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Venezuelan Economy Grows by Ignoring IMF

Venezuela prospers by doing the opposite of what the IMF recommends. Highly indebted Latin American countries that don't have large oil reserves aren't allowed that choice though.

IMF Says Venezuela's Economy Will Grow 8.8% in 2004

Tuesday, Apr 27, 2004
By: Gregory Wilpert - Venezuelanalysis.com

The International Monetary Fund released its World Economic Outlook report for 2004, in which it states that Venezuela's economy is expected to grow by 8.8% in 2004. However, for 2005 the IMF says the economy will grow by only 1.1%. The growth rate for 2004 is the highest in the western hemisphere, which is largely attributable to the recovery of the economy following declines of 8.9% in 2002 and 9.2% in 2003, due to the effects of the 2002 coup attempt and the 2003 oil industry shut-down.

The 8.8% growth prediction of the IMF is substantially higher than the one the Venezuelan government used for its budgeting, which had predicted a 6.5% growth rate. Currently, however, the Finance Ministry is predicting a growth rate of between 9 and 10% for 2004.

The report explains that the economies of Latin America will generally recover in 2004, following the "deep recession" of 2001-2002. It says that "Despite the improvement in economic conditions, unemployment remains high, and together with wide income inequalities and pervasive poverty, this has contributed to an increase in social tensions in a number of countries."

With regard to Venezuela, the report says, "the projected rebound in activity is critically dependent on an orderly resolution of the political crisis and a corresponding recovery in consumer and business confidence." It went on to add that "urgent corrective measures" were needed to ensure fiscal stability.

Finance minister Tobias Nobrega, however, in a reaction to the report that was sent to Reuters, said that "Venezuela is overcoming its financial difficulties independently of the IMF and it is doing this by applying the opposite of what is recommended by the well-known but limited IMF recipes." Venezuela is one of the few countries in Latin America that can act independently from the loan conditions of the IMF because it currently does not hold any IMF loans.

In response to the IMF's prediction that Venezuelan economic growth would be only 1.1%, Nobrega responded by saying, "Venezuela is not obliged to follow the advice of the IMF or of [interim IMF director] Mrs. Krueger and, unfortunately, that is not something which other countries in Latin America can say." Venezuela "shows that the whole framework and policies of the IMF can be dispensed with." Nobrega's finance ministry predicts a much higher growth rate for 2005.

While the figures for the first Quarter of 2004 are not out yet, a high government source told the weekly economic news magazine Quantum that the ministry expects the minimum growth to be 18%, in relation to the same quarter last year, which would be much higher than most analysts had expected. The government official said that the first trimester rate could even be as high as 30%. During the first quarter of 2003 the economy shrunk by a staggering 29% as a result of the oil industry shut-down that the opposition had promoted in order to force President Chavez to resign.