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UPDATE 2-Chavez blames Venezuela economic drop on OPEC cut
November 19, 2009 / 2:42 AM / 8 years ago

UPDATE 2-Chavez blames Venezuela economic drop on OPEC cut

* Chavez sees output reduction major factor in GDP fall

* “Capitalist” methodology unfair for socialist Venezuela (Adds details, quotes)

By Andrew Cawthorne

CARACAS, Nov 18 (Reuters) - Venezuelan President Hugo Chavez said on Wednesday the South American oil producer’s economic slide was largely due to its compliance with OPEC-mandated production cuts.

GDP shrank 4.5 percent in the third quarter of 2009, a second consecutive three-month contraction that by most economists’ definition puts Venezuela in recession.

Though Venezuela is still heading for a smaller economic decline this year than plenty of other nations, Chavez critics have leapt on this week’s data as evidence of the failure of his decade-long socialist drive.

Private sector investment and output have suffered in Venezuela’s state-driven model, with large swathes of the economy nationalized since Chavez came to power in 1999.

But he said Venezuela’s people-first policies -- from free health clinics to subsidized food -- did not show up in data.

Lambasting traditional GDP methodology as an “ideologically charged ... capitalist instrument”, Chavez said it would be easy to reverse the GDP trend if Venezuela were to disobey agreements by the OPEC group of producer countries.

Venezuela’s cut of about 400,000 barrels per day had helped lift and stabilize the global crude price, he said.

“One of the biggest factors in the GDP fall is the decline in the so-called oil GDP,” Chavez told a meeting of his United Socialist Party of Venezuela (PSUV).

“But the drop in the oil GDP is the (OPEC) cut.”

Oil GDP slid 9.5 percent in the third quarter data released by the Central Bank on Tuesday. [ID:nN1718696]


Chavez said Venezuela had complied with its roughly 10 percent share of more than 4 million barrels per day OPEC cuts as a “geopolitical decision” to help shore up prices, not due to local wells drying up or lack of investment.

Venezuela could, if it wanted, therefore break with OPEC to boost the economic data, he said.

“Fine, GDP would immediately go above zero. But what would that bring as a consequence? That oil prices would collapse to $20 or more. Then we would have no resources to pay salaries next year. It would be catastrophic for Venezuela.”

The former paratrooper said traditional GDP methodology also prejudiced Venezuela’s case because it gave greater weight to the private sector than a fast-expanding public sector.

“It’s really dangerous, especially when you’re dealing with a transition to socialism,” he said, comparing GDP calculations for Venezuela to a doctor using a damaged thermometer on a fever-stricken patient.

Free health clinics set up by the government were also prejudicial to GDP data, he said, because unlike costly private clinics, they did not create a big money-flow.

Regardless of methodology debates, analysts are in no doubt that Venezuela’s economy is in trouble, and at a time when Chavez is gearing up for legislative elections in September of next year. [ID:nN18508926]

Finance Minister Ali Rodriguez has said economic contraction could be as much as 2.2 percent this year, though the government predicts a modest recovery in 2010. [ID:nN1771637]

For factbox on Venezuela’s economy, click [ID:nN1750517] (Reporting Andrew Cawthorne; editing by Carol Bishopric)

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