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Cablegate: Venezuela Macroeconomic Update

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS CARACAS 003918

SIPDIS

STATE FOR WHA/AND, WHA/EPSC, EB
TREASURY FOR OASIA - GIANLUCA SIGNORELLI
USCINCSO FOR POLAD
BUENOS AIRES FOR TREASURY - MHAARSAGER

E.O. 12958: N/A
TAGS: ECON EFIN PGOV VE
SUBJECT: VENEZUELA MACROECONOMIC UPDATE


-------
SUMMARY
-------

1. (U) Venezuela's economic recovery continues based on
high government expenditures and strong consumption levels.
Unemployment has continued its slow decline. Inflation,
while slowing, remains somewhat high. The balance of
payments has moved from strong surp
lus to a near even
position. Foreign exchange controls have contributed to the
accumulation of excess liquidity in the economy and low
interest rates during 2004. However, controls have been
administered in an increasingly more accommodative fashion
as oil revenue has increased and reserves have risen.
Demand for credit has begun to rise with the economic
recovery. END SUMMARY.

---------------
ECONOMIC GROWTH
---------------

2. (U) Total GDP increased by 20.4 percent in real terms
during the period January-September of 2004 compared with
the levels of economic activity registered during the same
period of the previous year, after two consecutive years of
deep economic recession. However, January-September 2004 GDP
level is still below the GDP level for the same period of
2001. The 2004 economic recovery has been driven by a large
increase in government expenditures, based on higher than
expected oil prices, which in turn has generated higher
consumption levels.

REAL GDP GROWTH RATE
(PERCENTAGE)
--------------------

OIL NON-OIL TOTAL

1998 0.3 (0.1) 0.3
1999 (3.8) (6.9) (6.0)
2000 2.3 4.2 3.7
2001 (0.9) 4.0 3.4
2002 (14.2) (6.0) (8.9)
2003 (2.1) (8.1) (7.6)
2004 (JAN-SEP) (1) 18.6 20.0 20.4

(1) Preliminary figures

SOURCE: Central Bank of Venezuela.

------------
UNEMPLOYMENT
------------

3. (U) September 2004 figures from the National Institute of
Statistics (INE) indicate an average unemployment rate of
14.5 percent. This figure represents 1.77 million unemployed
out of a labor force of 12.25 million, and a total
population of 26.09 million. INE's figures are disputed by
the private sector. (According to Datanalisis, a private
pollster and consultancy which uses a different methodology,
the unemployment rate is around 17 percent.) Shifts in the
work force from the formal to the informal sector of the
economy, which accounts for almost a half of the occupied
working labor force, have mitigated unemployment to some
extent.

UNEMPLOYMENT (percentage in second semester)
--------------------------------------------

1998 11.0
1999 14.5
2000 13.2
2001 12.8
2002 16.2
2003 16.8

2004
JAN 19.1
FEB 17.1

MAR 15.6
APR 16.3
MAY 15.8
JUN 15.5
JUL 15.3
AUG 14.2
SEP 14.5


SOURCE: GOV National Institute of Statistics (INE).
--------------------------
OIL PRODUCTION AND EXPORTS
--------------------------

4. (U) The total value of oil exports reached USD 23.7
billion during the period January-September 2004 with an
average export price of USD 32.4 per barrel. Venezuela's
OPEC production quota has been 3.11 million barrels a day
since November 1, 2004. Venezuela's oil production has been
below the quota, according to OPEC figures. Oil prices
(Venezuelan basket) have been increasing during 2004,
reaching a record high of USD 43.09 per barrel during
October 2004.

OIL PRODUCTION AND EXPORTS (THOUSAND B/D)
-----------------------------------------
AVERAGE
EXPORT PRICE EXPORTS
PRODUCTION(2) EXPORTS (USD/B) (USD MILLION)

1996 2,984 2,752 18.4 18,523
1997 3,248 3,052 16.3 18,180
1998 3,279 3,116 10.6 12,111
1999 2,950 2,785 16.0 16,419
2000 3,060 2,791 25.9 27,884
2001 3,044 2,711 20.2 21,574
2002 2,567 2,432 22.0 21,530
2003 (3) 2,335 2,170 25.8 22,052
2004 (J-S) 2,540 2,375 32.4 23,705

(2) Crude oil, including condensates.
(3) Preliminary figures.

SOURCE: Central Bank of Venezuela, Ministry of Energy and
Mines, OPEC, and private sector estimates.

---------------
MONEY SUPPLY/M2
---------------

5. (U) Monetary liquidity increased 48.3 percent from
October 2003 to October 2004, largely as a result of
exchange controls and increases in government expenditure.
Much of the excess liquidity accumulated in the economy
during these months has been withdrawn by the BCV by issuing
government bonds and certificates of deposits to domestic
banks.

MONEY SUPPLY/M2 (4) MONETARY BASE
-------------------- ---------------------

End of: (million Bs.) Pct.Chg. (million Bs.) Pct.Chg.

1996 5,493,813 55.4 1,675,799 92.1
1997 8,956,161 63.0 3,004,685 79.3
1998 10,621,645 18.6 3,717,323 23.7
1999 12,740,836 20.0 4,909,822 32.1
2000 16,284,578 27.8 5,790,841 17.9
2001 16,976,364 4.2 6,478,295 11.9
2002 19,573,369 15.3 7,701,120 18.9
2003 30,835,975 57.5 11,274,439 46.4

2004 (5)
JAN 30,279,535 (1.8) 10,752,425 (4.6)
FEB 31,815,818 5.1 10,762,152 0.1
MAR 32,311,341 1.6 13,219,845 22.8
APR 31,934,539 (1.2) 11,049,744 (16.4)
MAY 32,962,043 3.2 11,291,538 2.2
JUN 34,237,954 3.9 11,994,271 6.2
JUL 35,941,059 5.0 12,346,773 2.9

AUG 36,500,509 1.6 12,724,344 3.1
SEP 36,676,340 0.5 12,503,001 (1.7)
OCT 37,956,264 3.5 13,217,650 5.7

(4) M2 includes currency, demand deposits, savings
and certificates of deposit.
(5) Preliminary figures.
SOURCE: Central Bank of Venezuela.
--------------------
CONSUMER PRICE INDEX
--------------------

6. (U) The Central Bank of Venezuela (BCV) reported that
consumer prices for the Caracas metropolitan area rose 19.5
percent from November 2003 to November 2004. Consumer prices
lagged producer prices, however, as wholesale prices
increased by 24.2 percent during the same period. (Note: The
GOV imposed price controls February 11, 2003 on some primary
food items, pharmaceuticals, and personal care products as a
complement to the exchange control regime.) Core inflation
removes the most volatile categories from the CPI. The GOV
periodically adjusts regulated basic food staples, the last
time at the beginning of November 2004.

CONSUMER PRICE INDEX (1997 AVG =100) and CORE INFLATION
--------------------------------------------- ------------
END OF PERIOD PCT CHANGE CORE INFLATION
(% change)
1996 84.6 103.2 N/A
1997 116.5 37.6 N/A
1998 151.3 29.9 N/A
1999 181.6 20.0 N/A
2000 206.0 13.4 12.8
2001 231.3 12.3 11.4
2002 303.5 31.2 31.2
2003 385.7 27.1 37.9

2004
JAN 395.4 2.5 1.7
FEB 401.6 1.6 2.6
MAR 410.2 2.1 3.6
APR 415.6 1.3 2.0
MAY 420.5 1.2 1.5
JUN 428.3 1.9 1.5
JUL 434.2 1.4 1.2
AUG 440.0 1.3 1.1
SEP 442.3 0.5 0.2
OCT 445.0 0.6 1.0
NOV 452.5 1.7 1.5

SOURCE: Central Bank of Venezuela.

--------------
INTEREST RATES
--------------

7. (U) Interest rates reported by the Central Bank in 2004
continue the downward trend of 2003. Excess liquidity
arising from the application of exchange controls was the
most important cause of this trend. However, credit card,
mortgage, and auto loan rates have been kept at levels that
are now than double the average loan rate for most
consumers. The spread between lending and deposit rates
decreased from 6.59 percent in January 2004 to 3.21 percent
in November 2004.

AVERAGE INTEREST RATES OF THE SIX MOST IMPORTANT
COMMERCIAL AND UNIVERSAL BANKS
--------------------------------------------- ---
Loans Deposits
------- -------------------
Savings 90 days

1996 37.22 18.36 26.85
1997 22.16 6.84 14.62
1998 45.21 10.25 38.02
1999 31.89 7.05 18.90
2000 23.91 3.35 14.80

2001 25.64 2.40 14.13
2002 37.08 3.90 28.29
2003 24.05 6.15 17.58

2004
JAN 18.38 5.19 11.79
FEB 18.08 4.54 10.84
MAR 17.56 4.56 12.84
APR 17.97 4.56 12.46
MAY 17.68 4.43 13.11
JUN 17.08 4.33 12.75
JUL 17.22 4.17 11.67
AUG 17.58 4.21 12.43
SEP 16.92 4.26 13.47
OCT 17.01 4.49 13.03
NOV 16.11 4.75 12.90

SOURCE: Central Bank of Venezuela.

-----------------------------------
EXCHANGE RATES AND BCV LIQUIDATIONS
-----------------------------------

8. (U) The exchange control system pegged the bolivar at
1,600/USD on February 5, 2003. One year later, on February 7,
2004, the Ministry of Finance and the Central Bank devalued the
Bolivar 20 percent, to 1,920.00. The National Exchange Control
Administration (CADIVI) oversees all official foreign exchange
transactions. As official foreign exchange liquidations have been
increasing during the last months, the exchange rate in the
parallel market has been decreasing. The national budget for 2005
assumes that the new official average exchange rate will be
2,150/USD, representing a devaluation of 12 percent. The parallel
market exchange rate closed at around 2,500/USD at the end of
November 2004.

END OF PERIOD EXCHANGE RATES (BS/USD)
AND BCV LIQUIDATIONS
--------------------------------------------- ------
OFFICIAL FOREX
OFFICIAL MARKET PARALLEL MARKET LIQUIDATIONS
(MILLIONS USD)
--------------- --------------- ----------------
1996 476.50
1997 504.25
1998 564.50
1999 648.25
2000 699.75
2001 763.00
2002 1,401.25
2003 1,600.00 2,875.00 4,594.52

2004
JAN 1,600.00 3,050.00 943.60
FEB 1,920.00 3,240.04 934.90
MAR 1,920.00 3,084.00 891.90
APR 1,920.00 2,981.00 898.90
MAY 1,920.00 2,913.59 818.30
JUN 1,920.00 2,622.83 1,132.00
JUL 1,920.00 2,645.78 1,297.50
AUG 1,920.00 2,684.16 1,404.00
SEP 1,920.00 2,431.20 1,702.00
OCT 1,920.00 2,504.78 1,334.00
NOV 1,920.00 2,500.00 1,422.90

SOURCE: Central Bank of Venezuela, Metroeconomica, and
Banco Provincial.

-------------------------
MERCHANDISE TRADE BALANCE
-------------------------

9. (U) Non-oil exports increased 38.4 percent during January-
September 2004 compared with the same period of last year.
According to INE, exports of base metals (aluminum, steel,
and others) accounted for 42.2 percent of total non-oil
exports for the period January-September 2004, followed by
mineral products (19.7 percent), and chemicals (14.9
percent). The United States was the largest recipient of
Venezuela's non-oil exports (41.8 percent), followed by

Colombia (13.5 percent), and Mexico (5.8 percent). Imports
increased by 62.7 percent during January-September 2004
compared with the same period of last year as approvals and
liquidations of foreign exchange increased during 2004.

MERCHANDISE TRADE BALANCE (USD MILLION)
---------------------------------------
January-September
2003 2003 2004(6)
OIL EXPORTS (A) 22,052 15,678 23,705

NON-OIL EXPORTS (B) 4,809 3,480 4,817

TOTAL EXPORTS (C) 26,861 19,158 28,522

TOTAL IMPORTS (D) (10,341) (7,045) (11,465)

MERCHANDISE TRADE
BALANCE (C)-(D) 16,520 12,113 17,057

(6) Preliminary figures.

SOURCE: Central Bank of Venezuela.

-------------------
BALANCE OF PAYMENTS
-------------------

10. (U) Venezuela's balance of payments registered a surplus
of USD 294 million during the period January-September of
2004, compared with a surplus of USD 3.79 billion during the
same period of last year. Although the current account
surplus was higher than the year before because of the rise
in oil prices, the capital and financial deficit was much
more higher, contributing to the overall balance's lower
surplus during the first nine months of 2004. PDVSA's
operations, including the buyback of part of its external
debt, and higher private sector repatriation of capital
contributed to these results.

BALANCE OF PAYMENTS SUMMARY
(USD MILLION)
--------------------------------------------- ---
January-September
2003 2003 2004(7)

CURRENT ACCOUNT (A) 11,524 8,400 11,324
EXPORTS, FOB 26,861 19,158 28,522
IMPORTS, FOB (10,341) (7,045) (11,465)
TRADE BALANCE 16,520 12,113 17,057
NET SERVICES AND RENT (5,003) (3,701) (5,577)
NET TRANSFERS 7 (12) (156)
CAPITAL AND FINANCIAL
ACCOUNT (B) (5,135) (3,851) (8,903)
DIRECT INVESTMENT 1,338 1,678 612
PORTFOLIO INVESTMENT (1,348) (1,551) (3,872)
OTHER INVESTMENT (5,125) (3,978) (6,643)
NET ERRORS AND
OMISSIONS (C) (946) (758) (2,127)
OVERALL BALANCE
(A)+(B)+(C) 5,443 3,791 294

(7) Preliminary figures.

SOURCE: Central Bank of Venezuela.

----------------------
INTERNATIONAL RESERVES
----------------------

11. (U) BCV-held international reserves increased nearly
continuously after exchange controls were imposed in
February 2003 until May 2004. PDVSA's sales of dollars to
the Central Bank were partially suspended in order to direct
oil revenues to a USD 2.0 billion Social Development Fund,
the creation of which has been very controversial. Reserves
dropped USD 2,509 million on August 2, after PDVSA completed
the buyback of part of its external debt. During September,
October, and November 2004 reserves have been increasing

slightly.

INTERNATIONAL RESERVES (USD MILLIONS)
---------------------------------------
BCV FIEM TOTAL

1996 DEC 15,229 - 15,229
1997 DEC 17,818 - 17,818
1998 DEC 14,849 - 14,849
1999 DEC 15,164 215 15,379
2000 DEC 15,883 4,588 20,471
2001 DEC 12,296 6,227 18,523
2002 DEC 12,003 2,857 14,860
2003 DEC 20,666 700 21,366

2004
JAN 21,623 701 22,324
FEB 21,929 702 22,631
MAR 22,560 702 23,262
APR 23,591 703 24,294
MAY 23,453 703 24,156
JUN 22,522 704 23,226
JUL 23,306 705 24,011
AUG 20,749 706 21,455
SEP 21,135 706 21,841
OCT 21,973 707 22,680
NOV 23,226 709 23,935

SOURCE: Central Bank of Venezuela.

------------------------------------
CENTRAL GOVERNMENT FINANCIAL RESULTS
------------------------------------

12. (U) Total central government expenditures are expected
to increase by 46.2 percent during 2004 in comparison with
last year, according to a projection made by Banco
Mercantil. Increased spending during 2004 has continued the
same trend of expansion initiated in mid-2003. This has been
possible because of stronger oil prices, as well as higher
collection of internal taxes.

CENTRAL GOVERNMENT FINANCIAL RESULTS
(TRILLIONS OF BOLIVARS)
-----------------------------------------

2002 2003 2004 (8)

TOTAL ORDINARY REVENUES 23.9 31.4 47.4
Oil income 11.3 15.6 20.5
Non-oil income 12.6 15.8 26.9

TOTAL EXPENDITURES 28.2 37.3 53.4

FISCAL DEFICIT (4.3) (5.9) (6.0)

(8) Banco Mercantil forecast.

Sources: BCV, Banco Mercantil, and post calculations.

------------------
PUBLIC SECTOR DEBT
------------------

13. (U) The government has been actively refinancing its
domestic and external debt during 2003 and 2004. Domestic
bonds and treasury promissory notes dramatically increased
both in the share of domestic banks' portfolio holdings and
in the share of the GOV's debt. At the end of September
2004, the Ministry of Finance issued bonds for the
equivalent of USD 1.5 billion to exchange old bonds for U.S.
dollar-denominated global bonds due 2014.

PUBLIC SECTOR DEBT (USD BILLION)
-------------------------------------------

2003 2004(9)

FOREIGN DEBT 33.2 30.1

CENTRAL GOVERNMENT 23.0 22.8

RESTRUCTURED DEBT 5.8 5.7
NON-RESTRUCTURED DEBT 17.2 17.1

AGENCIES 1.2 1.2

PDVSA 9.0 6.1

DOMESTIC DEBT (10) 17.9 21.5
---- ----
TOTAL PUBLIC SECTOR DEBT 51.1 51.6

(9) Projection.
(10) Includes Central Bank debt.

SOURCES: Ministry of Finance, Metroeconomica, and Santander
Investment.

--------------
BANKING SYSTEM
--------------

14. (U) Credit demand increased during January-September
2004 as a result of the rebound of the economy, although at
a lower level than 2002. The percentage of past due loans
decreased from December 2003 to September 2004. This figure
has been decreasing since 2002 as banks have been cleaning
up their credit portfolios, declaring more past due loans as
outright losses.

BANKING SYSTEM KEY INDICATORS
(percentages)

DEC 02 DEC 03 SEP 04
Past due loans/
gross loans 6.76 4.47 2.49

Credit portfolio allowance/
past due loans 132.64 179.50 197.96

Equity/total assets 16.08 14.44 14.43

Net financial margin/
average asset 5.32 6.19 5.83

Net financial margin/
average equity 35.65 43.95 43.60

Net loans/
total deposits 54.46 36.33 46.51

Source: SUDEBAN.

-------------------------
DIRECT FOREIGN INVESTMENT
-------------------------

15. (U) The Superintendency of Foreign Investments (SIEX)
registered new direct foreign investment in the amount of
USD 324.4 million during the period January-September 2004.
The highest amount of investment was registered during the
month of September 2004 (USD 130.0 million), most of which
came from Switzerland in the food manufacturing sector.

DIRECT FOREIGN INVESTMENT
(MILLIONS OF USD)
-------------------------------

1996 1,114.4
1997 690.1
1998 1,583.8 (11)
1999 985.4
2000 642.9
2001 948.1
2002 297.0
2003 1,174.2 (12)

2004
JAN 55.2

FEB 47.0
MAR 24.4
APR 43.9
MAY 6.8
JUN 8.1
JUL 4.6
AUG 4.4
SEP 130.0
OCT 21.4
TOTAL 345.8

(11) Privatization of state steel company (SIDOR).
(12) This high figure consists largely of investments in
former state-owned telecoms giant CANTV, made in 1996,
but for technical reasons only registered by the GOV
in 2003.

SOURCES: SIEX, CONAPRI, and Metroeconomica.

----------------------------
CARACAS STOCK EXCHANGE INDEX
----------------------------

16. (U) The Caracas Stock Exchange (CSE) index closed at
29,306.54 at the end of November 2004, decreasing 1.1
percent from the end of the previous month but up 37.0% from
November 2003. A primary catalyst in this rise is the use of
CSE shares to acquire American Depositary Receipts on the
New York Stock Exchange that are then used as foreign
exchange vehicles. However, the CSE has also benefited from
the lack of other investment opportunities in the broader
economy and from the recovery.

CARACAS STOCK EXCHANGE CAPITALIZATION INDEX
(DECEMBER 1993 = 1,000)
-------------------------------------------

2002 2003 2004

JANUARY 6,293.89 8,286.65 27,956.14
FEBRUARY 6,958.39 8,509.56 27,484.76
MARCH 6,828.04 8,506.59 26,579.69
APRIL 6,712.57 8,631.60 25,879.34
MAY 7,422.64 12,799.62 25,405.73
JUNE 7,452.09 13,666.40 25,285.17
JULY 7,134.00 14,052.35 25,611.18
AUGUST 6,793.30 14,497.20 27,263.38
SEPTEMBER 7,447.71 16,956.29 30,111.62
OCTOBER 7,741.81 20,413.00 29,618.90
NOVEMBER 8,015.17 21,397.36 29,306.54
DECEMBER (13) 22,203.95

(13) The CSE was closed during December 2002 because of the
general strike.

SOURCE: Caracas Stock Exchange and Metroeconomica.

------------------
INTERNET RESOURCES
------------------

17. INTERNET RESOURCES:

AMEMBASSY CARACAS WEBSITE: www.embajadausa.org.ve
-
EXCHANGE RATES AND INTERNATIONAL RESERVES: www.bcv.org.ve
-
STOCK EXCHANGE: www.caracasstock.com
-
TRADE AND LABOR FORCE STATISTICS: www.ine.gov.ve
-
BUSINESS INFORMATION: www.venamcham.org
-
INVESTMENT OPPORTUNITIES: www.conapri.org
-
PETROLEUM INFORMATION: www.pdvsa.com,
www.mem.gov.ve
-
PUBLIC FINANCE INFORMATION: www.mf.gov.ve
-

FINANCIAL INDICATORS: www.sudeban.gov.ve
-
ECONOMIC PUBLICATIONS: www.metroeconomica.com.ve,
www.veneconomy.com, www.bancomercantil.com,
www.provincial.com
-
NEWSPAPERS: www.eluniversal.com,
www.el-nacional.com
-
LEGAL PUBLICATIONS: www.datalegis.com.ve,
www.bpmaw.com, www.traviesoevans.com,
www.tpa.com.ve
-
VENEZUELAN GOVERNMENT: www.venezuela.gov.ve,
www.platino.gov.ve

MCFARLAND


NNNN
2004CARACA03918 - UNCLASSIFIED

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