## Press Release: IMF Approves Stand-By Credit for Venezuela _IMF News, July 12, 1996_ ## Source details **Canonical URL:** [Press Release: IMF Approves Stand-By Credit for Venezuela](https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9638) ## Other formats - [Markdown version](/en/news/articles/2015/09/14/01/49/pr9638/index.md) - [Structured JSON version](/en/news/articles/2015/09/14/01/49/pr9638/index.json) - [Bundle manifest](/en/news/articles/2015/09/14/01/49/pr9638/bundle-manifest.json) ## Bibliographic details - 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).* --- ## References - [República Bolivariana de Venezuela and the IMF](http://www.imf.org/external/country/VEN/index.htm) - [Press Releases](https://www.imf.org/en/news/searchnews) - [PRESS CENTER](http://presscenter.imf.org/) - [https://www.imf.org/en/home](https://www.imf.org/en/home) _Source: https://www.imf.org/en/news/articles/2015/09/14/01/49/pr9638_