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Recession Looms Over Venezuela, Official Data Under Wraps

  • Reuters

FILE - People ride the nearly empty escalators inside the Sambil mall in Caracas, Venezuela.

FILE - People ride the nearly empty escalators inside the Sambil mall in Caracas, Venezuela.

Venezuela has kept its economic growth figures under wraps this year but empty store shelves, closed factory gates and idled construction projects tell their own story - the economy is contracting and some sectors are in deep trouble.

Private industry groups estimate that the construction and manufacturing sectors - both crucial to broader growth - shrank as much as 10 percent in the first half of the year.

Retail sales chamber Consecomercio says sales fell about 50 percent during the same period, the result of weaker consumer sentiment and tight currency controls that have forced a sharp decline in the availability of imported goods.

“The economy is sick,” Jorge Roig, president of the main private industry group Fedecamaras and a frequent critic of the socialist government, told Reuters. “Industries are working far below their capacity due to a lack of raw materials.”

Fedecamaras estimates the OPEC nation's economy has contracted 4 percent so far this year.

Strong oil prices, heavy government spending and firmer results in other industries like banking and telecommunications have helped prevent an even steeper decline, but the economy is clearly struggling.

The United Nations Economic Commission for Latin America and the Caribbean says Venezuela will be the only economy in the region to shrink this year, by 0.5 percent.

Tight currency controls have left businesses unable to obtain dollars to import machine parts and raw materials, creating bottlenecks in sectors ranging from health care to car manufacturing.

Aquiles Martini, head of the Venezuelan Chamber of Real Estate, said there has been a 25 percent drop in private property construction.

The auto industry says it is owed nearly $2 billion in liquidations from the currency board which sells dollars to businesses under decade-old exchange controls.

Various plants have had stoppages or are operating at a minimum, with car production down 83 percent, to just 8,508 vehicles produced between January and August, compared with 50,967 in the same period last year.

In the health sector, there are chronic shortages of medicines, including those needed for a current national outbreak of dengue and chikungunya fevers.

“The government is closing the doors to us,” said small businessman Leonel Mujica, 29, who has given up trying to access dollars from state entities to import technological goods for his business, and is simply providing services instead.

Even fashionable retail stores that thrived under a decade of strong oil revenues and heavy government spending have cut personnel or closed their doors this year.

Mariela Cruz, manager of a clothing store in the country's biggest shopping mall which was humming with people up to last year, said she had ended an evening shift and is now closing the outlet two hours earlier.

“Sales have dropped, so we cut back our staff,” she said, asking for the name of the store to remain anonymous. “There's no reason to stay open until late if there's not much merchandise to sell and no buyers.”

Government silence

The central bank usually provides economic growth data for first quarter economic growth in May and the second quarter in July but has held off this year.

Bank officials have offered no explanation for the delays. Employees who asked not to be identified said the data was still being calculated but not published.

Monthly inflation figures have also been frequently delayed since the end of last year although they are now up to date and show that 12-month inflation hit a six-year high of 63.4 percent in August.

President Nicolas Maduro says high inflation, product shortages and steady weakening of the bolivar currency are the product of an “economic war” waged by opposition-linked businesses with the help of Washington.

He accuses media of hiding good news such as Venezuela's officially record-low unemployment level.

“Venezuela has all the bolivars it needs to finance development, and all the hard currency as well,” Maduro said recently.

Maduro's approval ratings fell to 35 percent in July, according to pollster Datanalisis, as the weak economy has overtaken crime as the primary concern of citizens.

Critics say the government is hiding bad news about the economy that would confirm the decay of state-led model created by late President Hugo Chavez, who died of cancer in 2013 after 14 years in power.

Unlike the last recession, which began in 2009 when the global financial crisis sent crude prices tumbling, the current problems come as oil prices remain near the $100 per barrel level that Venezuela calls fair.

Venezuela's foreign bonds are now seen as by the far the riskiest of any emerging market nation, yielding 13 percentage points more than comparable U.S. government notes due to concerns it may not pay off investors.

That is higher even than Ukraine, which is combating an insurgency.

Maduro says stimulating national production is the way forward, and is making more loans available to some businesses.

He has also balked at politically explosive measures such as limiting the $12-billion-per-year gasoline subsidy or unifying the three-tiered exchange rate system - both of which would mean even higher prices for consumers.

But the economic crisis appears to be hitting the government's capacity to keep Chavez-era welfare programs going.

The much-touted and extremely popular Housing Mission project to provide apartments for low-income families has built only 50,000 units this year out of a target of 400,000 for 2014.

Venezuelans fear the situation may worsen and many say they are already unable to make ends meet.

“I've just spent half my pension and look what I've got?” said retired teacher Fabiola Jimenez, 72, showing two shopping-bags of meat and staples as she left a Caracas supermarket having spent 2,500 bolivars out of her monthly income of 5,000.

“Obviously, I can't live on my income,” she said of a stipend that amounts to almost $800 per month at the official exchange rate but just $50 at the black market level. “So I depend on the charity of my family. And that's after working for 40 years, it's so humiliating.”

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