By Jeremy Morgan
Latin American Herald Tribune staff
CARACAS -- The sudden sense of urgency, even emergency, about Venezuela's economy contrasts sharply with the upbeat tone adopted by President Hugo Chávez as 2009 drew to a close just as the central bank sounded alarm bells about a sharp downturn during the fourth quarter of last year.
First, a two-tier devaluation including a doubling of the dollar exchange rate on the cost of importing goods and services deemed "non-essential" by the government. Then, barely within days, the imposition of an equally dramatic program of power cuts across the country.
Javier Alvarado, head of state-owned Electricidad de Caracas, provided some details of the cuts program. The cuts would be "up to" four hours on a system of rolling quotas in different parts of the country, starting Wednesday midnight and would remain in force until the rainy season, which is expected in May.
Alvarado clarified that, contrary to first reports, the cuts would not apply to schools and hospitals in either the public or private sectors. Similarly, neither would emergency services, he said.
In a televised speech Wednesday, President Hugo Chávez called on the population to remain calm and exercise "reason and good judgement" in the face of the change to a dual exchange rate system. He urged people to stop chasing consumer durables.
"There's no need for this, to fall into the trap first of consumerism and then television messages," he said. "You understand that here's a government" -- which was something that friend and foe alike could for once agree upon from their different perspectives.
Interior and Justice Miniter Tareck El Assaimi urged the people to denounce "speculation" saying that the government, unlike its predecessors, was in the front line in that battle. Three prosecutors were appointed to chase down hoarders and other offenders.
Consecomercio, which represents wholesalers and retailers, declared a "yellow alert" in reaction to the power cuts, attributing these to shortcomings in government policy. A single across-the-board cut between midnight and four in the morning throughout the country would have been better, said Consecomercio President Fenandoo Morgado, because most retail companies weren't in a position to buy their own generators.
Opposition Governor Pablo Pérez of Zulia state condemned the cuts as "irresponsible and abrupt" and the government's record of investment in the sector as "lamentable." Whereas the country needed 35 new power plants, only five or six had actually been built, he claimed, and the worst-hit would be people at home. "The government forgot the people," he added.
Chávez in turn blamed the "Fourth Republic" -- the era before his own advent on the scene in which power alternated between the Social Christian party, Copei and Acción Democrática -- for deficiencies in the power system. They were to blame for making the country dependent on the Caroni Basin for over 70 percent of its power supplies. If the Opposition had its way, the earthquake in Haiti would be his fault, he said.
The cuts were a necessity, like a fat person going on a diet, Chávez continued. One only had to look at the water level at El Guri, the country's biggest hydroelectricity scheme, to see it was 10 meters below normal because it hadn't rained.
"What we're doing is a necessity and it's not the fault of Chávez nor the government," insisted the president, who has promised to invest up to $20 billion to beef up the power sector.
The government was doing all it could to alleviate the crisis, Chávez continued, including sending air force jets to fire "rays" into clouds in an attempt to induce rain. Pilots had been "risking their lives" doing this for months.
Copei also pointed the finger at low investment, laying the blame for the cuts on the government, which it accused of not only incompetence but also "inefficiency" and "corruption."
This was "a sad moment for the Venezuelans because it signifies the underming of our quality of life, as does devaluation of the money," said Copei party President Luis Ignacio Planas. Copei marked its 64th anniversary by laying a wreath at the tomb of the Great Liberator, Simón Bolívar.
In Miranda state, Governor Henrique Capriles Radonski, another leading Opposition figure, said his administration would continue working regardless of power cuts and a government order that public servants work only from eight in the morning until one in the afternoon. "If we have to work with candles, we'll do it," he said, amid panicky rumors that there'd been such a run on these that stocks were already out.
At the National Assembly, where the mainstream Opposition hasn't been represented since it boycotted the last parliamentary elections five years ago, Chávez's dominant United Socialist Party of Venezuela (PSUV) rammed through a resolution backing the president and devaluation to the hilt.
PSUV Deputy Ricardo Sanguino, head of the finance committee, exhorted the population to comply with the cuts to avert a collapse of the system. "This isn't going to stop here, it's not just for this year," he declared. "The president has said that if it's necessary to develop energy from uranium, nuclear energy will be done."
Sanguino went on to say that the government would propose a reform to toughen up the Foreign Exchange Crimes Law by extending the BCV's right to take action in the illegal or "parallel" currency market, an idea aired by two of his colleagues the previous day.
Podemos, the social democratic party which once backed Chávez but is now one of the few voices of dissent in the chamber, proposed boosting the minimum legal wage, at present BsF967 a month, to BsF1,785 in response to the new exchange rates.
At the old exchange rate, the minimum wage had been worth $449 a month, said Podemos Deputy Juan José Molina. That had been enough to put oil-rich Venezuela at the top of the Latin American earnings league, expressed in dollars and as a monthly average split between the two new exchange rates. That is no longer the case, the dollar equivalent is estimated to have dropped to $302, in fifth place behind Panama ($416), Argentina ($379), Chile ($332) and Paraguay (305).
This does not feel or look like the same country that Chávez, in an end-of-year speech, claimed was ending well in 2009 with a "smile in the soul and the spirit" -- even though that wasn't what the figures at the Venezuelan Central Bank (BCV) were saying at the same time.
But then, Chávez wasn't referring to the findings of the backroom boys at the central bank.
Instead, he chose to look back at what might have been but hadn't been. A year before when oil prices were at a low point, he noted, experts had warned that 2009 was going to be "disastrous" -- and that, he pointed out, had not actually happened.
The average price for Venezuela's mix of medium-grade and heavy crude oil closed 2008 at barely $34 a barrel, having hit an all-time high of around $126 half a year before. There was much gloom and doom in Venezuela of worst things to come for an economy in which oil accounts for roughly half of gross domestic product (GDP) and four-fifths of export earnings.
As things turned out, world oil markets climbed back from the brink and Venezuelan oil prices with them, moving in a band of $60-80 over the course of 2009. For once, in Chávez' view, developments in the "Empire" in the United States were actually working to Venezuela's benefit.
"Winter's hard in the North and this has increased demand for heating and other needs and there's a rebound in petroleum," he said. The price for Venezuelan oil last year averaged $57 a barrel over the year as a whole last year as a whole and closed on December 31 at $71.46 a barrel.
Chavez went on to claim that the economy had actually done better last year than even the best scenarios had suggested -- and all this in the midst of what he called "the systematic crisis of capitalism."
Unemployment, for instance, had held steady at 7.9% in Venezuela even as it shot out in other countries, he said, and there were sufficient food supplies in store to last 25 days.
But the president's cheerful note then had been severely at odds with the way the economy was being seen at by the BCV. This had GDP falling on a year before in the fourth quarter of 2009 by 4.6 percent, and by 2.9% over the full year, with the all-important oil down by twice as much.
At the time, José Guerra, head of the Economics School at the Universidad Central de Venezuela (UCV) and a former research chief at the BCV, warned that the government's approach to managing the economy still wasn't taking account of several key factors.
The government still hadn't devalue the bolívar then, and he urged it to do so. Investment was falling sharply, by 7.6% in 2009 after 3.3% in 2008, Guerra said, and inflation was chewing away at consumption and hence demand.
Guerra's reckoning was that consumption had dropped by around 2.3% last year. Consecomercio, which claims to represent wholesalers and retailers, forecast a fall in sales of around three percent for 2009
As has become customary in the country with the highest rate of price rises of any country in Latin America, hovering over all is the specter of inflation.
Some months ago, Planning and Development Minister Jorge Giordani, long a familiar figure in the economic team, vowed that state subsidies and controls would take care of price rises. The trouble is they didn't.
Even on the official consumer price index, with which not everybody is entirely in agreement, shop prices rose by 25 percent last year, above Finance and Economy Minister Ali Rodríguez Araque's forecast of 20-22%, but down from 30.9% in 2008, albeit above 22.5% and 17.1% in 2008 and 2007, respectively. Now, economists are forecasting up to 35% this year.
Towards the close of last year, officials at the central bank discreetly admitted they thought foreign exchange controls worked against getting the lid back on inflation, by instead boosting the cost of imports, not least of food, for which Venezuela looks abroad for at least half its needs.
In the wake of devaluation, it's emerged that one of the government's aims is to slash imports, possibly by 40%, according to Giordani. But the result of blocking companies from importing, said the BCV in its end-of-year bulletin, had already been "inertia and the contraction of domestic supply, especially in manufactured products."
Some sectors of the economy were affected more than others as the economy slipped into reverse gear last year. Manufacturing output drooped 10.1% in the fourth quarter, and by 4.1% over the year as a whole. Despite the festive season, low consumption lopped 13% off demand in the commerce sector.
Between them, industry and commerce account for 25% of GDP and 32% of employment. Time was when manufacturing exported a significant share of its output, but shipments are down to their lowest level since 1997.
Now, industry faces contracting demand at home. And, like commerce, it will have to contend with limits on electricity use. All this amid a "freeze" on trade with Colombia and talk of shut-downs at big state-owned "basic industry" companies in cement, steel and minerals production.
Output in construction, a sector that's often one of the first to suffer when hard times set in, held steady last year on the back of continuing state funding for projects. But that did not include housing.
Last year saw a by now characteristically and dismally low 60,000 home starts in a country where an estimated two million families still live in inadequate housing -- perhaps as many as 10 million people out of a population totalling roughly 28 million. The government has promised to double the housing start rate this year.
As to the overall picture for the economy in 2010, officials are sticking to their cautious forecast of 0.5 percent GDP growth. For once, it's the private sector that has been a bit more optimistic, with projections ranging from a flat one percent to as much as three percent for 2010.
But all that's now on hold. In the wake of devaluation, Miguel Ángel Santos, an economist, forecast that GDP would contract by one percent or at bast stagnate. Once again, oil is dominant as much in terms of state income as the overall economic equation.
In his call for calm on Wednesday, the president said that policies were being applied in to enable the country eventually to have sources of revenue other than oil in "the march to economic independence." He then announced he was nationalizing four more agroindustry plants.
Despite Rodríguez Araque's talk of the need for austerity, the state's share of the economy rose last year to 30.3% of GDP, against 29% in 2008. The proportion of the working population employed in the state sector rose over by 1.1 percentage points to 19%, the BCV said.
State sector growth at least partly reflected continuing acquisitions or expropriations under Chávez's rolling nationalization program, which now ranges across the board from, among others, oil to steel, cement to telecommunications, and not least some large outfits in the food industry.
In the meantime, keeping track of how the economy could become more difficult in a year's time. Not for the first time, there's talk of changing the statistical and methodological bases of measuring the economy.
The BCV said that it was preparing to make changes to take account of the "process of social, economic and political changes in the transition to the new socio-productive model."
This is almost certain to happen, not least because Chávez last November urged officials to change the way in which they measured GDP. The existing methodology, he complained, "reflected private economic logic and relegated the performance of the public sector" in the economy.
"We cannot permit that these things go on being calculated with the old methods of capitalism," Chávez declared. "It's prejudicial."