Consumer Demand Slows in Venezuela as Overvalued Currency, Falling Oil, Inflation & World Economic Crisis Starts to Bite

In what economists see as weakening confidence in Venezuela's oil-fuelled economy, official figures show that while consumer demand rose during the first three-quarters of this year, this indicated that demand had slowed from the corresponding figure of 21.7% a year before. Furthermore, the increase in consumer consumption was well below the prevailing rate of inflation, which reached an annual 36% last month. In real terms, economists said, that implied that consumers in fact were spending less.

The period covered by the figures from the Venezuelan Central Bank (BCV) for the large part did not include the impact on consumer confidence of the ramifications for Venezuela's economy of the financial crisis sweeping the world. It was suggested that consumer demand might even "go negative" during the final quarter of this year and almost certainly in 2009 if the turmoil hits at oil export earnings as much as some observers warn. Unemployment was little changed at 6.7% in October compared with September, according to the National Statistics Institute, INE. But, again, the specter of a sudden worsening of the trend was in the air, and not least of all in terms of the outlook for state spending.

Former BCV Director Domingo Maza Zavala, a respected economist who's been tilting at the government's economic policies for years, said that the government would have to "readjust" its spending plans to ensure that the economy was "not punched so much by the world financial crisis." He also called for the government to hold talks with business leaders on "new alternatives" for 2009.

Another economist who was once head of research at the central bank, José Guerra, said out loud what some people are still thinking in private – namely, that the financial upheaval most probably spells the end of the oil bonanza for Venezuela. Guerra forecast that the economy would move into "stagnation" in 2009, and he criticized President Hugo Chávez for having missed a "golden opportunity" to use booming oil prices for the sort of investment needed to spur economic growth. Instead, he said, while Chávez had increased state spending, he'd "thrown away the Venezuelans' money."

Maza Zaval's comments had a direct bearing on the 2009 Budget Bill submitted by Finance Minister Alí Rodríguez Araque. His blueprint, valued at BsF167.4 billion, has been quietly put on hold after a first debate at the National Assembly, and is now shrouded in doubt. In submitting his Bill to the legislature, Rodríguez Araque vowed to make much less use of "additional credits" – extra funding that is voted through during the course of the year, and which is used to supplement the budget.

This practice has become a convenient habit for the government in recent years, allowing it periodic access to extra funds if the sums begin to go awry. But critics claim it's also encouraged profligacy and indiscipline in the management of public funds. During the first 11 months of this year, the Assembly – which is almost entirely dominated by government legislators – voted through BsF51.8 billion in additional credits on top of the BsF137.5 billion budget for 2008. Taken together, the credits and the budget took the portion of state spending under parliamentary supervision to BsF189.3 billion as of the end of last month.