2011 Economic Outlook
Author: Aaeron ehast
The government, which is a euphemism, has estimated the new budget presented in October, based on a barrel of oil at $ 40 and estimates a GDP increase of 2 percent with inflation at between 23 and 25 percent for next year.
Nothing is further from the truth. First, the obvious government or hides the impact of inflation on the relative increase of 28% of budget compared to the previous year while the underestimates by placing in 25% when surely be much closer to 30% which implies that the budget is actually lower than the current year and this will force the use of “other sources” of funding, which has become his favorite sport.
Also the “euphemism” hides what to do with the price differential between the $ 40 projected in the budget and the current oil price, which moves, with an upward trend, around $ 70 for the Venezuelan basket. Although it is not difficult to imagine the fate of this differential.
The evolution of the economic downturn enveloping the country will depend largely on decisions taken by the government, especially now that the reserves are below a reasonable minimum to cover one year of imports, especially considering that the service external debt of the nation is estimated at more than 14.ooo million for 2011 as CADIVI not have the capacity to satisfy the demands of the private sector and this will cause shortages and higher prices for them.
The external sector surplus for the huge oil revenues, as was done in 2010 will pay for restricting the supply of currency issued by CADIVI to try to prevent, unsuccessfully, the outflow of capital and leverage to a possible adjustment in the nominal rate official exchange within the first quarter of 2011 using a linear depreciation rate could be around 30% of the value of official currency. Be with the manipulation of these numbers that the government show a growth in the paper looks indisputable, but in reality only report as far more misery.
The government will maintain a large, inefficient and unproductive public spending due to the commitments related to social programs that keep the muzzle of the population and arepa through which pays for the maintenance of their hosts, thereby achieving maintain the illusion abundance that clouds so many Venezuelans and that is the real reason for his staying power.
The nominal spending will be affected by 30% which is expected inflation, so to be financed with resources from the Fund. Through the award of government securities, of which approximately 40% and repeating the formula of 2010 will come from the placement of dollar-denominated bonds due in Bs and withthe exchange gain generated by the emission of estos.Y The remaining shortfall would be covered by the reserve accumulation des treasure and resources of the National Treasury in USD.
Real sector: In terms of economic growth is expected zero leverage the economic recession of the last two years. The GDP growth is not associated with factors such as: a) the restructuring of government spending favoring its current component; b) bottlenecks in the supply-side weakness associated with the private sector and the consequent lack of investment resulting from the lack of reliable judicial system and an accommodating legal system and changing c) having regard to the damming of foreign currency by CADIVI business as a weapon to bow have severe limitations to the “growth” of imports. Consequently, the non-oil GDP will decrease by about 2%, the oil will grow by the same magnitude. In this sense, the activities of the economy that will prove the disadvantaged sectors of mining, real estate and business services to companies, manufacturing and especially the health sector is on track to be fully operated via the sector bottlenecks insurance.
Fiscal policy: there are two different scenarios: by the side of the oil revenues is expected a significant increase with respect to 2010 which will be determined by their prices throughout the year and on the side of non-oil revenue due to decreased the size of the private sector is estimated a lower effective rate of tax collection in the main due to the decrease of the domestic economy. However, despite the above is expected to increase tax revenues by 10% due to foreign exchange gain generated by the currency trading. It also looks possible upward adjustment in tax rates or tax on the value of tax units.
Monetary policy: Even taking into account the zero growth of GDP due to the devaluation of the government surely will come to expect monetary growth will increase inflationary pressure, which must be added the additional pressure generated denominated bonds dollars and paid in Bolivars.
Also it is expected that due to the high inflation period, interest rates will remain negative.
The consumer trend is downward driven by inflation and declining purchasing power of the population in spite of wage increases that may be enacted.
Labor market: With zero economic growth is sure to override the potential for employment generation and on the contrary, the destruction of the business will cause the unemployment rate increases and that the informal economy covers more than 50% economically active population.
In short, the year 2011 will be a difficult year, with inflation close to 30% with difficult situations associated with the demand for higher wages that can not be met, with severe restrictions on foreign currency by Cadivi, with an expansionary monetary policy as a result of the devaluation will generate more inflation, increasing the tax burden more to impoverish the population, with a significant fiscal deficit will be solved with increased external debt, with an unmanageable fiscal voracity with the irresponsible use of extrabudgetary funds, non-reproductive extraordinary expenses representing 11.0% of GDP, spending more than inefficient to push the national productive apparatus, with an unprecedented crisis in the electricity sector.
Ultimately the year 2011 is expected to further structural deterioration of the economic apparatus although the government believes that the surge in oil prices will provide enough income to reactivate the productive apparatus by way of public spending. They are completely wrong. To the extent and how it is conceived public spending, nothing will be enough for Venezuela to return to the path of economic growth unless they take into account the private sector who is the lead investor and employer in an economy that seeks to grow steadily high rates.
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