global financial crisis, which 
the IMF now estimates will result in $2.2 
trillion in losses in the United States alone, is 
still not resolved, and it is increasing the cost 
and reducing the availability of credit in developing countries.

Venezuela does not receive any significant 
foreign investment from the United States or 
other countries that have been hard hit by the 
financial crisis and economic slowdown. The most 
important, and practically the only, direct 
impact of these external events on Venezuela is 
through oil prices. Petroleum exports are 
currently about 93 percent of Venezuela's exports.

The relevant question for Venezuela is therefore 
how far oil prices would have to fall before the 
country would begin to run an unsustainable 
current account deficit. This is the binding 
constraint for developing countries. In other 
words, the United States, Europe, and Japan will 
- inasmuch as they choose to do so - pursue 
expansionary monetary and fiscal policies, 
including deficit government spending, in order 
to counteract the current recession. Developing 
countries can and ideally should do the same, but 
unlike these rich countries, they face a 
constraint due to the fact that their national 
currencies are not "hard" currencies. Therefore 
they cannot count on being able to borrow nearly 
as much, relative to GDP, or for so long a period 
of time, as countries with hard currencies, to 
cover their import needs. For this reason, the 
balance of payments - not the central government 
budget, which can be covered in local currency - 
is the most important and binding constraint on 
developing countries such as Venezuela in the present situation.

Venezuela ran a current account surplus estimated 
at 13.9 percent of GDP for 2008. This huge 
current account surplus would fall to zero at 
about $45 dollars a barrel for Venezuelan oil. 
Venezuela's oil is currently at approximately $38 
per barrel, so if oil prices remain at present 
levels, we would expect a current account deficit 
by the end of this year. However, this would not 
cause any balance of payments problems, as 
Venezuela has approximately $82 billion, or 25 
percent of GDP, in foreign exchange reserves - 
more than twice what the country needs. A current 
account deficit of 2 or 3 percent of GDP, which 
is what we might expect if oil prices remain at 
this level, is not significant in the face of 
such large reserves. This could even continue 
through next year without posing a significant problem.

Of course, oil industry analysts, as well as 
futures markets, do not expect oil prices to 
remain this depressed for very long. The futures 
price for December 2010 crude (WTI) is over $60 
per barrel. So, unless oil prices remain 
depressed for years longer than anyone is 
expecting, Venezuela is not likely to have to dip 
very far into its reserves. Venezuela is also 
fortunate in that its foreign public debt is low, 
at about 9.8 percent of GDP. Principal payments 
for the next four years are about $1.5 billion a 
year, which is very modest. Therefore Venezuela 
could also increase its borrowing internationally 
if necessary, but it is extremely unlikely to 
encounter any balance of payments problems.

The main determinant of Venezuelan growth in 2009 
and probably 2010 is likely to be the size, 
speed, and efficacy of a fiscal stimulus. The 
government has recently announced a major public 
spending program of about $12 billion, or 3.6 
percent of GDP. As in most other countries in the 
hemisphere, including the United States, it will 
be important to move quickly on this program. In 
the face of strong deflationary pressures, as 
discussed above, Venezuela's inflation is likely 
to continue falling in the near future. As in 
most countries today, the government should not 
be overly concerned about inflation, so long as 
it continues falling; nor does it need to worry 
about adding to the public debt, which is not 
very high at 14.3 percent of GDP. The challenge 
is to compensate for falling private demand until 
the world economy begins to recover, so as to 
avoid an unnecessary recession. It is worth 
noting that Peru, Chile, Argentina, Mexico, and 
other countries in the hemisphere have already 
announced significant fiscal stimulus programs, 
some of them comparable to that of the United 
States, relative to their economies.

The main challenge for Venezuela in the next 
couple of years will therefore be to implement an 
effective stimulus package that can keep the 
economy on a steady growth path. It would be even 
better if, as the Chinese government did during 
the Asian crisis ten years ago, Venezuela could 
make infrastructure and other public investments 
that will increase productivity in the years that follow.

Works Cited

BCV (Banco Central de Venezuela), 2009. 
"Indicadores: Información Estadística. Online 
database. Consulted 2 February 2009. 
<http://200.74.197.130/c2/indicadores.asp>http://200.74.197.130/c2/indicadores.asp. 


SISOV (Sistema Integrada de Indicadores Sociales 
de Venezuela), 2007. "Logros." Caracas: 
Ministerio del Poder Popular para la 
Planificación y Desarrollo. 
<http://www.sisov.mpd.gob.ve/estudios/detalle.php?id=158>http://www.sisov.mpd.gob.ve/estudios/detalle.php?id=158 


SISOV (Sistema Integrada de Indicadores Sociales 
de Venezuela), 2009. "Indicadores." Caracas: 
Ministerio del Poder Popular para la 
Planificación y Desarrollo. Online database. 
Consulted 2 February 2009. 
<http://www.sisov.mpd.gob.ve/indicadores/>http://www.sisov.mpd.gob.ve/indicadores/. 


INE (Instituto Nacional de Estadística), 2008. 
"Resumen de Indicadores Sociodemográficos 
19982008. Caracas: Ministerio del Poder Popular 
para la Planificación y Desarrollo.. 
http://www.ine.gov.ve/resumenindicadoressociales/descarga/ResumenIndicadoresSociode 
mograficos.zip.

INE (Instituto Nacional de Estadística), 2009. 
Homepage. Caracas: Ministerio del Poder Popular 
para la Planificación y Desarrollo. Online 
database. Consulted 2 February 2009. http://www.ine.gov.ve/.

Rosnick, David and Mark Weisbrot. 2009. 
"Inflation Experiences in Latin America, 
20072008." Washington, DC: Center for Economic 
and Policy Research (Forthcoming).

Weisbrot, Mark and Rebecca Ray, 2008. "Oil Prices 
and Venezuela's Economy." Washington, DC: Center 
for Economic and Policy Research (November). 
http://www.cepr.net/index.php/publications/reports/oilpricesandvenezuelaseconomy. 


About the Authors

Mark Weisbrot is CoDirector; Rebecca Ray and Luis 
Sandoval are Research Assistants at the Center 
for Economic and Policy Research in Washington, DC.

Acknowledgements

The authors would like to thank Dean Baker and 
Dan Beeton for their comments, and Jake Johnston, 
Juan Vazquez and Kunda Chinku for editorial and research assistance.

Endnotes

[1] Seasonally adjusted.

[2] United States Census Bureau. 2006. “Current 
Population Survey, 1968 to 2006 Annual Social and 
Economic Supplements, Table A3.” 
http://www.census.gov/hhes/www/income/histinc/p60no231_tablea3.pdf]

[3] SISOV (2009).

[4] Ministerio del Poder Popular para la Salud, 
2007. "Logros de la Misión Barrio Adentro I al 16 de febrero de 2007" (As
of February 16, 2007).

[5] These estimates use the Instituto Nacional de 
Estadísticas (INE) population estimates by age for 2008: 5,522,489
children ages five through 14, and 2,703,056 
children ages 15 through 19. (INE, 2009).

[6] The estimates for enrollment in higher 
education for the 2006-2008 period are from 
Ministerio del Poder Popular para la 
Planificación y Desarrollo, 2008, "Logros de la 
Revolución en un país de 28 millones de habitantes", October,
Caracas, Venezuela. Population estimates are from 
the Instituto Nacional de Estadísticas (INE).

[7] SISOV (2009).

[8] There has been some debate over the size and 
effectiveness of Mision Robinson -see Rodríguez, Francisco and Daniel
Ortega. 2006. "Freed from Illiteracy? A Closer 
Look at Venezuela's Robinson Literacy Program." 
Middletown, CT: Wesleyan University, Department 
of Economics and Rosnick, David and Mark 
Weisbrot.2008. "'Illiteracy' Revisited: What 
Ortega and Rodríguez Read in the Household 
Survey". Center for Economic and Policy Research, Washington, D.C.

[9] These prices refer to WTI oil, according to 
U.S. Energy Information Agency data.

[10] Real per capita social spending in Venezuela 
increased by 218.3 percent over the 19982006
period. This calculation includes social spending 
by both the central government and PDVSA, 
deflated by the Caracas Consumer Price Index. 
Data for central government social spending are 
from SISOV and for PDVSA from the company's 
financial statements. Consumer price data are 
from the Banco Central de Venezuela.

[11] See Weisbrot, Mark and Luis Sandoval. 2008. 
"Update: The Venezuelan Economy in the Chávez Years." Center for
Economic and Policy Research, Washington, D.C., p.18.

[12] This is based on the ratio of Venezuela's 
cumulative consumer price inflation since February 2003, which is 201.4
percent, to U.S. inflation of 14.8 percent.


Source:
<http://www.cepr.net/index.php/press-releases/press-releases/report-examines-economy-and-social-indicators-during-the-chavez-decade-in-venezuela/>CEPR 





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