Cooling of private sector suffers Venezuelan economy
Analysts and entrepreneurs agree that the disappointing performance of private activity was due to the growing "distortions''generated by price controls and exchange, rising interest rates and concerns over nationalization

May 29, 2008 | 12:08 p.m. - AP


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Worker private company | Orlando Ugueto

While higher oil prices helped the government and the oil industry in the first quarter, the private sector did not suffer the same fate to show a cooling in key areas such as manufacturing, commerce and banking, what you sow doubts on the future performance of the economy.

Analysts and entrepreneurs agree that the disappointing performance of private activity was due to the growing "distortions''generated by price controls and exchange, rising interest rates and concerns about the nationalization.


Figures broadcast this week by the Central Bank of Venezuela (BCV) revealed that in the first quarter the productive apparatus was a sharp deceleration to report a growth of 4.8%, four points below the indicator in the same period last year.


With this result broke the trend of accelerated growth of the productive apparatus since 2003.


The economic slowdown was linked mainly to non-oil sector which suffered from January to March a `` slowdown''with a variation of 5.5%, well below the indicator for the same period of last year's 10.6%.


The unfavorable performance of the private sector was evident in the contraction of 1.8% which took the fixed capital investment.


When comparing the economic performance of the first quarter of 2007 to this year, it appears that the sectors that took the biggest slowdowns are: construction, which rose from 27% to 2.6%, manufacturing 6.8% 1.4%; trade of 20.8% to 5.7%, transport 16.4% to 5% and financial institutions and insurance rose from 28.8% to 6.4%.


The economist Gustavo Garcia, a professor of the Institute of Higher Administration Studies (IES), said that the long stay of price controls and exchange five years, as well as an increase of 21% to 24.8% in rates interest for loans in the quarter, made havoc in the private sector.


He said that the fact that the government did not conduct controlled adjustments in prices between 2003 and 2007, which resulted in `` many companies eliminate production lines, or substantially reduced, or some companies change their business or simply disappear'' .


`` The regulations have depressed prices to productive sectors, and hence, the chain ends afectándose at all levels'', told the AP Eduardo Gomez Sigala, president of the Venezuelan Confederation of Industrialists (Conindustria).


Gomez Sigala said that this situation has prevented the supply of goods grow at the same pace of demand, which has encouraged inflation and forced to rely on imports to supply the local market. In the past 12 months prices grew 29%.


Asdrubal Oliveros, director of the local firm Ecoanalítica, said that delays of government to deliver currencies also affected some sectors such as manufacturing or assembly of vehicles, which could not buy its raw materials in time to keep pace with production.


The government increased controls for the delivery of foreign exchange at par which raised bond issues in dollars in the local market to force the reduction of parallel exchange rate. This affected the increase of 48.5% which was the external public debt between March 2007 and last March. External debt stood at end of quarter 44,333 million.


Oliveros said that the policy of nationalization of sensitive sectors of the economy that began last year the government as well as the increase in monitoring and "verbal attacks''against the private sector, have raised concern and away investment.