GDP GROWTH OR REBOUND? DEPENDS ON WHO YOU ASK

C O N F I D E N T I A L CARACAS 001904

SIPDIS


STATE FOR WHA/AND
NSC FOR CBARTON
TREASURY FOR OASIA-GIANLUCA SIGNORELLI
USCINCSO FOR POLAD

E.O. 12958: DECL: 06/04/2014
TAGS: ECON EFIN PGOV VE
SUBJECT: GDP GROWTH OR REBOUND? DEPENDS ON WHO YOU ASK

REF: CARACAS 1443

CLASSIFIED BY: AMBASSADOR CHARLES S. SHAPIRO FOR REASONS 1.5 B & D


1. (SBU) THE CENTRAL BANK (BCV) HAS REPORTED 1ST QUARTER GDP
GROWTH OF 29.8% COMPARED TO THE SAME PERIOD OF 2003, WHEN IT
FELL 27.8%. MINISTER OF PLANNING AND DEVELOPMENT JORGE
GIORDANI SAYS THAT THIS IS THE BEGINNING OF A PERIOD OF
SUSTAINED GROWTH. HIS IS A LONE VOICE, AS INDEPENDENT
ECONOMISTS CALL THE GROWTH A TECHNICAL "REBOUND" AND EXPECT
IT TO TAPER OFF - SHARPLY AND SOON.

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WHAT GDP INCREASE, FROM WHERE?
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2. (SBU) REAL GDP RATES HAVE BEEN LAGGING SINCE 1998, THE
YEAR CHAVEZ BECAME PRESIDENT. GROWTH IN 2000 AND 2001 OF
3.2% AND 2.8% DID NOT OFFSET A 1999 DROP OF 6.1%, AND STEEP
DECLINES IN 2002 AND 2003 (8.9% AND 9.4%) LEAVE REAL GDP
NEARLY 18% BELOW PRE-CHAVEZ LEVELS. GDP FELL FOR SEVEN
STRAIGHT QUARTERS, FROM THE BEGINNING OF 2002, UNTIL A 9.0%
INCREASE IN THE 4TH QUARTER OF 2003.


3. (SBU) THE DRIVING FORCE BEHIND THE GDP JUMP IS OIL
PRODUCTION, WHICH GREW AT A 72.5% RATE OVER 1ST QUARTER 2003.
THIS IS HARDLY SURPRISING, CONSIDERING THAT THE NATIONAL
STRIKE LASTED INTO EARLY FEBRUARY LAST YEAR, AND THAT
VENEZUELAN OIL PRICES HIT A NEW RECORD ($28.82/BARREL IN THE
1ST QUARTER, 11.2% OVER 4TH QUARTER 2003). THE NON-OIL
GROWTH WAS 18.9%. NOTE: ALL GOV COMMENTARIES FAIL TO POINT
OUT THAT THESE JUMPS STILL LEAVE REAL GDP MEASURES BELOW
PRE-STRIKE MARKS; INDEED, ALL THREE ARE LOWER THAN EACH YEAR
(SAVE FOR 2003) SINCE 1996.

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SUSTAINED GROWTH OR A REBOUND?
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4. (C) PLANNING MINISTER GIORDANI, SPEAKING ON PRESIDENT
CHAVEZ' WEEKLY "ALO, PRESIDENTE" ADDRESS MAY 23, PREDICTED
GDP GROWTH OF AT LEAST 6% A YEAR THROUGH 2006, AND SAID "WE
MUST LAY THE GROUNDWORK SO THAT THIS GROWTH IS SUSTAINED NOT
ONLY FOR THE REST OF THE CURRENT PRESIDENTIAL TERM, BUT ALSO
FOR THE ONE TO COME AND FOR THE NEXT 20 YEARS." THE GOV IS
THE ONLY OPTIMIST ABOUT THE FUTURE. GOLDMAN SACHS, FOR
EXAMPLE, PREDICTS GROWTH OF 7% FOR 2004 OVERALL, BUT FALLING
TO 0.0% FOR THE FOURTH QUARTER, AND THEN GROWING ONLY 2.9% IN

2005. DOMINGO FONTIVEROS, CHIEF ECONOMIST FOR FEDECAMARAS
(FEDERATION OF CHAMBERS OF COMMERCE AND INDUSTRY) CALLS
GIORDANI'S PREDICTION WISHFUL THINKING AT BEST, STATING THAT
THE GOV'S ECONOMIC POLICY IS A COLLECTION OF "IDEAS, RATHER
THAN A PLAN." HE ALSO POINTS OUT THAT THIS ADMINISTRATION
HAS ACHIEVED THE POOREST GDP RESULTS EVER, DESPITE HAVING THE
GREATEST REVENUES.


5. (SBU) WHILE PRIVATE ECONOMISTS CALL THIS SIMPLY A REBOUND,
GOV AUTHORITIES STRONGLY DISPUTE THE WORD ITSELF. GIORDANI
SAYS THAT THE TERM "REBOUND" (REBOTE) COULD NOT BE FOUND IN A
DICTIONARY, AND THAT IT "MUST BE A NEW INVENTION OF OUR
OPPONENTS." RODRIGO CABEZAS, CHAIR OF THE NATIONAL ASSEMBLY
FINANCE COMMITTEE, CLAIMS THAT THE "TERM DOES NOT EXIST IN
ANY BOOK ABOUT ECONOMIC SCIENCE...MAYBE ON ANOTHER PLANET,
BUT NEVER ON EARTH."

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COMMENT
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6. (C) THE GOV CONTINUES TRYING TO PAINT BEAUTIFUL PICTURES
BY USING ONLY ONE OR TWO COLORS, KNOWING THE REST OF THE
PALETTE IS NOT PRETTY. THIS IS THE ONLY WAY TO MAKE THINGS
SEEM POSITIVE, GIVEN THAT THIS IS THE FIRST GOV
ADMINISTRATION TO ACHIEVE ECONOMIC CONTRACTION DURING AN OIL
BOOM.
SHAPIRO

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2004CARACA01904 - CONFIDENTIAL