MercoPress. South Atlantic News Agency

Venezuela admits contraction; preparing package to re-launch growth

The Bolivar in under strain, trading 66% weaker than the official rate

Venezuela's GDP contracted 2.4% in the second quarter of 2009 from the same period a year earlier, the central bank reported Thursday. In the first half of the year, the economy has contracted 1% against the same period a year earlier.

Oil-related economic activity was one of the main factors behind the decline as it registered a 4.2% drop in the quarter. Non-oil related economic activity was down 1.6%.

The central bank stressed that the fall comes after five and a half years of consecutive growth (22 quarters) and more than one year into the global economic crisis that “adversely affected the economic performance of most countries around the world”.

The central bank added that the aggregate gross value of the public sector soared 2.7% in the second quarter this year, while the private sector declined 4.1%, amidst the government nationalization of major companies.

Investment by the private sector in Venezuela has dwindled under President Hugo Chavez on fears sparked by his nationalization policies. Earlier this year, Chavez pledged that the economic crisis affecting other countries would not hit Venezuela.

In related news Venezuela’s Bolivar rose to a three- month high in unregulated trading on speculation the government will announce a plan to reduce the gap between the parallel and official exchange rates. The currency on Thursday closes at 6.48 per dollar.

Finance Minister Ali Rodríguez said on Monday he presented a plan to President Hugo Chavez to reduce the “imbalance” in the parallel rate, which trades 66% weaker than the government-set official rate of 2.15 per dollar.

Venezuela is struggling to maintain its official rate after revenue from oil exports plunged earlier this year. Chavez said this week he’s studying changes to the parallel exchange market and other measures to promote growth.

Market analysts say the government may be considering the creation of a dual exchange rate or the implementation of regular government auctions of dollars for local investors to help meet demand for foreign currency.