Economy
Former manager of economic investigation, Central Bank of Venezuela, José Guerra, is certain that Venezuela entered a stage of stagflation, that is, a combination of recession and speedy inflation.

Based on his estimates, this year the economy will drop somewhere between 1.5-2.5 percent, whereas inflation will increase beyond 35 percent.

Guerra, who took part in a forum hosted by Softline Consultores to assess the 2009 prospects, noted that growth has lost momentum. As a matter of fact, after 10.3-percent advance in 2005, it fell down to 4.9 percent in 2008.

Furthermore, he stressed that in the fourth quarter of 2008, domestic economy grew 2 percent versus 8.5 percent the same term in 2007.

"A model based on the state entrepreneurial role is being depleted," said Guerra.

In his view, the recessive trend will escalate this year due to the output cut agreed by the Organization of Petroleum Exporting Countries (OPEC).

"There are 320,000 barrels less, that is, a cut of 12 percent. Note that oil accounts for 25 percent of the Gross Domestic Product (GDP) and such lower production will translate into less growth in 2009."

"Car sales sank 43 percent when comparing January of this year with January 2008. This has an impact and results in decreasing demand of steel, aluminum and other materials. In addition, there is a decline in allocation and payment of foreign currency which has also a recessive effect."

While the government bets on recovery of oil prices to prevent drastic measures, "a non-announced adjustment model will be implemented," said Guerra.

Basically, the adjustment will entail "more restrictions at the Foreign Exchange Management Committee (Cadivi); payments in arrears, tax adjustment through the inflation which will undermine the purchasing power, and falling expenditure in real terms."

He promptly added that devaluation in the second quarter of this current year is foreseeable.

As to the possibility that an investment plan heralded by the government will manage to curb the recessive trend, he explained: "It can be reversed, but remember that last June, Hugo Chávez aired a similar plan and the economy strongly slowed down; public expenditure does not have the same effect on growth."

Micro-economic crisis
Luis Vicente León, the director of pollster Datanálisis, considers that the country is heading for a micro-economic crisis, where inflation will tend to speed up; therefore, the wage purchasing power, demand and growth will decline.

"There is a supply problem that has not been solved," said León. He added that the government will prioritize imports, which means a larger amount of commodities that will be imported through the parallel market.

While this will have an inflationary impact, he recalled that pricing of a significant amount of non-regulated commodities is based on the parallel exchange rate.

"In my opinion, the government will intervene in the parallel foreign exchange market to prevent it from going beyond its control," said León.

José Grasso, the director of think-tank Softline, thinks that the financial system is entering a period of increasing control where lending portfolios could surpass 60 percent out of total loans.

Miguel Octavio, an analyst of BBO, a financial services provider, thinks that the country will have troubles to get funding abroad, because the government abused of debt issues and at this present time, "there are too many notes and few buyers; the market is saturated."
vsalmeron@eluniversal.com

Translated by Conchita Delgado

Víctor Salmerón
EL UNIVERSAL