Venezuela's economy shrank 3.5% during the first half of 2010 compared to the same period a year earlier, the Central Bank said in a report that revealed a deep recession in the oil rich country ahead of September legislative elections.
The economy contracted by 1.9% in the second three months for the year, dragged down by a 2% decline in the oil sector and a 1.8% decrease in the private sector, the central bank said. The economy shrank by 5.2% in the first quarter of 2010.
It is the fifth straight quarter that Venezuela's oil-dependent economy has contracted. Government officials blame the recession on lower petroleum prices and lingering effects of the world financial crisis. The economy contracted 3.3% in 2009.
Venezuela's economy is highly reliant on oil sales, accounting for 95% of the country's export earnings. Critics argue the government's populist-orientated economic policies, coupled with less consumer demand and investment, are responsible for the country's economic woes.
The economic downturn coincides with double-digit inflation that has become a major challenge for President Hugo Chavez's government ahead of legislative elections next month. Venezuela has had the highest inflation in Latin America for five years despite government price controls on many foods and other basic goods.
Venezuela has not seen such difficult economic times since 2003, when the economy contracted 26.7% in the first quarter of that year in the aftermath of a failed coup attempt against Chavez and an opposition-led strike by oil industry workers.
The administration of President Hugo Chavez has set a goal of economic growth between 0.5% and 1% this year, but analysts are predicting the economy will shrink more than 2% by the year's end.
According to the United Nations Economic Commission for Latin American and the Caribbean, the only two countries which will experience no growth in 2010 are Haiti (minus 8.5%) and Venezuela (minus 3%). Inflation in 2009 was 18% and is estimated at 25.1% for 2010.
According to private sources the economic slump can be tracked to: insufficient electricity which forced many industries to close down; the restrictive management of foreign currency which hinders the purchase of input for industry and a complete “divorce” between government and private industry.
Since 2007 Chavez has been nationalizing what it considers “critical” sectors for the economy such as the oil industry and subsidiaries; electricity generating plants and distribution and lately the food industry, in many cases by simply taking over industries and farm land.
In its latest report the confederation of Venezuela industry, Conindustria accused the government of “the progressive destruction of the country’s industrial framework. The Central Bank reports shows that in the second quarter mining was down 19.6%; retail contracted 6% and construction dropped 6.4%.