Venezuela is the OPEC Member State with the worst economic performance

Rising oil prices do not ensure any more high growth, like in 2004-2008 (File Photo)

Economy
The Venezuelan government has explained that ongoing recession in Venezuela is the result of the "crisis of capitalism." That is, falling oil prices is because US and European economies are in troubles. However, an in-depth view shows that the country faces problems beyond volatility of the oil barrel.

After an unprecedented peak last year, oil prices stopped sparkling due to the global crisis. However, Venezuela was the Member State of the Organization of Petroleum Exporting States (OPEC) which endured the highest impact.

The numbers of the International Monetary Fund (IMF) show that in 2009 only four OPEC Member States faced economic shrinking: Kuwait, by 2.7 percent; United Arab Emirates, 0.7 percent; Angola, 0.4 percent, and Venezuela, 3.3 percent.

Thanks to a hike in oil prices due to China's insatiable demand, the IMF forecasts that this year there will be economic growth in all OPEC States, except for Venezuela. In this case, there will be economic shrinking at 2.6 percent and minimum growth at 0.4 percent in 2011.

End of a cycle
In 2004-2008, the Venezuelan economy showed a pattern where high oil prices ensured high growth thanks to public spending. This is not the case any more. Oil brightness is a requisite, yet scanty condition.

In the aftermath of the business strike in 2003, companies operated far below their capacity. With the advent of soaring oil prices, the government enlarged public spending, purchase orders skyrocketed and unplugged equipment was turned on.

This stage of easy growth having ended, public spending is not enough. Investment is also needed to enlarge the number of machines and add technology.

Thus, in 2008, the year when the Venezuelan oil basket smashed a record of USD 86.49, economic growth almost halved.

In its last report, think-tank stated that in 2008, "real expansion of spending was fourfold the expansion in 2007 and more that thirtyfold the expansion in the first year of (President Hugo) Chávez's administration." Nonetheless, the economy started to lose strength.

The figures speak for themselves. Since the third quarter in 2009, Venezuelan oil prices have surpassed USD 60. However, the economy has sunk into recession, down to 3.5 percent in the first half of this year.

Analysts consider that, in addition to lack of investment and technology improvement, it should be noted that inflation dilutes the purchasing power of the local currency coming from public spending. Therefore, no matter high oil prices, the prospects are low growth in 2011, as forecast by the IMF.

The exclusion
Against a backdrop of price and exchange controls, seizures, hard access to foreign currency and government-business clashes, investment is still absent and the private sector has faced a drop for six quarters in a row. In the meantime, industrial production has plunged to its lowest level in six years.

"It is a very short-sighted vision of the Executive which tries to leverage economy without the involvement of the private sector, the main investor and employer," Ecoanalítica pointed out.

"In order to grow again at high rates, the private sector should be included in the enhancement plan. Should the Executive Office continue its exclusive policy, growth will be very low, even in a scenario of expansive treasury policy."
vsalmeron@eluniversal.com