Yesterday, Minister of Finance and Planning Giordani came out of whatever hiding place his spends his time at and gave us his economic predictions for the remainder of the year. Giordani, who is not an economist, loves to predict and has made some famour ones in his lifetime, like:
-The North Korean economy is healthy, which he said in 1994, right before that country’s famous famine.
-We are going to have to take off investors off our backs with our hats. Sais in 2000, nobody has seen the hat or the investors since then.
-We will have single digit inflation. Said in 2000 and 2001, we are still waiting.
-Our piggy bank is full. Said in 2001, the “piggy bank, called FIEM was empy by February od 2002.
Despite this, here comes Giordani again, Planning Minister for eight out of Chavez’ eleven years, telling us that the economy will grow by the end of the year and that inflation will be less than 30%.
Geez, I guess we should be grateful, the whole world relishes in having single digit inflation and Giordani is telling us, as if it were an achievement, that inflation will be less than 30% for the year and that in August, typically a seasonally low month, it will be between 1 and 2%. How ungrateful can we be at his accomplishments.
And then he says that by the end of the year GDP will be positive, as if this were an incredible achievement. The whole world came out of of the recession lafter the 2008 financial crisis and Venezuela is still showing negative numbers. These are GDP numbers for the last six quarters
-2.6%, -4.6%, -5.8%, -3.3%, -5.2% and the latest -1.9%
And most economists don’t believe the last number, the underlying figures are simply inconsistent. But maybe they can get to positive by fudging the numbers and convincing us they are true.
Because all of these predictions are not new. last year, after only one quarter of economic contraction, the guy laughing at the top, right, Nelson Merentes also had his predictions right about this time of the year, but last year. Merentes, who is a Mathematician, with no economic training or experience either told us boldly on August 31st. 2009, that GDP would actually be positive for 2009, barely positive at 0.2%, but positive. Instead, the year came in at 3.3%, showing what a horrific prediction he made and how clueless he was.
Eventually the Venezuelan economy will grow, at some point you can’t contract any more. But I suspect it will not happen this year. Last year, when Merentes was predicting growth, the Government had about US$ 20 billion in parallel funds like Fonden and it issued about US$ 11 billion in PDVSA and sovereign debt in the second half of 2009.
In contrast, this year, the funds have about US$ 7 billion and we have seen issuance of US$ 4 billion so far in the second half of 2010, but I doubt we will see more than a total of US$ 7 billion. That’s US$ 13 billion dollars less, that gets barely compensated by higher oil prices.
Given that the problem is foreign currency, that means that the Government does not have the tools to make this economy grow until the first quarter of 2011.
Easy, the electric crisis played a big role in the contraction of 1Q10, it is hard to expect that it can get as bad as then once again, but with these guys you never know.
Meanwhile, so called “economists” funded by the Venezuelan Government, publish papers and are quoted in the international press, telling glowing tales about the Venezuelan economy in the remainder of the year. Unfortunately for them, they still fail to understand how the Venezuelan economy really works under Chavez, the role of the parallel funds and how the Government has not been able to increase spending before the election, simply because it has no money. And even if the economy managed to eke out a gain of 0.1%, there will be another forced devaluation in early 2011 and the predictions will have to become more of the same:
“In 2011 we are going to have the economy grow and inflation will surely come in under 30%”
You would think even Chavez would get tired of this same old song.
Like Yogi Berra said, this is like Deja Vu all over again.