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Venezuela Environmental Export Market Plan
Chapter 2
Economic Overview

The Venezuelan economy is showing signs of a broad-based and sustained recovery after years of recession, currency controls, banking crisis, and high inflation. The country resumed growth in 1997, which is expected to accelerate to around 6 percent in 1998 (figure 1). Inflation, which was over 100 percent in 1996, is expected to have dropped to a level of 40 percent in 1997 (figure 2). This drop in inflation is welcome news, as the Venezuelan economy has been in and out of recession since the early 1980s when the price of oil declined.

Figure 1: Venezuela Real GDP Growth

Source: Economist Intelligence Unit and BBV LATINVEST.

Improvements in the economy bode well for U.S. environmental companies, as more resources, both public and private, should become available to combat long-standing environmental ills. Many serious environmental issues have not been fully addressed in recent years as the country struggled to regain economic stability.

Economists attribute the recent economic resurgence to the Agenda Venezuela Program introduced by President Rafael Caldera in 1996. The program combined austere monetary and fiscal measures with important structural reforms. It represents a break from past interventionist and protectionism policies. The program was developed with the technical assistance of the International Monetary Fund and is based on privatizing public sector companies, downsizing of the government payroll, and opening the economy to foreign trade and investment.

Figure 2: Venezuelan Inflation (%)

Source: Inter-American Development Bank Intelligence Unit

To date, these orthodox measures have worked to stimulate the economy and attract new foreign investment, albeit helped by higher than expected oil prices. Foreign direct investment is rising, spurred by the rise in oil prices, as well as the government's enactment of laws that open the oil sector to private participation.

The government is investing $7 billion from 1997 to the year 2000 to expand the oil sector, which will have positive ripple effects on other sectors of the economy. The government is counting on these new investments to continue to lead a rebound in domestic aggregate demand and subsequently a reduction in unemployment. This investment program includes many important environmental investments that should be of great interest to U.S. companies.

The Venezuelan currency (bolivar) is strong and is being used as a tool to keep inflation in check. The currency is supported by strong foreign exchange in-flows fostered by growing oil exports and higher prices per barrel. In nominal terms, the bolivar is devaluing at a pace approximately equal with Venezuelan inflation. The current exchange rate is 495 bolivares to 1 U.S. dollar.

Inflation has been substantially reduced, but remains well above the government's target of 25 percent. Standard and Poors’ long-term sovereign rating for Venezuela stands at a B+, which is below investment grade.

Figure 3: Venezuela Current Account

Source: Economic Intelligence Unit InterAmerican Development Bank

The Venezuelan trade surplus widened to 20 percent of gross domestic product (GDP) in 1996 driven by high international oil prices that spurred an expansion of oil production and exports. At the same time, the recession in 1996 depressed import demand. This scenario is expected to reverse, resulting in a reduction of the trade surplus brought about by the stronger bolivar and a relative decrease in oil prices. Despite the trade surplus reduction, the trade balance will remain positive (figure 3).

The major hindrance to improving the Venezuelan economy has been the Venezuelan Government's inability to trim public sector spending and restrain monetary growth. To date, the government's progress has been slowest in its efforts to restructure labor benefits, eliminate subsidies, and withdraw from unprofitable industries, as outlined in the Agenda Venezuela program. GDP per capita remained stable during the 1990-96 period.

Venezuela continues to be an excellent trading partner of the United States. U.S. goods and services continue to be widely accepted and valued. Venezuela's past economic difficulties have dampened
import growth as illustrated in table 2, but imports from the United States should rebound strongly with the economic revival coupled with the strong bolivar.

Table 2: Venezuelan Imports from the United States

Amount (US $ Millions)
Source: U.S. Department of Commerce.

Country Profile: Venezuela
Population21.9 million
Other Major CitiesMaracaibo, Valencia, Barquisimeto
Area912,050 square kilometers
GovernmentRepublic, 21 states, suffrage: universal at age 18
Language(s)Spanish, Indian dialects in remote interior
Religion(s)Roman Catholic (96%); Protestant (2%)
Life ExpectancyMale: 69.76 years; Female: 75.77 years
ClimateTropical, hot, humid, more moderate in highlands
Major IndustriesPetroleum, iron-ore mining, construction materials, food processing, textiles, steel, aluminum, motor vehicle assembly
Labor Source5.8 million, services 56%; industry 28%; agriculture 16%
Largest Trading PartnersUnited States, Japan, Canada, Italy, and France
Member ofAG (Andean Group - Bolivia, Colombia, Ecuador, Peru, Venezuela), ALADI (Association Latino-American de IntergraciŽon), CDB, CG (Consulate General) ECLAC (Economic Commission for Latin America and the Caribbean), FAO (United Nations Food and Agriculture Organization), G-3 (Group of Three - Colombia, Mexico, Venezuela) G-11
(Group of Eleven), G-19 (Group of Nineteen), G-24 (Group of Twenty Four), G-77 (Group of 77 Developing Nations), IDB (Inter-american
Development Bank), IAEA (International Atomic Energy Agency), IBRD (International Bank for Reconstruction and Development), ICAO (International Civil Aviation Organization), ICC (International Chamber of Commerce), ICFTU (International Conference on Free Trade Unions), IFAD (International Fund for Agricultural Development), IFC (International Finance Corporation), ILO (International Labor Organization), IMF (International Monetary Fund), IMO (International Maritime Organization), INTELSAT (International Telecommunications Satellite Organization), INTERPOL (International Police), IOC (Intergovernmental Oceanographic Commission), IMO (International Maritime Organization), ISO
(International Standard Organizations), ITU (International Telecommunications Union), LAES, LAIA, LORCS, NAM (Non Aligned Movement), OAS (Organization of American States), OPANAL (Agency for the Prohibition of Nuclear Armaments in Latin American), OPEC (Organization of Petroleum Exporting Counties, PCA, RG, UN (United Nations), UNESCO (United Nations Scientific and Cultural Organization), UNHCR (United Nations High Commission for Refugees), UNIDO (United Nations Industrial Development Organization), UPU (Universal Postal Union), WFTU WHO (World Health Organization), WIPO (World Intellectual Property Organization), WMO (World Meteorological Organization), WTO (World Trade Organization)
Source: World Economic Development Congress 1995.

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