Venezuela sees 10.7 pct 2003 GDP slide - report

Reuters, 06.21.03, 12:01 PM ET

CARACAS, Venezuela, June 21 (Reuters) - Venezuela's government expects the economy to contract 10.7 percent this year, a worse outlook than previously forecast, according to an interview with Finance Minister Tobias Nobrega published on Saturday.

Nobrega, who earlier estimated the economy would slide about 8.9 percent this year, told El Nacional newspaper he believed the worst was over for the battered economy of the world's No. 5 oil exporter.

"For our projections and programming, we are working with a contraction of about 10.7 percent of gross domestic product. We have bad news in that it will be a year of contraction, but the good news is that we have to say the worst is over," Nobrega told the newspaper.

The finance minister was also quoted as saying the government could consider a devaluation of the local bolivar currency in the third quarter as the current fixed exchange rate was undercut by black market rates against the dollar.

Venezuela's economy contracted 8.9 percent last year and nearly 30 percent in the first quarter of this year after a two-month opposition strike severely disrupted vital oil output and shipments.

Most analysts paint a more pessimistic picture as political conflict over the government of leftist President Hugo Chavez undermines the economy. The International Monetary Fund has said it expects Venezuela to post a 17 percent economic contraction for the year.

In February, the government introduced strict currency controls to halt capital flight and shore up the bolivar. The local currency has been set at a fixed rate of 1,600 bolivars to the greenback, but on the black market the U.S. currency trades at about 2,600 bolivars.

"In the third quarter we could evaluate the possibility of modifying the regime, but without altering the currency controls," Nobrega said.

The government has said the currency curbs and price controls on basic goods will not be lifted in the short term. Private business leaders say the controls are sinking the economy deeper into recession by limiting access to dollars needed for imports and external debt payments.

Copyright 2003, Reuters News Service