Acknowledged analysts and observers have rung in the New Year with gloomy forebodings about the outlook for inflation in 2009. First off, and it should be no surprise, was former Venezuelan Central Bank (BCV) Director Domingo Maza Zavala, who has a habit of tilting at what he perceives as the government's misconduct of economic policy.
Amid an array of warnings that inflation would hit something between 30% and 35% this year, Maza Zavala was on familiar territory. Should those forecasts turn out right, the implication would be that the government had had no more success reining in price rises this year than it did in 2008. Estimates for 2008 currently range around 30%.
Once again, Maza Zavala went to what he sees as the bone. He warned that if the government didn't get a grip on state spending, all would be lost in the battle against the highest rate of inflation of any country in Latin American. It remained to be seen whether this had anything to do with the fact that President Hugo Chávez had unveiled in his New Year's message that he planned a $100 billion boost in state spending during the next four years.
That's just the sort of thing Maza Zavala has been arguing for years that the government shouldn't be doing. And now he evidently believes he's got the world financial crisis on his side to prove the point that unrestricted, footloose financial management simply doesn't work.
Maza Zavala exhorted the government to exercise what he called a "rational use of resources" while acknowledging the need for this not to include slashing back state spending on social services. That said, if what Maza Zavala's said in the past is anything to go by, he's not entirely convinced that welfare spending as practiced by this government is necessarily all for the good.
What he wanted this time was to see the government beefing up revenue collection in anticipation of a widely expected sharp decline in state income from the traditional mainstay of the Venezuelan economy: oil exports. However, Maza Zavala urged the government not to put up value added tax (known in Venezuela by the acronym, IVA). To do this would go against the grain of Chávez' stated aim of eliminating altogether a tax he considers social unjust because it hits hardest at the less well-off sectors of the population. That said, analysts say lifting IVA would be the easiest and quickest way to bridge the gap that sliding oil export revenues are forecast to inflict upon state spending expectations and the reality of revenues.
Elsewhere, talk in government circles began to be about a possible new 2% tax on credit card and/or bank transactions to fill the gap, thus hitting the more well-off. Amid all this, there's continuing talk of the government being forced some time this year into devaluing the official exchange rate – a measure the government swears it's not going to be pushed into in any circumstances. The black market dollar rate has soared to 5.7 bolivars to the dollar as the government has tightened the screws on access to the dollar. The fixed government exchange rate continues to value the bolivar at 2.15 to the dollar. However, José Grasso Vecchio, a respected financial analyst who plumps for 30% as the likely outcome on the inflationary front this year, was reported to have discounted any devaluation this year. Instead, he reckons the government will resort to what's been its gut instinct reaction to economic ill-being up to now – more state controls, most of all on prices and the exchange rate.
All this said, the jury's very much still out on whether controls would actually work. Latest figures from the BCV show that the cost of food leapt by no less than 60% last year. This included, believe it or not – and these are official statistics – a 241% leap in the cost of onions, and a 154% jump in tomato prices. To be fair, the cost of carrots went down by 11%.
No comments:
Post a Comment