The Venezuelan government continues to review its economic plans for the year, gauging growth and inflation statistics on the price of a barrel of oil in the months to come.
Venezuelan finance minister Ali Rodriguez said yesterday that GDP this year should grow at a minimum of 2%. “Growing by 2% or more this year will be a success for any country under the current circumstances,” he said.
The 2% growth figure was below the 6% the government had originally projected, but much better than the 4% drop most outside analysts are forecasting.
Rodriguez also said that the 15% inflation target is just a benchmark, but something the government will work hard to achieve.
Inflation in recent years has been nearly double that, hitting hard at buying power. The government plans to counteract this starting May 1 , when the minimum wage increases by 20% from the current $372 a month.
President Hugo Chavez, however, has said that the government would deal with higher inflation if this means guaranteeing continued growth.
To meet its goal, the administration has announced that the government would reduce the 2009 budget y 6.7% to compensate for the drastic drop in oil prices. The original budget was based on oil at $60 a barrel. The new budget, which will not touch education, health care and infrastructure that account for more than 50%, is pegged to oil at $40 a barrel.
Other moves include an increase in the value added tax to 12% from 9%. This is a major concession on the part of the government, which just two years ago announced dropped the tax from 14% and planned to abolish it completely within three years as an inflation-fighting tool. The government has also more than doubled to $17 billion its provision for internal debt this year.
“We have increased the VAT by 3%, but even with this increase it is still one of the lowest rates in Latin America,” said Rodriguez.
The one thing that the Chavez government will not do is devalue the bolivar fuerte, the currency created last year. Rodriguez said devaluation would be devastating to the venezuelan economy. He claimed that the country’s banking system remains strong, and is flush with cash, primarily because of the government’s resistance to devaluation.
Venezuela, like other Latin American nations, is spending heavily on infrastructure, building roads and other components of the transportation sector. There is also an effort to build 300,000 new homes a year, to cut into a housing deficit of more than 1 million units, and to stimulate other industries, such as steel and cement.
Rodriguez said that these measures, plus special funds created by the government, such as a new $16-billion bilateral fund with China, will allow Venezuela to get through the crisis.
“We have mechanisms that will cushion us from the worst blows of the crisis,” he said.