November 18, 2008

New Paper Finds That Oil Price Decline Doesn’t Threaten Venezuelan Economic Growth

Country Unlikely to Face Foreign Exchange Constraints

For Immediate Release: November 18, 2008
Contact: Dan Beeton, 202-239-1460

WASHINGTON, D.C. -- Venezuela’s economy is unlikely to face serious problems due to the drop in oil prices, and the Venezuelan government should have plenty of room to conduct the sort of fiscal stimulus policies being employed by nations such as the U.S., the U.K., and China, in order to mitigate the effects of the global downturn, according to a new paper from the Center for Economic and Policy Research. The paper finds that even if oil prices were to fall as low as $50 per barrel, Venezuela would still have trade surpluses through 2010. However, oil industry analysts are projecting prices in the range of $80-$90 for the next two years.

“The data show that Venezuela is well-situated to pursue counter-cyclical, i.e. expansionary macroeconomic policies – especially a fiscal stimulus package – to counteract the global downturn,” said CEPR Co-Director, Mark Weisbrot, lead author of the paper.

The paper, “Oil Prices and Venezuela’s Economy,” by Mark Weisbrot and Rebecca Ray, considers a range of projected prices for Venezuela’s oil exports, and finds that:

  • With oil at $90 per barrel, Venezuela would run a trade surplus between $46.4 and 55.2 billion , or a very large 10.5 to 12.5 percent of GDP in 2009, and 7.2 to 8.7 percent of GDP in 2010.
  • Oil at $80 barrel would still produce a huge trade surplus of 8.4 to 10.1 percent of GDP for 2009, and 5.6 to 6.1 percent of GDP for 2010.
  • At $70 a barrel, this surplus is still large at 6.2 to 7.8 percent of GDP for 2009, and 4.0 to 5.2 percent of GDP for 2010.
  • At $60 a barrel, this surplus is reduced to 3.7 to 5.4 percent of GDP for 2009, and 2.4 to 3.4 percent of GDP for 2010.
  • Even at $50 per barrel, Venezuela would still run trade surpluses through 2010. However, this is considered to be an extremely unlikely scenario by economists who forecast oil prices.

For 2008, Venezuela is running an estimated current account surplus of more than 18 percent of GDP.

 “Developing countries have often refrained from implementing the appropriate fiscal and monetary policies that they need to stimulate their economies during a recession, due to foreign exchange constraints,” Weisbrot said. “But Venezuela is far from experiencing such constraints now, and is unlikely to run into them in the foreseeable future.”

*This press release was revised on November 20, 2008.


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