Venezuela: Selected Macroeconomic Trends

1. Venezuela: Selected Macroeconomic Trends Leonardo V. Vera UCV-FACES Escuela de Economía Leonardo.vera@cantv.net Dec. 2011

2. ThePresence of Oil in theEconomy, 1994-2010 Oil represents 95% of Total Exports Oil revenues corresponds to 33% of total fiscal revenues % Exports % Fiscal Revenues % of GDP The share of Oil in GDP hardly reaches 12%

3. Annual Price of the Venezuelan Basket, 1970-2011(US$ per barrel) Global Financial Crisis There is an extraordinary increase in Oil Prices since 2004 Iran-Iraq War Iraq Invasion Gulf Conflict Iranian Revolution Oil Embargo

4. GDP Growth Rate (1951-2011) (% Var) A Period of Stop-go cycles and very volatile behavior 1979-2011 Average: 2.0% Trend 1951-1978 Average: 6.48%

5. Nominal and Real GDP Evolution (1960-2010) Explosive Evolution of Nominal GDP, why? Nominal GDP Base Year: 1997 Real GDP

6. Nominal GDP and CPI (1970-2010) Nominal GDP very much affected by the evolution of the CPI Nominal GDP CPI Base: 2007

7. - CPI CPI - t t 1 = p ˆ CPI - t 1 The Evolution of Inflation (1950-2011) Currency Crisis 96 Average 1979-2011 = 30% Banking Crisis 94 Currency Crisis 89 Two digits inflation over the last 30 years Currency Crisis 03 Liberalization Regime Currency Crisis 02

8. En 2010 Venezuela was the only country in the region (along with Haiti) with negative GDP growth rate. Venezuela GDP Growth (Quarterly Figures), 2001:3 – 2011:3 Venezuela was the only country (excluding Haiti) with a fall in real GDP Haiti very much affected by a natural disaster and Colera For six consecutive quarters Venezuela registered negative GDP growth rates Source: Banco Central de Venezuela

9. Per Capita Real GDP measured in Domestic Currency (not affected by Exchange Rate distorsions), 1950-2010 We are today below the peak reached in 1977 GDP Per capital showed an increasing trend for almost 3 decades Source: Banco Central de Venezuela, INE and Own Calculations

10. GDP Share in Latin America (big 6) Source: ECLAC

11. Real Investment and GDP Fluctuations (annual 1971-2011) % Fluctuations in the Rate of Variation of Real Investment are extreme Source: Banco Central de Venezuela

12. I PIB Total Investment as a share of GDP (anual data 1950-2009) Level Recommended by the Spence’s report for LDCs Source: Banco Central de Venezuela

13. Employment and Non-Oil GDP, 1970-2010 Thousand of Jobs Thousand of Bs. Correlation among these variables is 96% Fuente: INE

14. U PEA Rate of Unemployment (Annual Average) 1974-2011 Trend Source: INE

15. The Effects of Unemployment by Levels of Income Unemployment Rate by Quintils of Per Capita Family Income ( 2nd Semester 2005 ) Unemployment Rate by Quintils of Per Capital Family Income (First Semester 2010 ) In Recession During the Boom • In recessions the Rate of Unemployment affects much more poor households than rich households Source: SISOV, Ministerio de Planificación y Finanzas

16. Employment in the Non-formal Sector

17. The Rate of Growth of the Real Wage Index • The trend in the variation of real wages is downward • Worker´s real income and consumption are highly correlated. Source: BCV and Own Calculations

18. Labor Remuneration Per Worker in Real Terms over a longer horizon (100 = 1997) For about 25 years (1978-2002) a downward trend in real wages per worker was registered. A small reversion is confirmed after 2003 Thousand of Bs.

19. Oil Price (Venezuelan Basket) and Ordinary Public Expenditure of the Central Government (1970-2010) MM Bs. (100=2007) Public Expenditure (in Real Terms) is too much tied to Oil Price Cycles US$ per Barrel

20. = - DEF G T Fiscal Deficit of the Central Government (as a % of GDP ), 1958-2010 Clear Fiscal Imbalances since the late 1980s Chronic Negative Gap

21. Recent Evolution of the Stock of External Debt (Millions of U.S.$) Domestic External

22. Capital Movements by the Private Sector, 1980-2010 MM US$ Exchange Control Feb.2003 Trend Strong Capital Flights since 2007 Source: Banco Central de Venezuela and Own Calculations

23. Imports/GDP Ratio (Annual data 1970-2011) The propensity to Import almost double in 4 years and since then has remained high. Fuente: Banco Central de Venezuela

24. Structural changes in the Balance Of Payments: Non-oil Exports and FDI Non-oil Exports – Quarterly Data 1999:1 to 2011:2 (millons of US$) • Non-oil exports (including all exports made by the private sector) is one half the level reached 4 years ago. Foreign Direct Investment (Quarterly Data 1999:1 a 2010:3, millions of US$) • FDI has been falling dramatically Source: BCV

25. The Evolution of the Exchange Rate Bs/$US (Monthly Data 1980:1-2011:12) BS/US$ Fix and Adjustable Flotation Peg with a Band Multiple Exchange Rates Crawling-Peg Multiple Exchange Rates A Rich Menu of Exchange Rate Regimes Fuente: Banco Central de Venezuela y Cálculos Propios Fuente: Banco Central de Venezuela

26. The Foreign Exchange System • The government of Venezuela implemented rigid foreign exchange controls in 2003, where capital outflows are not officially allowed. The system also includes a fixed official rate of exchange. • Black markets appeared almost immediately and usually operate at rates up to 3 times the official rate. • This system was amended in January 2010 with the implementation of a dual official exchange rate system. • In May 2010, the government took steps further to regulate what had been a parallel exchange market. • Foreign exchange transactions must take place through exchange houses or commercial banks at one of the official rates.

27. The Recent Evolution of the Foreign Exchange Regime The executive announced a multiple exchange rate system The Swap Market was eliminated The Official exchange rate of 2.6 Bs./US$ is eliminated. Creation of Sitme 2.6 5.3 2,15 2.6 5.3 2.6 4.3 4.3 4.3 4.3 January 1 2011 May 18 2010 June 10 2010 January 12 - 2010 • The domestic currency has been severely devaluated.

28. Main Expropriations and Nationalizations, 2007-2010 • February, 2007 – Electricidad de Caracas • May 1, 2007 – Several Enterprises in the “Orinoco Belt” • May 15, 2007 – CANTV (Telecomunications Company) • March 14, 2008 – Lacteos Los Andes (main enterprise of Milk) • April 3, 2008 – CEMEX and several cement enterprises • April 9, 2008 – SIDOR (iron and steel) • August 18-19, 2008 – Laferge and Holcim (cement industry) • August 27, 2008 – Domestic transportation of gas • February 28, 2009 – Enterpises from the rice chain • March 4, 2009 – Cargill (food) • March 6, 2009 – Smurfit Kappa • March 26, 2009 – Aeropostal (airline) • May 8, 2009 – 60 enterprises related to the services to the oil industry • Mayo 21, 2009 – Matesi, Comsigua, Orinoco Iron, Venprecar (Steel industry) • October 3, 2009 – Banco de Venezuela- Santander (one of the Main four Banks) • October 14, 2009 - Hilton Hotel (in Margarita Island) • October 21, 2009 – Sugar refineries • January 19, 2010 – Éxito hypermarket (from the french group Casino) • May 13, 2010 – Monaca (food) • Oct 3, 2010 – Agroisleña (food services and inputs for thre agricultural sector) • October 25, 2010 – Owen Illinois (glass) 2007 17 2008 25 2009 131 2010 200

29. The Size of the Manufacturing Sector (1994-2006) • Between 1996 y 2006 the country lost 5000 productive units, being the medium and small size segments the most affected.