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. -------------- WHAT GDP INCREASE, FROM WHERE? -------------- ¶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. -------------- SUSTAINED GROWTH OR A REBOUND? -------------- ¶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." -------------- COMMENT -------------- ¶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 NNNN 2004CARACA01904 - CONFIDENTIAL