Venezuela out of recession, but doubts remain

AP News
Posted: Feb 23, 2011 8:26 PM
Venezuela out of recession, but doubts remain

Venezuela has officially emerged from recession, but business leaders and independent analysts said Wednesday that modest fourth-quarter growth doesn't mean the economy will continue to expand.

After two years of recession, the gross domestic product finally returned to positive growth by expanding 0.6 percent in the last three months of 2010, according to Central Bank figures released Tuesday.

President Hugo Chavez's backers in the National Assembly heralded the news as a sign that 2011 stands to be a year of recovery. After being informed of the Central Bank's report, they chanted: "That's how you govern, that's how you govern!"

Government officials predict growth of at least 2 percent this year.

Chavez's critics however, said the president's policies have created huge doubts about the future of the economy.

Ismael Perez Vigil, executive president of Venezuela's largest industrial chamber, predicted a recent currency devaluation, the highest inflation rate in Latin America and government expropriations of private property will hurt the economy this year.

"There's no reason to think there will be a recovery," Perez Vigil told The Associated Press in a telephone interview.

Despite the uptick in the October-December quarter, Venezuela's economy contracted 1.4 percent for all of 2010, after shrinking 3.3 percent the previous year.

Coupled with 27 percent inflation, Venezuela ended 2010 with some of the worst economic indicators in Latin America.

The entire region was hit hard by the global economic downturn, but Venezuela's economic problems lingered even as its neighbors recovered.

Jose Guerra, an economics professor at the Central University of Venezuela, called the 0.6 percent expansion in the fourth quarter "insignificant growth."

Guerra said strict currency exchange controls have left many businesses without access to enough U.S. dollars to import goods and raw materials. That's "a significant bottleneck for sustained economic growth in the midterm," he said.

Guerra argued that Chavez, a self-proclaimed socialist, has scared off needed investment with a wave of expropriations, failed to cooperate with businesses and stifled the private sector by maintaining tight control over dollar availability.

Private investment fell 0.8 percent in the fourth quarter, according to the Central Bank. The bank said the private sector, which accounts for half of GDP, finished 2010 with a 2.2 percent drop.

The Central Bank's statistics said that oil-related economic activity in October-December rose 1.8 percent, after falling during the six preceding quarters.

Venezuela relies heavily on its oil industry, which generates about 95 percent of export earnings.