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Cablegate: Venezuela: Central Bank Underestimates Economic Contraction

VZCZCXRO9183
RR RUEHAO RUEHCD RUEHGD RUEHGR RUEHHO RUEHMC RUEHNG RUEHNL RUEHRD
RUEHRS RUEHTM
DE RUEHCV #1609 3651919
ZNR UUUUU ZZH
R 311918Z DEC 09
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 0216
INFO WESTERN HEMISPHERIC AFFAIRS DIPL POSTS
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RHEHAAA/NATIONAL SECURITY COUNCIL WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS CARACAS 001609

SIPDIS
ENERGY FOR CDAY AND ALOCKWOOD
HQ SOUTHCOM ALSO FOR POLAD
TREASURY FOR MKACZMAREK
NSC FOR DRESTREPO AND LROSSELLO
USDOC FOR 4332 MAC/ITA/WH/JLAO

E.O. 12958: N/A
TAGS: ECON EFIN VE
SUBJECT: VENEZUELA: Central Bank Underestimates Economic Contraction

REF: CARACAS 1497; CARACAS 1469; CARACAS 207

1. (U) SUMMARY AND COMMENT: According to Central Bank President
Nelson Merentes' end of year projection, the Venezuelan economy
contracted 2.9% in 2009. The Central Bank (BCV) data indicated non
oil exports fell to 2004 levels and petroleum income is also
sharply down. Trying to divert attention from the negative
economic situation, GBRV spokesmen stressed how socialist policies
have stabilized the economy while planned adjustments to the
methodology of calculating GDP will provide a more complete
assessment of the nation's advancement towards socialism in 2010.
END SUMMARY AND COMMENT.

BCV Estimates

2. (U) According to the BCV projection, the Venezuelan economy
contracted 2.9% in 2009, implying a 4.6% contraction in the fourth
quarter, its third consecutive quarterly contraction. [NOTE:
Official fourth quarter 2009 statistics will not be published for
several months. END NOTE.] At the end of the third quarter, the
BCV projected an annual GDP contraction of 2.2% (reftel B). On
national television the evening of December 30, President Hugo
Chavez explained that "2009 was ending well, with the soul
smiling," citing earlier forecasts that the world economic crisis
and petroleum price crash would have impacted the local economy
more severely.

3. (U) BCV estimates indicated that Venezuelan exports declined,
with non oil exports falling to $3.3 billion. Non oil export
revenue is currently at 1997 levels and represents a 44% reduction
from 2008. The BCV estimated that oil production (barrels
produced) fell by 6.1%. In early December, OPEC estimated
Venezuelan crude oil production at 2.3 million barrels a day (mbd),
roughly the same level Venezuela achieved in 1990. (NOTE: GBRV
claims oil production is around 3 mbd. The BCV estimate does not
attempt to reconcile these disparate figures. END NOTE.) Driven by
a 32.7% reduction in petroleum prices, revenue from petroleum
exports plummeted 35.3%, while export revenue in general fell
35.9%. Imports shrank from $49.5 billion in 2008 to $38.5 billion
in 2009, a 22.2% difference. The only positive advances in the
economy included the construction sector (3.1%), communications
(10.1%), and electricity generation and water utilities (4.6%).
Unemployment closed the year at 8%. According to Merentes'
year-end report, nationalizations contributed to growth in the
public sector and displaced the private sector as the main driver
of the economy. Public sector participation in GDP rose 30.3% with
nationalizations of the cement industry, various banks and Sidor
(Venezuela's largest steelmaker). Government spending grew 2.1%
even though, demand fell 1.8%, consumption dropped 1.8% and
investment sank 7.6%.

GBRV Response

4. (U) The BCV announced (again) that it will change the way it
measures economic behavior in 2010 to present a more complete
assessment of the country's transition to a socialist economy,
echoing Chavez's remarks in November (reftels A and C). These
changes will allegedly include indicators to measure well-being as
well as economic and social progress. Press reports on December 31
claim that Minister of Planning Jorge Giordani announced that the
GBRV would reinforce socialist policies to stabilize the economy in
2010. Measures under consideration include public investment in
agriculture, tourism and construction; refinancing internal debt;
stabilizing the foreign exchange market; and increased capital
expenditures. Giordani maintained that subsidies and price
controls would resolve inflationary problems (2009 inflation is
estimated by independent economists at around 28%).
DUDDY

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