High oil prices counter negative indicators of the Venezuelan economy

Sources:
REUTERS - CHAVEZ TIPS OIL PRICE TO REACH US$100/BARREL
BLOOMBERG - CHAVEZ ECONOMY UNRAVELS AS VENEZUELA CURRENCY WEAKENS


Annual inflation in Venezuela is at 16 percent, making it the highest in Latin America, and the Bolivar currency has fallen to about half its official value compared to 2005 on the black market. In the first half of 2007, Venezuela’s current account surplus was cut in half, to $8 billion. Foreign direct investment flow was negative $881 million in the first half of 2007.

However, the continued high price of oil has appeared to sustain the Venezuelan economy, which still posted a 9 percent economic growth rate in the first half of 2007. Oil represents 90 percent of Venezuelan exports, and Venezuela is the fifth-largest member of the Organization for Petroleum-Exporting Countries (OPEC). Oil prices have risen by 155 percent over the past five years, and oil is currently being sold at nearly $75 a barrel. President Hugo Chavez predicts that prices will eventually go as high as $100 a barrel.

In addition to expropriating oil interests from foreign oil companies, Chavez has also tripled government spending in the past four years. Such budgetary increases and sustained economic growth will likely only be possible if Chavez’s prediction about higher oil prices is realized.

FOR DISCUSSION:

With President Chavez's high approval ratings in Venezuela, will he be politically vulnerable to the economic effects of lower oil prices?