From the Editors of VenEconomy
On Friday, December 30, the Central Bank of Venezuela announced the preliminary results of the economy for 2011, and the truth of the matter is that the figures published are far from encouraging.
According to the Central Bank, Gross Domestic Product (GDP) grew by 4%, with oil GDP going up by a meager 0.6%, whereas non-oil GPD increased by 4.3%, a result that compares favorably to the contractions posted in 2009 and 2010.
Unfortunately, as VenEconomy expected, the “improvement” in Venezuela’s economy is artificial. It is due mainly to the excessive and irresponsible increase in public spending, financed, in part, by an unprecedented increase in public debt ($16.6 billion). Central Government spending rose by 37%; and that does not include spending in the parallel budget (i.e. disbursements by Fonden and Bandes).
Just how artificial this growth in the economy is can be seen in the increase in imports (up 18%) and in the growth of GDP for Commerce (6.6%), Financial Institutions (11.2%), and General Government Services (5.3%). These increases are in contrast to the poor performance of GDP for Manufacturing (3.5%, thanks to a supposed revival of the basic industries in Guayana) and for Construction (3.4%). It is worth noting that there was a contraction in GDP for both Agriculture and Hotels and Restaurants.
The balance of payments ended 2011 with a deficit of only $464 million, and it could have been worse were it not for the fact that the international reserves received an injection of $2.5 billion on the last business day of the year.
The cost to Venezuelans of this policy of growth fueled by public spending was reflected in: 1) higher inflation (29% for the Caracas Metropolitan Area and nationwide inflation of 27.6%); 2) increased shortages of goods and products (the Central Bank’s shortages indicator came to 15.2% in December, the highest since May 2008); and 3) a bolivar that is overvalued by an estimated 150%.
The signs are that this policy of achieving “growth” via public spending will continue in this election year and that it will more than likely include yet another issue of government bonds in January and further borrowing from China, as hinted at by President Chávez in his January 8 edition of his “Aló Presidente.”VenEconomy has been a leading provider of consultancy on financial, political and economic data in Venezuela since 1982.
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