Press Release: IMF Approves Stand-By Credit for Venezuela
IMF News, July 12, 1996
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- Published: July 12, 1996
Overview
- Date: July 12, 1996
- IMF approved a 12-month stand-by credit for Venezuela equivalent to SDR 975.65 million (about US$1.4 billion) to support the Government's 1996-97 economic program.
Background
- Early 1990s: Venezuelan economy expanded vigorously following policy reforms supported by the 1989 extended facility and the rise in world oil prices associated with the Middle East War of 1990.
- Subsequent developments:
- World oil prices fell sharply; public finances and the balance of payments weakened.
- 1994: Major banking crisis; exchange and price controls introduced in mid-year; economic activity fell by 3 percent; 12-month inflation reached 70 percent by end-December.
- 1995: Exchange controls relaxed and a parallel market for foreign exchange was legalized; banking difficulties continued; public finances remained weak; 12-month inflation rate reached 57 percent by end-December.
- Mid-December 1995: Bolivar devalued in the official market; imbalances persisted.
- 1995 outcomes: Real GDP rose by 2 percent; non-oil economy grew very little; unemployment rose to 10.5 percent of the labor force.
The 1996-97 Program (objectives supported by the stand-by credit)
- Program aims:
- Reverse decline in real GDP during the fourth quarter of 1996 and achieve real GDP growth of 4 percent in 1997.
- Reduce monthly rate of inflation to 1.5-2 percent in the second half of 1996, to 1 percent in the first half of 1997, and to international levels thereafter.
- Increase external current account surplus from 2.4 percent of GDP in 1995 to 4.3 percent of GDP in 1996, followed by a halving of the surplus in 1997.
- Increase net international reserves by $1.6 billion in 1996, to the equivalent of 5.6 months of imports, and to rise further in 1997.
- Fiscal targets:
- Major reduction in the underlying public sector deficit (excluding net assistance to banks) to less than 1.5 percent of GDP in 1996 from 4.3 percent in 1995.
- Underlying fiscal position projected to be in balance in 1997.
- Policy instruments:
- Expenditure restraint and increasing tax revenues; improving efficiency and equity of the tax system.
- Revenue measures include increasing the rate of the general sales and luxury tax to 16.5 percent from 12.5 percent, and a considerable increase in domestic fuel prices.
- Monetary operation: Projected decline in net domestic assets of the Central Bank and its credit to the public sector during 1996; reduction in the stock of central bank securities and losses relative to GDP.
- Exchange rate policy: Establishment of bands around a central rate in early July to be adjusted in line with the preannounced inflation target for Q4 1996, aimed at lowering inflationary expectations while providing reasonable exchange rate flexibility.
Structural Reforms
- Major reforms envisaged to achieve sustained economic growth:
- Prepare groundwork for major public sector reform and resume privatization.
- Continue strengthening the banking system to restore confidence, improve efficiency of financial intermediation, and maintain macroeconomic stability.
- High priority on strengthening bank supervision and the capital base of banks.
- Establishment of a contingency fund to facilitate bank mergers and acquisitions, and possibly loan purchasing or rescheduling operations.
- Reform the system of severance payments to promote employment.
- Reprivatization of nationalized banks; sale of remaining government shares in the telecommunication company (CANTV); sale of state-owned aluminum, steel and electricity companies.
Social Issues
- Protect living standards of the most vulnerable social groups:
- Increase spending on social safety net programs by 1 percent of GDP in 1996.
- Introduce a transportation subsidy to avoid an immediate increase in public transportation fares resulting from the rise in gasoline prices.
- Improve the social safety net further with assistance from the World Bank and the Inter-American Development Bank.
The Challenge Ahead
- Success requires:
- Strict adherence to policy implementation.
- Continued decisiveness and strong commitment of the Venezuelan authorities.
- Strengthening of institutional capacity to respond rapidly and effectively to changing developments.
Membership and IMF Position
- Venezuela joined the IMF on December 30, 1946.
- Venezuela's quota is SDR 1,951.3 million (about US$2.8 billion).
- Outstanding use of IMF credit totals SDR 1,328 million (about US$1.9 billion).
Venezuela: Selected Economic Indicators
- Percent change (Real GDP growth):
- 1993: 0.3
- 1994*: -2.8
- 1995*: 2.2
- 1996**: -1.1
- 1997**: 4.0
- Consumer price index (end of period):
- 1993: 45.9
- 1994*: 70.8
- 1995*: 56.6
- 1996**: 86.7
- 1997**: 8.6
- Percent of GDP:
- Public sector underlying balance (deficit –):
- 1993: -1.4
- 1994*: -1.2
- 1995*: -4.3
- 1996**: 0.2
- External current account balance:
- 1993: -3.7
- 1994*: 4.9
- 1995*: 2.4
- 1996**: 4.3
- 1997**: 2.1
- Months of imports (Reserves):
- 1993: 6.2
- 1994*: 6.9
- 1995*: 5.6
- 1996**: 5.8
*Estimates. **Program.
Source: Press Release: IMF Approves Stand-By Credit for Venezuela (July 12, 1996).