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cushioncrawler
05-09-2010, 08:23 PM
Venezuela is not Greece
0 By Mark Weisbrot - Guardian.co.uk, May 9th 2010

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Economic growth
Exchange rate
Greece
Inflation
With Venezuela's economy having contracted last year (as did the vast majority of economies in the Western Hemisphere), the economy suffering from electricity shortages, and the value of domestic currency having recently fallen sharply in the parallel market, stories of Venezuela's economic ruin are again making headlines.

The Washington Post, in a news article that reads more like an editorial, reports that Venezuela is "gripped by an economic crisis," and that "years of state interventions in the economy are taking a brutal toll on private business."

There is one important fact that is almost never mentioned in news articles about Venezuela, because it does not fit in with the narrative of a country that has spent wildly throughout the boom years, and will soon, like Greece, face its day of reckoning. That is the government's debt level: currently about 20% of GDP. In other words, even as it was tripling real social spending per person, increasing access to healthcare and education, and loaning or giving billions of dollars to other Latin American countries, Venezuela was reducing its debt burden during the oil price run-up. Venezuela's public debt fell from 47.5% of GDP in 2003 to 13.8% in 2008. In 2009, as the economy shrank, public debt picked up to 19.9% of GDP. Even if we include the debt of the state oil company, PDVSA, Venezuela's public debt is 26% of GDP. The foreign part of this debt is less than half of the total.

Compare this to Greece, where public debt is 115% of GDP and currently projected to rise to 149% in 2013. (The European Union average is about 79%.)

Given the Venezuelan government's very low public and foreign debt, the idea the country is facing an "economic crisis" is simply wrong. With oil at about $80 a barrel, Venezuela is running a sizeable current account surplus, and has a healthy level of reserves. Furthermore, the government can borrow internationally as necessary – last month China agreed to loan Venezuela $20bn in an advance payment for future oil deliveries.

Nonetheless, the country still faces significant economic challenges, some of which have been worsened by mistaken macroeconomic policy choices. The economy shrank by 3.3% last year. The international press has trouble understanding this, but the problem was that the government's fiscal policy was too conservative – cutting spending as the economy slipped into recession. This was a mistake, but hopefully the government will reverse this quickly with its planned expansion of public investment this year, including $6bn for electricity generation.

The government's biggest long-term economic mistake has been the maintenance of a fixed, overvalued exchange rate. Although the government devalued the currency in January, from 2.15 to 4.3 to the dollar for most official foreign exchange transactions, the currency is still overvalued. The parallel or black market rate is at more than seven to the dollar.

An overvalued currency – by making imports artificially cheap and the country's exports more expensive – hurts Venezuela's non-oil tradable goods' sectors and prevents the economy from diversifying away from oil. Worse still, the country's high inflation rate (28% over the last year, and averaging 21% annually over the last seven years) makes the currency more overvalued in real terms each year. (The press has misunderstood this problem, too – the inflation itself is too high, but the main damage it does to the economy is not from the price increases themselves but from causing an increasing overvaluation of the real exchange rate.)

But Venezuela is not in the situation of Greece – or even Portugal, Ireland, or Spain. Or Latvia or Estonia. The first four countries are stuck with an overvalued currency – for them, the euro – and implementing pro-cyclical fiscal policies (eg deficit reduction) that are deepening their recessions and/or slowing their recovery. They do not have any control over monetary policy, which rests with the European Central Bank. The latter two countries are in a similar situation for as long as they keep their currencies pegged to the euro, and have lost output six to eight times that of Venezuela over the last two years.

By contrast, Venezuela controls its own foreign exchange, monetary, and fiscal policies. It can use expansionary fiscal and monetary policy to stimulate the economy, and also exchange rate policy – by letting the currency float. A managed, or "dirty" float – in which the government does not set a target exchange rate but intervenes when necessary to preserve exchange rate stability – would suit the Venezuelan economy much better than the current fixed rate. The government could manage the exchange rate at a competitive level, and not have to waste so many dollars, as it does currently, trying to narrow the gap between the parallel and the official rate. Although there were (as usual, exaggerated) predictions that inflation would skyrocket with the most recent devaluation, it did not – possibly because most foreign exchange transactions take place through the parallel market anyway.

Venezuela is well situated to resolve its current macroeconomic problems and pursue a robust economic expansion, as it had from 2003-2008. The country is not facing a crisis, but rather a policy choice.

cushioncrawler
05-09-2010, 08:26 PM
The Chávez Administration at 10 Years: The Economy and Social Indicators
0 By Mark Weisbrot, Rebecca Ray and Luis Sandoval - CEPR, February 6th 2009

For the full report in its original PDF format, click here (255kb).

Executive Summary
This paper looks at some of the most important economic and social indicators during the 10 years of the Chávez administration in Venezuela, as well as the current economic expansion. It also looks at the current situation and challenges.

Among the highlights:

The current economic expansion began when the government got control over the national oil company in the first quarter of 2003. Since then, real (inflationadjusted) GDP has nearly doubled, growing by 94.7 percent in 5.25 years, or 13.5 percent annually.
Most of this growth has been in the nonoil sector of the economy, and the private sector has grown faster than the public sector.
During the current economic expansion, the poverty rate has been cut by more than half, from 54 percent of households in the first half of 2003 to 26 percent at the end of 2008. Extreme poverty has fallen even more, by 72 percent. These poverty rates measure only cash income, and does take into account increased access to health care or education.
Over the entire decade, the percentage of households in poverty has been reduced by 39 percent, and extreme poverty by more than half.
Inequality, as measured by the Gini index, has also fallen substantially. The index has fallen to 41 in 2008, from 48.1 in 2003 and 47 in 1999. This represents a large reduction in inequality.
Real (inflationadjusted) social spending per person more than tripled from 1998-2006.
From 1998-2006, infant mortality has fallen by more than onethird. The number of primary care physicians in the public sector increased 12fold from 1999-2007, providing health care to millions of Venezuelans who previously did not have access.
There have been substantial gains in education, especially higher education, where gross enrollment rates more than doubled from 1999/2000 to 2007/2008.
The labor market also improved substantially over the last decade, with unemployment dropping from 11.3 percent to 7.8 percent. During the current expansion it has fallen by more than half. Other labor market indicators also show substantial gains.
Over the past decade, the number of social security beneficiaries has more than doubled.
Over the decade, the government's total public debt has fallen from 30.7 to 14.3 percent of GDP. The foreign public debt has fallen even more, from 25.6 to 9.8 percent of GDP.
Inflation is about where it was 10 years ago, ending the year at 31.4 percent. However it has been falling over the last half year (as measured by threemonth averages) and is likely to continue declining this year in the face of strong deflationary pressures worldwide.

cushioncrawler
05-09-2010, 08:31 PM
Health and Education
Health
Venezuelans, especially children, have benefited from the government's social policies over the past decade through improved health outcomes. As shown in Figure 4, infant mortality has decreased by over onethird, falling from 21.4 to 13.7 deaths per 1,000 live births. Likewise, child mortality has fallen by over onethird, from 26.5 to 17.0 deaths per 1,000 live births. The greatest benefit has been for children between the ages of one and eleven months: postneonatal mortality has been cut by more than half, falling from 9.0 to 4.2 deaths per 1,000 live births.



Venezuelans have seen a similar improvement in food security. Average caloric intake has risen from 91.0 percent of the recommended levels in 1998 to 101.6 percent in 2007. Even more importantly, malnutritionrelated deaths have fallen by more than 50 percent, from 4.9 to 2.3 deaths per 100,000 in population between 1998 and 2006. Two new programs have helped reach this goal. First, the PAE school feeding program, which provides a free breakfast, lunch, and snack, began in 1999 serving a quartermillion students and has risen to over four million students in 2008.

Secondly, the Mercal network of government food stores began in 2003 selling 45,662 metric tons of deeply discounted food and has risen to a level of 1.25 million metric tons in 2008.[3]

A third improvement in health outcomes has seen potable water and sanitation accessible to many more Venezuelans than before Chávez's election. As Figure 5 shows, in 1998, 80 percent of Venezuelans had access to drinking water and 62 percent had access to sanitation. In 2007, 92 percent had access to drinking water and 82 percent had access to sanitation. Compared to 1998, then, roughly four million more Venezuelans now have access to clean drinking water, and over five million more Venezuelans now have access to sanitation.



These achievements have been facilitated by a large expansion in access to medical care. From 1999 to 2007, the number of primary care physicians in the public sector increased more than twelve times, from 1,628 to 19,571, providing health care to millions of poor Venezuelans who previously did not have access to health care. In 1998 there were 417 emergency rooms, 74 rehab centers and 1,628 primary care centers compared to 721 emergency rooms, 445 rehab centers and 8,621 primary care centers (including the 6,500 neighborhood clinics, usually in poor neighborhoods) by February 2007. These new community healthcare centers have had over 250 million healthcare consultations: nearly 37,000 each since the program began. Since 2004, 399,662 people have had eye operations

that restored their vision. In 1999, there were 335 HIV patients receiving antiretroviral treatment from the government, compared to 18,538 in 2006.[4]

Education
Improvements in education are visible for both young and nontraditional age students. Traditionalage enrollment has risen significantly, as shown in Figure 7. Net enrollment at the basic (grades 19) level has risen from 85 percent to 93.6 percent, and secondary enrollment has risen even more, from onefifth to over onethird of the population.

The increase in basic education enrollment represents 8.6 percent of children age 5 through 14, or nearly a halfmillion children in school who would otherwise be without education. For secondary education, the increase means that 14.7 percent of children ages 15 through 19, or nearly 400,000 children, have been able to stay in school as a direct result of improved social investment.[5]

The largest gains have been seen in higher education: from the 19992000 school year to 20062007, enrollment increased by 86 percent; estimates for the 20072008 school year put the increase at 138 percent from the 19992000 base.[6]

The Chávez administration has also initiated the Ribas Mission to provide secondary education for returning adult students. The Ribas Mission began in 2003 and its first students graduated in 2005. In its first three years of operations, the program has graduated over half a million students - about three percent of the country's adult population.[7] The government also carried out a large scale literacy training program, Mision Robinson.[8]

cushioncrawler
05-09-2010, 08:33 PM
Economic Growth
Figure 1 shows Venezuela's real quarterly GDP from 19982008 (second quarter).[1] As can be seen from the graph, growth appears to be heavily influenced by various shocks, including political instability and strikes.



There are different ways to evaluate the growth performance of the Venezuelan economy during the Chávez years. One is to simply look at GDP growth since Chávez became president in the first quarter of 1999. The latest (seasonallyadjusted) data available are for the second quarter of 2008. On that basis, the economy has grown 47.4 percent, or 4.3 percent annually over 9.25 years. On a per capita basis, this is about 18.2 percent, or 1.9 percent annually. Although this is a vast improvement over the two decades of economic decline that preceded Chávez, it is modest growth, about the same as the regional average.

However, looking at the entire decade is misleading because the Chávez government did not control the stateowned oil company until the first quarter of 2003. So for the first four years, the stateowned oil company (PDVSA), which at the time accounted for more than half of government revenue and 80 percent of export earnings, was controlled by people who were hostile to the government. Furthermore, the managers of the company actually used their control over these vital resources to destabilize and even topple (temporarily) the government. Under these circumstances there was not much that the government could do to promote economic growth.

We could therefore measure growth from the time that the government got control over PDVSA, in the first quarter of 2003. This has the disadvantage that part of the growth since that time is a rebound from a deep recession. Nonetheless it is a better measure to evaluate the performance of the Chávez administration than is the whole ten year period. Also, it could be argued that this measure is relevant because even the early part of the recovery was a difficult achievement for the government. This was not a normal business cycle but a deep economic recession that involved considerable sabotage in the oil industry. When the strike ended, analysts quoted in the business press predicted a slow and painful recovery, with much difficulty restoring oil production.

Looking at growth from the first quarter of 2003, real GDP grew by 94.7 percent over 5.25 years, or

13.5 percent annually. This is extremely rapid growth by any historical or international comparison. On a per capita basis, it was 78.8 percent, or 11.7 percent annually.

Finally, another way to measure growth that cancels out the effect of the rebound from the 20022003 oil strike is to start from the point where GDP reached is prerecession peak. This would be the third quarter of 2004. On this basis, GDP grew 37.2 percent over 3.75 years, or 8.8 percent annually. On a per capita basis, this is 28.2 percent, or 6.9 percent annually. This is also very rapid growth by almost any international or historical comparison.



By any reasonable comparison, then, the growth experience of the Venezuelan economy during the Chávez years has been very successful. Of course this is even more true if we compare to the two decades prior to Chávez's election, when the Venezuelan economy actually suffered a decline in per capita GDP, and one of the worst in the world during this period. From 19781998, Venezuela's per capita GDP declined by 21.5 percent.

Figure 1 shows some detail about how the economy was influenced by external shocks, especially those related to political instability. Chávez took office with the lowest oil prices in 22 years; the first year was marked by negative growth. This trend reversed by the first quarter of 2000, and the economy grew until the third quarter of 2001, a time of great political instability. In December of 2001 the Venezuelan Chamber of Commerce (FEDECAMARAS) organized a general business strike against the government. This political instability, with much capital flight, continued through April 2002, when the elected government was overthrown in a military coup. The constitutional government was restored within 48 hours, but stability did not return, as the opposition continued to seek to topple the government by extralegal means. Growth remained negative through the summer and fall of 2002, and then the economy was hit with the oppositionled oil strike of December 2002 - February 2003. This plunged the economy into a severe recession during which Venezuela lost about 24 percent of its GDP. The economy began to recover in the second quarter of 2003 and has grown very rapidly since then, with one dip in the first quarter of 2008.

Components of Economic Growth
As can be seen from Figure 2 and Table 2, the nonoil sector has accounted for the vast majority of the growth during the current expansion. In fact, the oil sector had negative growth for 20052007, after a 13.7 percent jump in 2004 after production was restored following the strike. Even in 2004, however, the nonoil sector grew faster than the oil sector.

It is also worth noting that in spite of the expansion of government during the Chávez years, the private sector has grown faster than the public sector. This has also been true throughout the current expansion, with the exception of 2008, where the public sector accounted for almost all of the growth in the first three quarters.

The fastest growing sectors of the economy have been finance and insurance, which has grown 258.4 percent during the current expansion, an average of 26.1 percent annually; construction, which has grown 159.4 percent, or 18.9 percent annually; trade and repair services (152.8 percent, or 18.4 percent annually); transport and storage (104.9 percent, or 13.9 percent annually); communications (151.4 percent, or 18.3 percent annually). Manufacturing grew 98.1 percent during the expansion, or 13.2 percent per year.

LWW
05-10-2010, 04:40 AM
Venezuela's collapse is inevitable.

All state run economies collapse.

LWW

cushioncrawler
05-10-2010, 05:12 AM
usofa ekonomy iz woz state run.
It kollapsed.
madMac.

LWW
05-10-2010, 05:20 AM
Well, we aren't/weren't as state run as the Euro money pits or the USSR ... but state meddling has been at the root of our issues.

LWW