CARACAS, Friday April 24, 2009 | Update
Major economies in the hemisphere are taking steps to shield job creation and industrial production (File Photo: AFP)
In the face of a global crisis that has cut the demand of exported goods; turned the financing tap off in the international market and evaporated foreign investment, the governments that command the main Latin American economies, except for the Venezuelan government, have embarked upon a number of policies to circumvent recession and mitigate its impact on people.
The medicine applied by Brazil, Mexico, Argentina, Chile, Colombia and Peru to keep the economic engine running is based on cutting taxes, increasing public expenditure in investment programs and incentives for job creation.
On the paper
With regard to the reply of Latin American and Caribbean governments to the international crisis, the Economic Commission for Latin America and the Caribbean (ECLAC) highlighted that the administration of Brazilian President Luiz Inácio Lula da Silva has injected through its Program on Growth Speedup and multiple initiatives around USD 50 billion in order to feed investment and consumption. Concomitantly, it has reduced the income tax for the middle class and some other taxes to cut the prices of cars, motorcycles and building materials.
The Mexican government has implemented the Program to Bolster Growth and Employment. It envisages funding by one percent of the GDP to increase expenses in infrastructure, namely: roads, schools, hospitals, drainage piping in the countryside; build a new refinery for state-run oil company Pemex; grant credits to small and medium-sized businesses; and deregulate and remove tariffs.
Chilean President Michelle Bachelet has implemented the Economic Incentive Plan amounting to USD 4 billion, or 2.8 percent of the GDP, to spur investment and consumption. She has also set a strategy for easy funding of 1,600 micro-businesses and 2,000 entrepreneurs.
Peru enlarged public investment by 60 percent in real terms from January to October 2008, in order to pump enough fuel to the economy. This year, expenditure will not decline thanks to the monies from a savings fund.
The Colombian government has already made provision for borrowing in order to offset the 2009 budget, and anticipated both a cut in taxes and an investment plan in public works.
Argentina has provided incentives for capital repatriation and job creation.
The Venezuelan economy, under the impact of private investment locked in stalemate and falling oil income, is slowing down. In the fourth quarter of 2008, it grew 3.2 percent, leaving 11.4 percent in 2006 far behind.
Consumption has cut out and the numbers provided by the Central Bank of Venezuela (BCV) show that manufacturing, construction and mining, the central areas for job creation, are seriously damaged.
The administration of President Hugo Chávez, according to the Finance Minister, has about USD 50 billion available in savings. Thus far, they have just announced actions aimed at matching the government accounts with falling oil revenues.
In this way, most of the measures can be summed up as follows: budgetary restrictions, rising taxes and borrowing in the domestic market.
This year, the government will expend USD 72 billion, that is, a 15-percent drop compared with USD 85 billion in 2008.
A declining public expenditure while the private sector feels a shrinking demand will make the economy weaker and contain its growth in the next quarters.
As reported by financial entities, the 3-percent hike in the VAT will lessen consumption capacity and have also an impact on growth.
Concomitantly, the Foreign Exchange Administration Committee (Cadivi), the agency responsible for allocation of foreign currency at the official exchange rate, cut by 32 percent the apportionment of US dollars for exports in the first two months of 2009. Analysts have termed this step as "devaluation in its own right."
Marino González, a member of think-tank Social Agreement for Development, noted that based on the numbers provided by the official National Statistics Institute (INE), ending last year, 9 percent of people, around three million, are in critical poverty and need some safeguard measures.
"Inflation has sped up and family income has dropped. What will happen to these people who are not assured of their access to food?" wondered Marino González, and he added that Chile approved a USD 60 bond for the neediest; Colombia expanded coverage of its welfare programs and Mexico implemented subsidies.
While President Chávez's government has a number of social programs labeled as missions, it should be noted that according to the latest progress report of state-run oil holding Petróleos de Venezuela (Pdvsa), contributions have diminished.
A comparison of the first nine months of 2008 with the same term in 2007 found that Pdvsa's outlays for missions sank by 65.3 percent.
González said that coverage of such missions should be also noted, as it is far from encompassing all the poor.
Translated by Conchita Delgado
02:57 PM. HEAVY RAINS. Venezuelan Executive Vice-President Elias Jaua reported that the government is designing plans to support farmers, cattlemen and peasants of the state of Mérida who have been hit by heavy rains that have caused crop losses.