<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, May 28, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: Venezuela's National Teachers' Federation Social Documentation & Analysis Center announced that the cost of the basic food basket reached 395,019 bolivares, reflecting a 41,143 bolivar (11.6%) increase even before May comes to an end. This figure represents a little more than double the minimum wage, an indication of the deterioration of real salary levels in the Venezuelan economy.

The cost of the food basket is expected to rise again when the government begins relaxing the controls it has imposed on the foreign exchange market and prices. The potential increase in the cost of certain goods, because producers must revise their prices, will have yet another impact on consumer prices.

This situation is most dramatically reflected in the number of members of the Economically Active Population (EAP), estimated at 11 million, who are unemployed; they represent 20.4% of the total, meaning about 2.5 million workers have no formal jobs. Another very high proportion, in the neighborhood of 55%, are doing informal or part-time labor, and the unemployment rate is expected to reach 30% by the end of 2003.

Under any circumstances, inflation is projected at about 50% by the end of this year, meaning that Venezuelan consumers will see their purchasing power collapse and the lower-income population will be hardest hit by the deterioration of real salary levels, given the weakness of the Venezuelan labor market.

<a href=reuters.com>Reuters (The following statement was released by the ratings agency) MOODY'S CHANGES ITS OUTLOOK FOR ALL RATED BANKS IN VENEZUELA TO STABLE FROM DEVELOPING AS OIL PRODUCTION RETURNS TO NORMAL

New York, May 28, 2003 -- With Venezuelan oil production returned to more routine levels, Moody's Investors Service has changed its outlooks for all of its rated banks in the country to stable from developing. The action is a direct result of Moody's change in outlook to stable from developing on Venezuela's foreign currency ceilings that was announced on May 26.

The outlook change for the banks covers the E+ bank financial strength ratings (BFSR), and Caa1 foreign currency deposit ratings of Banco Mercantil S.A., BBVA Banco Provincial S.A., Banco de Venezuela Grupo Santander S.A., Banco del Caribe S.A., and Banco Banesco S.A.

Moody's says the stable outlook is based on the almost-complete return to the level of oil production that was experienced at PDVSA, the state-owned oil company, prior to the December strike by oil workers. Combined with the initiation of widespread capital controls, normalized oil production means that the central government is in a stronger political position than it enjoyed before the weeks of labor unrest.

The outlook reflects a combination of the still relatively low public-sector foreign currency debt ratios and the still relatively large international reserves. International reserves have increased following the imposition of capital controls.

The stable outlook for the Venezuelan banks' ratings incorporates the deep and potentially long-lasting damage to the country's main source of foreign currency earnings that has been suffered as a result of the ongoing restructuring of PDVSA, the foreign currency exchange controls, as well as an extremely weak operating environment.

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The Central Bank of Venezuela (BCV)has forecast a partial recovery of the local economy,indicating the worst of the crisis in the country is over.

"We're better off.I don't believe a fall like that of January-March could take place again,"BCV President Domingo Maza said in an interview published on Tuesday in the El National daily.

Venezuela's GDP dropped 8.9percent last year and again plummeted 29percent in the first quarter of this year."Decrease in the productive activity was so deep in the first quarter of 2003that it is difficult to expect a worse situation for the remainder of the year,although this does not mean we haveto expect a positive balance in the gross domestic product (GDP)variation by the end of the year,"he said."Should an agreement be reached between the government and the opposition,a suitable environment could appear for the recovery of productive sectors,"he added.There has been speculation that the GDP could contract 10to 15percent by the end of this year,while some Venezuelan businessmeneven predicted a GDP drop of 25percent in the short-and mid-term.

Maza did not comment on the speculation.Chairman of the National Industry Council Lope Mendoza charged in a statement on Tuesday that the authorities had not adopted proper measures to curb the GDP contraction.

Tue May 27, 2003 03:03 PM ET

NEW YORK, May 27 (<a href=reuters.com>Reuters) - Moody's said Tuesday it revised the outlook for Venezuela's sovereign ratings to stable from developing, citing the recovery in oil production that was battered by a general strike earlier this year.

Moody's said in a statement it changed the outlook to stable for Venezuela's foreign currency country ceiling, which stands at Caa1, or deep into junk bond territory. It also revised the outlook to stable for the local currency rating.

"The end of the strike, when combined with the initiation of widespread capital controls, has meant that the central government is in a stronger political position than was true prior to the December strike," said Moody's. (Reporting by Susan Schneider, editing by J.S. Benkoe; Reuters Messaging: susan.schneider.reuters.com@reuters.net; email: susan.schneider@reuters.com; tel: +1 646 223 6319)

Reuters, 05.26.03, 2:18 PM ET  

CARACAS, Venezuela, May 26 (Forbes.com-Reuters) - Close to 2,000 Venezuelan companies went out of business in the first quarter of 2003 when the economy, squeezed by a general strike and currency controls, shrank a record 29 percent, the head of the leading industrial association said Monday.

Lope Mendoza, president of the Conindustria federation that groups firms in the industrial and manufacturing sectors, described the quarterly gross domestic product (GDP) contraction announced by the Central Bank Friday as "the worst tragedy experienced by Venezuela in its contemporary history".

"With the 29 percent (GDP) fall in the first quarter, more than 1,950 companies closed down," Mendoza told reporters. He did not specify the size or type of companies hit by the contraction, the steepest ever recorded by Venezuela and probably one of the sharpest ever seen in Latin America.

Conindustria and other private sector business associations have fiercely criticized the policies of left-wing President Hugo Chavez. They accuse him of trying to stifle private business and of seeking to install Cuba-style communism.

These business groups backed a grueling opposition strike against the populist president that gripped Venezuela, the world's No. 5 oil exporter, in December and January.

The strike, which failed to force Chavez to resign, disrupted oil production and exports, slashed government revenues and triggered heavy capital flight and a slide in the bolivar currency. To halt this, the government slapped tight currency controls onto the economy which further reduced business activity.

In its report for the first quarter, the Central Bank said the manufacturing sector contracted by 35.1 percent.

Mendoza saw the decline continuing and predicted the sector, which accounted for 13 percent of GDP, would shrink over the year by 25 percent. He foresaw unemployment in the sector reaching the same percentage by the end of the year.

"We don't see the government taking measures to stimulate national production to reverse this situation," he added.

Private manufacturers, including major food producers, have complained bitterly that the stringent foreign exchange restrictions are starving them of dollars they need to import essential raw materials and spare parts.

They say that if dollar allocations are not speeded up, or unless the currency controls are relaxed, more companies are likely to go out of business.

Chavez, a former paratrooper who was elected in late 1998 and survived a coup last year, has defended the controls, saying they will not be lifted in the short-term.

Government officials say the curbs have boosted Venezuela's depleted foreign reserves and that the country's oil production has been restored to pre-strike levels of above 3 million barrels per day (bpd).