boosts external accounts.
The current account surplus continues to grow. In the third quarter,
the annual current account surplus reached US$ 11.5 billion, up from a US$
1.7 billion surplus for the same quarter last year. The key
determinant of the ballooning current account surplus has been the trade
balance, which registered a US$ 15.5 billion annual surplus in the third
quarter. Moreover, the chief driver behind the trade improvement was
a 66.7% increase in exports over Q3 1999. Oil exports accounted for
the lion share of the third quarter growth, experiencing an 85.1% boost
over the same quarter last year, while non-oil exports increased 9.7% over
the same period. The pick up in domestic demand has also bolstered
imports, which rose to US$ 15.4 billion annually, a 21.5% increase over
the same quarter last year.
bolstered by oil revenue inflows.
The Central Bank is expected to announce a change in the currency band in
mid-December. The current system of adjustable exchange rate bands
permits a fluctuation of 7.5% around the central parity. The central
parity reference was set on 14 January 1998 at 508.50 Bs/US$ and is
adjusted monthly at 1.28% rate, or approximately 16.5% annually.
Since annual inflation has been well above this rate in the past three
years, the differential has caused a strong real appreciation of the
Bolivar relative to the US$. While there is no clear consensus among
observers over the level of the overvaluation, the most conservative
estimates (including the government) acknowledge some 30-35%.
However, with oil prices at their current highs, Venezuela has little to
fear from speculative attacks. The strong growth in exports has
served to bolster international reserve levels substantially. As a
result, the international reserves at the Central Bank rose from US$ 17.2
billion at the end of October to US$ 17.5 billion at the end of November,
the highest level since November 1997. The reserve inflow has also
served to increase the resources in the Macroeconomic Stabilization Fund,
which amounted to US$ 3.6 billion at the end of November, up from US$ 2.9
billion in October. Current reserve levels provide coverage for the
equivalent to 14.2 months of imports. Declining inflation and
confidence over the sustainability of the current exchange rate system
have prompted the government to suggest a revision that is likely to
include a tightening of the band within which the Bolivar currently
fluctuates. The new exchange rate policy is expected to enter into
force in the first week of January. On 30 November, the Bolivar
closed at 690, in line with the existing crawling band. The currency
is expected to remain relatively stable next year depreciating according
to this month's Consensus Forecast.
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here.