With the latest report of the Central Bank of Venezuela (BCV) on his desk, Pedro Palma reviews economy and strives to include all the variables. He included issues that were unthinkable three months ago, such as energy deficit, and another highly foreseeable, such as the end of the oil boom. President of the National Academy of Economic Sciences, a professor with think-tank IESA and holder of a Ph. D. from the University of Pennsylvania, Palma cannot hide his concern about what he deems the way to demise.

The starting point is to understand why the economy is suffering a 5.8-percent decline in the fourth quarter of 2009, with oil prices averaging USD 70, a level that in previous years ensured high growth.

"We had high growth in 2005-2007 because in the face of rising oil prices, the government injected additional funds. That expanded monetary supply; private consumption increased and corporate sales climbed. But if this trend was to continue, oil prices needed to lift each year to ensure more injection of public spending."

"That is why we, analysts, warned that not only if oil prices lower, but when they get steady at a high level, as it has stood at USD 70, the model gets in crisis," he added.

Another ingredient of recession is that "in 2008, consumers' purchasing power started to drop because revenues increased less and less compared with inflation. Added to this element, private investment plummeted in an environment of expropriations, threats and controls."

Why there are still high inflation rates, no matter falling consumption?
In booming times, we had inflation due to demand; consumption grew faster than supply. But now it turned into cost inflation, because of the impact of devaluation and of a structural nature due to the dismantling production apparatus.

We are against a background of inflation, recession and new troubles, such as the impact of energy cuts and nationalized companies that are having losses. Is the high growth stage finally buried?
Where are we going to lay the foundations for renewed growth? It cannot come from dynamic public spending, because while devaluation yielded additional income, it is something ephemeral that could somewhat leverage consumption, but not even production.

Private consumption will continue shrinking due to loosing purchasing power. In this hostile climate, private investment will not invigorate either, and non-oil exports are virtually nil. Added to this electricity cuts and everything suggests that we will be unable to enhance the economic activity."

In view of this, have any new policies been announced? What does the government expect?
We are waiting for a new breath of fresh air concerning oil; that the disruptive environment in the Middle East; that any event will raise prices, but if this happens, it will be a transitory break.

Experts deem the government plan as Marxist and, therefore, it is intended to annihilate the private sector. If this is not replaced with anything, the country will obviously continue undergoing a crisis.
This would be the suicide scenario that is taking shape; we can see the determination of a government which is radicalizing its position with outdated, past-due, utopian pseudo-socialism which is destroying the remains of our production apparatus to replace it with another model which has failed elsewhere in the world where it has been tried. In this way, we are heading for total chaos.

In the face of recession, the answer has been more nationalizations and saying that reconciliation is not possible. What will be the outcome?
A much deeper crisis. This country is on the verge of disaster, and as the government insists on implementing the ongoing policy, it will speed up the process and near the precipice. The course must change and this shift should be led by the State, which is to outline a comprehensive development plan, creating an environment where all the members of society play a key role.

Is not that mission impossible?
I do not think it is mission impossible. (Ex President) Rafael Caldera in 1996 turned round his economic policy. If circumstances make the government think that this is unbearable, perhaps wisdom will prevail and I am looking forward to it, before this attains overflowing levels.
vsalmeron@eluniversal.com

Translated by Conchita Delgado