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The State grows and the private sector suffers the biggest drop since 1999

President Hugo Chávez says that he intends to control lands, finance and trade

The government has expanded its participation in the food sector (File photo)

"Prepare funeral candles, because we are going to bury the Venezuelan capitalism," a defiant President Hugo Chávez said on Wednesday. The Head of State made it clear that the First Socialist Plan, which proposes a minimized private sector in 2013, is being implemented amid a recession and the increase of inflation rate.

In fact, official figures show that the State has increased its importance in the economy while the private sector's clout has rapidly declined.

By comparing the first quarter of the year with the same period in 2007, when Chávez's administration began to nationalize companies, private sector's production and GDP showed a sharp decline (- 8.2 percent) while public sector's GDP increased considerably to 20 percent.

The most recent studies show that in the first quarter of 2010, the private sector's GDP fell 6 percent, the biggest decline for a first quarter since 1999, with the exception of the lock-out at the beginning of 2003.

Although the private sector is the main source of job creation and its production is a key factor to generate wealth, President Chávez considers that its downsizing is a cost to be paid to achieve the 21st century socialism.

Chávez also mentioned the most immediate goals of his government. "We are currently having a confrontation that can be potentially decisive against the Venezuelan bourgeois elites and their international connections. But we have to dismantle these three elements: land, the management of the finance sector and the control of trade and market. This is somewhat the map where we are moving."

Oil only
The private sector has lost its share in the economy in an environment marked by price controls, restricted access to foreign exchange, an overvalued local currency that encourages imports and an aggressive political discourse that has resulted in a sharp decline in investment.

For now, the result is that the country has not made any progress in the goal of diversifying exports and reducing its dependence on oil.

In the first quarter of the year, non-oil exports of the private sector only amounted to USD 369 million, a 67 percent decline over the first quarter of 2007 and below the level recorded in 1997.

While the private sector blurs, the State has been unable to diversify exports. Non-oil exports of the public sector stood at USD 401 million during the first quarter of the year, a 12 percent decrease over the same period in 2007.

Delayed implementation of plans, poor management of nationalized businesses and sinking production of the state-run oil company Petróleos de Venezuela (Pdvsa) have led to a 2.8 percent GDP fall in the first quarter of the year.

In the short term
Research firm Ecoanalítica considers that in order to promote the socialist model, the government will use its power to allocate foreign exchange, allowing state-related companies to import products at a rate of VEB 2.6 per US dollar.

Translated by Gerardo Cárdenas

Victor Salmeron