Venezuela central bank head acknowledges economic 'crisis'

CARACAS (Reuters) - Central Bank President Nelson Merentes acknowledged on Sunday that Venezuela was undergoing an “economic crisis” but said measures like a new market-based currency mechanism would help bring rapid improvements.

Venezuela's Central Bank President Nelson Merentes arrives at a news conference in Caracas March 19, 2013. REUTERS/Edwin Montilva

“It’s a crisis, but it’s not a crisis of such deep dimensions as some analysts say,” said Merentes, who is considered more of a reformist than other senior financial officials in President Nicolas Maduro’s government.

An annual inflation rate of 56 percent and shortages of products have fuelled a wave of opposition protests that have led to violence killing at least 28 people in the South American OPEC member nation since mid-February.

“We can’t hide the reality: the economy has inflation, shortages, and growth is not robust,” Merentes said in an interview on local TV. “But Venezuela has the ability to get out of this moment which is not so good. Indeed, the government is taking measures that will help us get out quickly.”

A newly-announced foreign exchange market, known as Sicad 2, is due to begin within days, and has already brought the black market price of the U.S. dollar down from about 85 bolivars to between 72-75, according to illegal web sites that quote it.

Holding a graph showing the fall, Merentes said that once operational, Sicad 2, would help combat the black market.

Economists expect dollars to be available at anywhere between 20-50 bolivars via Sicad 2, compared with 6.3 and about 11 via two other state-controlled exchange systems.

Opposition politicians have decried the imminent introduction of Sicad 2 as a disguised devaluation, but Wall Street analysts, bondholders and private economists have generally welcomed it as a necessary liberalization measure.

Venezuela has maintained currency controls for 11 years, and though Maduro pledges loyalty to his predecessor Hugo Chavez’s policies, some tinkering of economic policy is seen as inevitable even from within the ruling Socialist Party.

Merentes said a six-week wave of street demonstrations against the socialist government would have “some degree of impact” on economic growth, but only a limited one.

First quarter growth would be light, he said, and the government’s prediction for the year remains a 4 percent expansion of GDP.

Wall Street economists do not share that optimism.

BNP Paribas, for example, this week predicted Venezuela’s economy would likely contract 1.5 percent in 2014 while inflation would accelerate to 70 percent.

Monthly inflation, though, actually fell to 2.4 percent in February, compared to 3.3 percent the previous month, according to the latest Central Bank data.

Shortages, which are an irritation for all Venezuelans across the political spectrum, should start ending within two to three months, Merentes said, if both imports and local production are accelerated.

Venezuela’s official growth estimate for 2013 was 1.6 percent, compared with a target of 6.0 percent.

Reporting by Andrew Cawthorne; Editing by Rosalind Russell