CARACAS, Saturday January 28, 2006 | Update
The industrial sector will grow 2.1 percent in 2006 as compared to 7.1 percent in trade (Photo: Paulo Pérez Zambrano)
Blooming times are coming this year. There will be a stage of monetary availability and euphoric electoral expenditure. Just to feel like being rich, at least for a while.
The difference with the history of Joseph, the Egyptian, though is that there is no prophet encouraging take provisions for bad times and no pharaoh ready to take advice
While the 2006 budget is based on an average price of USD 26 / barrel of oil, economists anticipate around USD 50 / b. As in 2005, public expense in 2006 will be as high as income. And most Venezuelan sectors will keep the same trend -high consumption levels.
Gustavo Rojas, consulting partner with B&G Desarrollos de Negocios and teacher of Andrés Bello Catholic University, reckons that the increasing oil prices since 2004 will continue in 2006 and perhaps for two or three additional years. While this cannot be taken for sure, in his opinion no drop will be similar to those epic downfalls of oil prices to USD 8 or USD 10, because global inflation heightens all price standards.
However, the expert warned, "it does not mean that there will be no tragedy. The alarm in Venezuela will possibly be set at the level of USD 35 due to current public expenditure." In any case, the national budget is below probable numbers.
"I do not think that this was aimed at saving. It seems to me that it was made for legal purposes, in order not to share additional revenues with locales and use it at the discretion of the Executive. Part of the income recorded should by law, be transferred to local governments. This is what is going on, I am afraid. For instance, in 2005, oil prices were estimated at USD 23, but they averaged USD 45. This money is not in the Fund for Macro-Economic Stabilization (FIEM.) We wonder about the whereabouts of that money. Nobody knows if it was spent in social programs in Uruguay. Should saving have been the goal, then, FIEM would be used clearly for that. A debacle is to be always expected, even in a five-year term."
Give me two
An assumption is tailor-made to fit this hectic year 2006 -"More consumption, less investment."
These four words, Rojas said, are enough to mirror the nationwide trend to any extent. "For instance, the trade and real estate sectors will be benefited. The government announced no devaluation in 2006. This is plausible. As a result, all the goods tied to the US dollar, everything subject to import, will be subsidized. But everybody knows that in 2007 devaluation will come relentlessly. Therefore, this year, people will buy as much as possible or needed."
There will be a shift in the economic behavior to look for consumption. "There will be a 5-percent growth, a pretty good number, but it will come from public expenditure. People will cash in on it and buy at prices that will not come back again because of a huge potential for devaluation in 2007."
"In the event of falling oil prices in 2006, the Government will still stand it without the need for devaluation, with international reserves and some indebtedness capacity. Any government with USD 30 billion in international reserves can tell the world that it can issue bonds, at higher rates, in good standing, and will nonetheless find buyers. Further, the Government would possibly escalate exchange control and stop issuing USD 80 million a day through the Foreign Control Exchange Board (Cadivi)," Rojas commented.
To sum up, Venezuelans would rather spend in 2006 as investment. Ordinary consumers will buy household appliances, real estate or vehicles; or perhaps they will improve their houses. In the meantime, companies will equip themselves with stocks instead of producing. However, exporters, those working to produce and sell both in the domestic and foreign marketplace, will not be doing so well. In Rojas' opinion, producers-exporters will face a dire perspective. Based on his estimates, the industrial sector will grow 2.1 percent in 2006 as compared to 7.1 percent in trade. It is said that industrialists will be much limited, and traders will capitalize on the economic pie.
Rojas encourages consumption in long-lasting goods. And of course, payment of debts is strongly recommended.
Translated by Conchita Delgado