Minister sees Venezuela slump less than feared

Reuters, 04.17.03, 1:16 PM ET

CARACAS, Venezuela, April 17 (Reuters) - Venezuela's Planning Minister Felipe Perez said on Thursday he expected the battered economy to contract only between 3 percent to 5 percent this year, painting a far more rosy outlook than Wall Street analysts, the IMF and even a fellow minister.

Perez, whose forecasts are often criticized by private economists as unrealistic, wrote in a note posted on his official government Web site that preliminary estimates saw inflation at around 27 percent for this year.

"As far as economic growth is concerned, we are saying minus three to minus five percent. There will be a fall in the first quarter from the previous one, but then there should be a continued recovery that will give us this range of figures for the whole year," Perez said.

But his upbeat view contrasted sharply with those of the private sector and of Finance Minister Tobias Nobrega.

Nobrega told Reuters earlier this week that the oil-reliant economy would contract by nearly 9 percent in 2003, a similar fall to last year.

In February, the government introduced a fixed exchange rate and strict currency controls in an effort to slow capital flight, protect the battered bolivar and shore up international reserves.

Ratings agency Standard & Poor's on Wednesday forecast Venezuela's economy would shrink about 15 percent, while the International Monetary Fund, urging the government to ditch the currency curbs, forecasts a huge 17 percent contraction.

Venezuela's economy is in steep decline after a year of political turmoil and a two-month strike by opponents of President Hugo Chavez curtailed the vital oil production of the world's No. 5 petroleum exporter.

Oil accounts for 50 percent of government revenue and about 80 percent of its export revenue.

Venezuela's gross domestic product shrank nearly 9 percent last year and annualized inflation, through slowing on a monthly basis, has already reached 34.1 percent this year.

The currency controls have starved the economy of dollars for nearly three months as officials try to fine tune the messy application process for businesses to access U.S. currency.

In his message, Perez also clarified comments made in the United States that the government could end the foreign exchange control system in the third quarter.

Nobrega and Central Bank officials had denied such plans, saying there was no fixed time frame for such a move. Last year, Perez squabbled publicly with Central Bank officials over monetary policy.

"I have always said that the duration of the currency controls depends on the conditions that caused them. I believe that we could begin to see those conditions improve around the third quarter. No decision has been made yet," he said.

But Perez said the government aimed to replace the current fixed rate with a crawling peg or sliding depreciation mechanism accompanied by various taxes on different foreign currency transactions.

He said he expected such a proposal to be presented to the National Assembly within the next two weeks.

The government has said currency controls would remain in place until the nation's weakened oil sector recovered from the debilitating impact of the two month strike.

State oil firm PDVSA estimates oil output is now over 3 million barrels per day, equal to production levels before the strike. But dissident oil workers have said crude output remains lower than government estimates.