RPT-UPDATE 2-Venezuela's battered economy dives 29 pct 1st-qtr

Reuters, 05.23.03, 4:35 PM ET By Pascal Fletcher

CARACAS, Venezuela, May 23 (Reuters) - Venezuela's economy plummeted a record 29 percent in the first quarter of 2003, squeezed by a anti-government strike and tight official currency controls, the Central Bank said on Friday. Analysts said it was the worst economic collapse ever recorded by Venezuela, the world's No. 5 oil exporter, and probably also the steepest quarterly contraction ever seen in Latin America. "It's unprecedented and reflects a destroyed economy," independent economist Alexander Guerrero told Reuters. The Central Bank said Venezuela's strategic oil sector, which accounts for half of government revenues, shrank by 46.7 percent in the first quarter while the non-oil sector contracted 20.9 percent. In December and January, left-wing Venezuelan President Hugo Chavez toughed out a general strike aimed at forcing him from office. Crippling work stoppages temporarily slashed oil output and exports by state oil firm, PDVSA, choking off government revenues and triggering heavy capital flight. This forced the government to introduce foreign exchange controls that reduced imports and exports. "Firstly, it was the effect of the PDVSA strike and secondly the impact of the exchange controls," said Jose Cerritelli, an economist with Bear Stearns in New York. He noted, however, that the government had managed to restore strategic oil production in the wake of the strike. IDEAGlobal's Benito Berber said the unrelenting political conflict between populist Chavez and his political opponents had also contributed to the economic collapse. "There is no purely economic factor that can explain this kind of fall, only a political one," he said. DOWN, DOWN The 29 percent gross domestic product (GDP) shrinkage in the first quarter followed an earlier record decline of 16.7 percent in the last quarter of 2002. In the whole of last year, when Venezuela was rocked by months of political turmoil culminating in a short-lived failed coup against Chavez, GDP fell nearly 9 percent. In its first-quarter 2003 report, the Central Bank said the capital portion of the balance of payments registered a deficit of $1.5 billion against a $2.4 billion deficit a year ago. The first quarter current account surplus stood at $1.9 billion compared with a surplus of $209 million a year earlier. Although expected, the GDP collapse was a blow for Chavez, who since his election in late 1998 has struggled to implement his self-styled "revolution", an anti-poverty program based on government spending and a bigger state role in the economy. His foes, who include business leaders and dissident military officers, accuse him of squandering the nation's oil riches and trying to implant Cuba-style communism. Analysts said the crucial oil production recovery could slow the economic nosedive over the rest of the year. The International Monetary Fund has predicted Venezuela's economy will shrink 17 percent in 2003. Finance Minister Tobias Nobrega sees a decline similar to last year, around 9 percent. "Unfortunately, the currency controls continue to be asphyxiating," Bear Stearns' Cerritelli said. Private importers and exporters say the painfully slow allocation of dollars by the state currency board Cadivi is strangling business activity, disrupting manufacturing and creating shortages. Finance Minister Nobrega said on Thursday the government would correct faults in the currency regime. The Central Bank said the public sector contracted by 34.8 percent in the first quarter of 2003, while the private sector shrank 25.6 percent. The worst hit sector was construction, which fell 64 percent, followed by manufacturing, which shrank 35.1 percent and trade that declined 33.5 percent. (Additional reporting by Tomas Sarmiento)