Economy
Faced with a weakening economy, in October, Planning Minister Jorge Giordani disclosed the treatment to stabilize the economy, achieve zero growth in 2009 and take off again in 2010, but the medicine did not work.

Venezuela's economy ended the year with a decline of 2.9 percent, which means that recession has worsened, as the economic slowdown in the fourth quarter was 4.6 percent, above the decline in the third quarter.

Jorge Giordani announced a plan for public investment in agriculture, tourism and construction that was expected to be supported by private banks. He announced domestic debt refinancing, actions to keep the US dollar from soaring in the parallel market and disbursement of foreign exchange at the official rate. He said that subsidies and price controls would help curb inflation.

If it even started, the investment plan is moving quite slowly. After a brief decline following debt bond issues, the US dollar rebounded in the parallel market. Inflation remains the highest in Latin America. However, progress has been made in the delivery of foreign exchange at the official rate, due to rising oil prices.

The disease
Beyond the implementation of the measures or not, José Guerra, director of the School of Economics, Central University of Venezuela, estimates that the official diagnosis disregards a number of key factors.

"The overvaluation of the currency hits domestic production. Investment has plunged. The State is the enemy of the private sector and entrepreneurship is finished off. There is also a drop in Guayana basic industries. Inflation is hitting private consumption."

In 2009, investment in machinery and equipment that help to increase production and employment, decreased by 7.6 percent, following a 3.3 decline in 2008.
Consumption, another key piece in the puzzle of the economy, is also negative. Private consumption declined by 2.6 percent, pushed down by "falling real income, rising unemployment and reduced household spending."

During the first eleven months, prices jumped 23 percent. Yearly inflation is estimated at around 25 percent, which undermined purchasing power.

The central bank conceded that inflation is due to the rising price of the US dollar in the parallel market, which increased the cost of imports, "the inertia, the contraction in domestic supply, especially of manufactured goods and the increase in VAT."

Production in the manufacturing sector dropped by 7.4 percent, while trade, under the effect of shrinking consumption, tumbled 8.2 percent.

Telecommunications (up 10.1 percent), construction and electricity generation and water were the only sectors of the economy that remained afloat.

Oil and spending
According to Barclays Capital, and other global financial institutions, thanks to the insatiable demand from China, the price of oil has started to rebound.

Venezuelan oil average price in 2009 is estimated at USD 72. Thus, public spending will take off in 2010, an election year when deputies to the National Assembly will be elected.

Analysts believe that the investment gap, which has hindered the expansion of the production capacity, and inflation, which has weakened the purchasing power of the bolivar, have undermined public spending.

However, public spending is expected to help revive consumer spending and the economy is likely to take some breath.

The government's economic growth goal is 0.5 percent, while research firm Ecoanalítica's forecast is 1.2 percent, and pollster Datanálisis estimates growth next year at 2 to 3 percent.
vsalmeron@eluniversal.com