Cablegate: Venezuela's Economy Contracts in the Second Quarter

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DE RUEHCV #1104 2331233
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P 211233Z AUG 09
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E.O. 12958: N/A
TAGS: ECON VE
SUBJECT: VENEZUELA'S ECONOMY CONTRACTS IN THE SECOND QUARTER

REF: A. CARACAS 819
B. CARACAS 368

1. (SBU) Citing a statement e-mailed by the Venezuelan
Central Bank (BCV), news organizations reported August 20
that BCV figures indicated Venezuela's economy contracted 2.4
percent in the second quarter of 2009. (Note: As of the
afternoon of August 20, the BCV had not posted the figures on
its website. End note.) This contraction was widely
anticipated (ref A) and reflects the impact of the drop in
oil prices in the second half of 2008 on government spending
and the economy at large. Indeed, a number of local analysts
believe the contraction began in the first quarter of 2009.
Citing BCV sources, they claim initial first quarter figures
showed a slight contraction, causing newly arrived BCV
president Nelson Merentes, perhaps at the bidding of
President Chavez, to ask state-owned enterprises to submit
revised production figures, which led to a positive figure
for first-quarter growth.

2. (SBU) Comment: What will be more interesting than the
figures themselves is how President Chavez explains them.
When the financial crisis began spreading to the real global
economy in 2008, he first maintained Venezuela would not be
affected. He then revised his line to say Venezuela was "not
immune" to the crisis but had the reserves to manage it.
When he announced several "anticrisis" economic measures in
March (ref B), he insisted the crisis "had not touched even a
hair of Venezuela." Chavez has recently said he was
reviewing measures that would bring better balance to
Venezuela's foreign exchange system, so we think it likely he
will make at least one address on economic issues in coming
days or weeks. A hint of how he will address the economic
contraction is provided in the BCV's statement to news
organizations, which notes Venezuela's contraction "came
after 22 consecutive quarters of growth and more than a year
after the global financial crisis negatively impacted the
economic performance of most countries in the world." End
comment.
DUDDY

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