EL UNIVERSAL
VÍCTOR SALMERÓN

Over the last four years, the Venezuelan economy followed a pattern where oil boom triggered public expenditure and skyrocketed liquidity. In the meantime, the large amount of money in the streets increased consumption. Indeed, the index of the Central Bank of Venezuela (BCV) which measures the behavior of sales in stores went up to 133 percent during 2004-2007.

However, this pattern is starting to change significantly. Despite the upward trend of oil prices and the average recorded so far at USD 92.99 vs. the USD 64.7 in 2007, Venezuelans are starting to consume less.

According to pollster Datanálisis, sales in textile sector fell down 12 percent in the first four months of the current year; cellular telephony consumption measured in seconds dropped 10 percent, and soft drinks, 6-percent. Based on the estimates of the Automobile Chamber, total sales dropped by 19.7 percent in the first quarter of the year, in comparison with the percentage of the same period in 2007.

It is also showed that loans to buy cars increased by 8 percent in the first quarter of this year, compared with 14.2 percent the same period in 2007. The same happens with credit cards, from 18.7 percent down to 8.6 percent.

This is premeditated
What is going on? Luis Vicente León, Datanálisis director, stated that "a disguised adjustment has been deliberately made to deal with a macroeconomic unbalance."

Such economic unbalance is basically an offer that does not follow the pace of demand. The manufacture production, according to BCV, only increased 31 percent during 2004-2007. Hence, despite a 324-percent increase in imports, inflation appeared.

With the intention to bring prices down, the Venezuelan government regulated the prices of a wide range of goods. Nevertheless, this caused shortage in markets and grocery stores.

The remedy
There was no choice but  to cool down the economy. BCV adjusted the interest rates for consumption from 28 to 33 percent, the limit interest rate allowed for credit cards. Likewise, it curbed public expenses, sold bonds in US dollars, repaid the Venezuelan government debt in dollars, and increased the amount of deposits to be frozen by banks to make a balance. All these measures are to determine the curb of liquidity in 2008.

Furthermore, in order to lessen the shortage, a hike staples prices has been allowed. This has sped up the inflation rates, which have showed a 29.3-percent increase in the last twelve months, and hits Venezuelans' real income.

Datanálisis stated that as of April Venezuelans' purchasing power sank by 3.85 percent in 2008.

It is worth mentioning also that the Venezuelan government, in the midst of the unusual increase in imports, started to ration foreign exchange and allocated bonds to some companies that may be bought at an exchange rate lower than the official rate. Consequently, the market is convinced that the local currency has been devalued.

Gustavo García, professor at the Institute of Higher Education in Business Administration (IESA), stated: "In the midst of the lengthiest oil boom in history, Venezuelan economy is slowing down because economic unbalances hinder the productive sector. Due to decreasing liquidity, there is ration of credits, as well as in the issue of bonds. Venezuela is moving towards stagflation, that is, high inflation rates and slower economic growth."

To sum up, "the oil boom is in the Venezuelan government's hands, not in the rest of the Venezuelan economy."

Mirages
Venezuela's Minister of Planning Haiman el Troudi is urging Venezuelans to reduce "sumptuary consumption" and save money. In his opinion, there are still some conditions for families to save money for the future.

However, Datanálisis revealed that 38 percent of the Venezuelan population, which comprises 10 million people, cannot afford the basic food basket. The 20 percent, composed by richer people, takes 60 percent of the income.

Additionally, the Venezuelan society is highly inclined towards consumption. The high-income strata can only save 8.1 percent of their income, and the medium-income strata, 4.4 percent.

vsalmeron@eluniversal.com

Translated by Karina Gómez Pernas.