Venezuela GDP Likely Shrank 29% in 1st Qtr: Survey (Update2)

By Alex Kennedy

Caracas, May 9 (<a href=quote.bloomberg.com>Bloomberg) -- Venezuela's economy probably had its biggest contraction ever in the first quarter as an unsuccessful strike to oust President Hugo Chavez crippled oil production and consumer spending.

Gross domestic product probably shrank 29 percent in the first quarter from the same period a year ago, according the median forecast of seven economists in a Bloomberg survey. That loss almost matches oil's one-third contribution to the Venezuelan economy. The previous worst contraction was 17 percent in the fourth quarter of 2002.

``Chavez is still popular with a lot of the poor, but this economic depression is really going to test that popularity,'' said Benito Berber, an analyst with research firm IDEAglobal in New York.

The shrinking economy may accomplish what Chavez's opponents failed to get with the two-month strike: a new president. Chavez may face a binding referendum on his mandate later this year, which if he loses would lead to new elections. The strike, which cost the economy $7.4 billion, helped drive unemployment to 21 percent, and polls show about 60 percent of Venezuelans want Chavez to leave.

The economy has contracted two of the four years the former army lieutenant colonel has been in office. The central bank usually announces GDP results six to eight weeks after the end of a quarter.

The country's oil industry, whose production and revenue usually account for about 30 percent of GDP, fell 45 percent in the January-March period, according to Alejandro Grisanti, an analyst at Santander Investment in Caracas.

Oil Production

Oil production, which fell to 150,000 barrels a day in the first week of January, rose to 3 million barrels a day by the end of March, or back to pre-strike levels, according to the government. Oil output averaged 1.8 million barrels a day during the first three months of the year, down about 35 percent from the year before, the government said.

The strike and concern that a war in Iraq would cut production from that country boosted crude oil prices to $34.67 a barrel on March 12 from $23.63 on Nov. 13. Prices fell to $26.98 yesterday.

``The productive apparatus has been hit by everything that has happened recently -- the strike, the social and political conflict, the uncertainty, the lack of currency,'' said Domingo Maza, one of seven central bank directors.

Chavez restricted foreign currency trading in January to bolster international reserves depleted by falling confidence in the bolivar.

Since then the government has authorized the sale of only $105 million, compared with daily sales of about $60 million before the restrictions. The lack of dollars has stifled production in a country that imports 60 percent of consumer goods and where many companies rely on foreign parts and raw material to operate.

The government fixed the exchange rate at 1,600 bolivars a dollar in February. Companies and individuals scrambling for dollars have pushed the unofficial rate to about 2,200 bolivars.

Provisions

It's not just that we're running out of food, there are no car parts, tools, chemicals for companies, fertilizers for farmers,'' said Albis Munoz, president of Fedecamaras, the largest business association. When you attack private business, when you cut off dollars, you're cutting off the Venezuelan people.''

The government says it will import essential goods to avoid shortages.

Chavez's relations with many of the country's business people have been tense since he decreed 49 laws in October 2001 that included one allowing the government to confiscate private property.

There must be an agreement between the government and private sector over resources and the division of labor,'' Maza said. Without it, there's no possibility of overcoming the economic crisis we're in.''

Inflation quickened to 31 percent last year, a five-year high, from 12 percent in 2001.

The following chart provides a breakdown of forecasts for first quarter and 2003 GDP growth by firm:

T* Firm First Quarter 2003 IDEAglobal -19 -9.1 J.P. Morgan -24 -15 Santander Investment -35.2 -9.3 Banco Mercantil -27.1 -11.3 Deutsche Bank -38.5 -15.3 UBS Warburg -29 -15.5 BBVA -36 -12.3 Bear Sterns -15 Morgan Stanley -16.9 Veneconomy -16.8 IMF -17 Last Updated: May 9, 2003 13:47 EDT