Venezuela Macroeconomic Outlook (CSIS)

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Transcript of Venezuela Macroeconomic Outlook (CSIS)

  • 1. Outlook for Venezuelas Economy: 2009 and Beyond Center for Strategic and International Studies / Program Americas May, 2009 Miguel ngel Santos Adjunct Professor, Center of Finance, IESA www.miguelangelsantos.blogspot.com
  • 2. After five years of sustained increase in oil price, the Venezuelan oil basket plummeted, closing Jan-Apr 53.7% below same period 2008 First Chvez Policy Package: Feb, 18 2002: Vzla. Oil Price: 16,71 Devaluation: 39% (one day) Taxes: IVA + IDB Reduction in public exp. Second Chvez Policy Package
  • 3. Starting 2005, oil exports in real terms have been the highest in Venezuelan history, reaching a peak in 2008 at US$87.443 billion
  • 4. On a per capita basis, however, real oil exports are still 18% below their peak (1974)
  • 5. Oil revenues were translated into public expenditure, causing a massive increase of liquidity Inflation 22%-32% Inflation 14%-20% 2004-2008: 517% CAGR: 44%
  • 6. GDP growth registered a 63.8%+ increase between 2004-2008, but it was already decelerating at a fast pace before oil prices came down 1Q 2009 0,3%
  • 7. The inflation rate reported does not correlate with the large difference between M2 and GDP growth
  • 8. Before the Central Bank changed the base year and the methodology of estimation, investment (public and private) were at historic lows Average Depreciation 1982-2002 (% of GDP): 7.53%
  • 9. The new methodology incorporates imports of durable goods (among other changes) as gross formation of capital
  • 10. By 2004 the average age of the Venezuelan capital was 67% higher than Chile, 25% higher than Latin America If we start investing twice as much as Chile, by 2025 we may expect to catch up in terms of technology and age of capital
  • 11. Venezuela is currently the worst destination for private capital in Latin America That can not be changed by decree ARGENTINA BOLIVIA BRAZIL CHILE COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA HONDURAS MEXICO NICARAGUA PANAMA PERU URUGUAY VENEZUELA R DOMINICANA 1 21 41 61 81 101 121 141 161 0 10 20 30 40 50 60 70 80 90 100 Political Stability Index (World Bank, 2008) Doing Business Rank (World Bank, 2008) Best Profile Governance / Business Climate ARGENTINA BOLIVIA BRAZIL CHILE COLOMBIA COSTA RICA ECUADOR EL SALVADOR GUATEMALA HONDURAS MEXICO NICARAGUA PANAMA PERU URUGUAY VENEZUELA R DOMINICANA 1 21 41 61 81 101 121 141 161 0 10 20 30 40 50 60 70 80 90 100 Political Stability Index (World Bank, 2008) Doing Business Rank (World Bank, 2008) Profile Governance / Business Climate
    • In ease of doing business Venezuela is only above Chad, Sao Tom, Burundi,
    • Republic of Congo, Guinea-Bisseau, Central Africa y Democratic Republic of Congo
    • It is a lot easier to do business in Sudn, Irak, Hait, Zimbabwe y Afganistn
  • 12. First set of ideas
    • The Venezuelan growth experience was based on a combination of idle capacity, and oil fueled-public expenditure
    • With net investment in fixed capital close to zero, increases in public expenditure had less effect on growth and more in prices
    • Had oil prices remained high, inflation (demand driven) would have been even higher, but there would have been more room to keep on increasing consumption through cheap imports
  • 13. If GDP grew at 63.8% between 2004-2008, consumption grew at an even higher rate: 84.1% (equivalent to 66.3% per capita) 84.1% Consumption (000s Bs. F. 1997, 1998-2008) - 10.000.000 20.000.000 30.000.000 40.000.000 50.000.000 60.000.000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
  • 14. The gap between production and consumption was bridged through a massive inflow of imports 2003-2007 CAGR: 44.3% 2008: 5.8% Imports (US$, 1998 - 2008) 13.213 16.865 19.211 13.360 10.483 17.021 24.008 32.498 45.463 48.095 15.105 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 40.000 45.000 50.000 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
  • 15. Cheap imports were eased by massively overvaluing domestic currency Exchange Rates US$/Bs.F. (Jan 2000 - Apr 2009) 2,15 6,61 5,93 5,46 6,78 0 1 2 3 4 5 6 7 8 Ene-00 May-00 Sep-00 Ene-01 May-01 Sep-01 Ene-02 May-02 Sep-02 Ene-03 May-03 Sep-03 Ene-04 May-04 Sep-04 Ene-05 May-05 Sep-05 Ene-06 May-06 Sep-06 Ene-07 May-07 Sep-07 Ene-08 May-08 Sep-08 Ene-09 Official Parallel Rate PPP CPI (1990=100) M2/RIN PPP - WPI (1990=100) Source: BCV, my own PPP estimations
  • 16. Cheap imports were eased by massively overvaluing domestic currency Real Exchange Rate - Jan 1990 - April 2009 (CPI - Jan 1990 =100%) 36,3% 111,5% 30% 50% 70% 90% 110% 130% 150% Ene-90 Dic-90 Nov-91 Oct-92 Sep-93 Ago-94 Jul-95 Jun-96 May-97 Abr-98 Mar-99 Feb-00 Ene-01 Dic-01 Nov-02 Oct-03 Sep-04 Ago-05 Jul-06 Jun-07 May-08 Abr-09 RER Official RER 100% RER Parallel RER = 100%
  • 17. And then oil prices came down the future is not what it used to be At US $45 per barrel, oil exports per capita would fall 53% when compared to 2008
  • 18. We need to cut down sharply in imports at a point when our dependence of imports is very high: 36-37% of total internal demand Volume of imports as a percentage of total internal demand (1997-2008) 24% 26% 25% 26% 28% 24% 22% 26% 30% 33% 37% 36% 0% 5% 10% 15% 20% 25% 30% 35% 40% 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 *
  • 19. Total US$ granted at official rate (2.15) fell by 29% in Jan and Feb, 59% in March, sending importers to the parallel market
  • 20. where the prevailing exchange rate is 200% higher! 6.61 2,15 6.97
  • 21. What have we done with the US$ coming from the oil bonanza? In 2008, with the average Venezuelan barrel at US $88.6 and oil exports at US $87.433 billion net accumulation of foreign reserve was US$9.275 billion Balance of Payments 2008 (US$ Million) 93.542 1.394 48.095 6.245 9.194 18.380 3.747 9.275 0 Exports FDI Imports Services / Other Var. Public Assets (net) Errors & Omissions Variation RIN Bonds/US$ Supplied to Parallel market 94% Oil Var. Private Assets (net)
  • 22. Given the fears and expectations fueled by the government, to keep the parallel market stable means to finance a large private capital outflow Private Capital Outflows (US $ Million, 2000-2008) 9.841 3.783 8.797 11.738 7.310 18.916 22.127 6.118 9.403 0 5.000 10.000 15.000 20.000 25.000 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source: BCV
  • 23. At run rate, to keep imports and private outflows (parallel market) at the same pace implies losing US$30.5 billion of international reserves Assuming oil exports at 2.8 MBD (official figure) at US $45 per barrel Balance of Payments (pro-forma) (US $ Million) 45,990 48,095 6,245 22,127 (30,477) (30,000) (20,000) (10,000) 0 10,000 20,000 30,000 40,000 50,000 60,000 Exports I