Published by Minyanville
Following news of minimum wage hikes kicking in on Sunday, International Workers’ Day, Venezuelan president Hugo Chávez held a huge rally in Caracas’ Avenida Bolívar to announce full employment if he is re-elected in 2012.
After arriving in an open-top car, waving a flag and cheering along with the crowd, Hugo Chávez spoke to the sea of red that had gathered. He spoke of his aim to create more than 3 million jobs in the next eight years, ending unemployment completely.
"I am absolutely sure we will incorporate 3.5 million jobs in the next eight years," he said. “I have a year and a half more in this government, then six more in the next one!”
Unemployment was at 8.6% of the economically active population in March. Younger people in Venezuela are suffering more, however, with 20% of those between 15 and 24 out of work.
Chávez often fails to meet his somewhat optimistic targets. His promises and rhetoric still resonate with many, however, as demonstrated by the tens of thousands who attended the Sunday rally. Income from high oil prices is to be poured into social projects, placating the poor and in turn raising chances of re-election next year. However, milk and other essentials are getting scarce and electricity blackouts continue to be a problem, even hitting the capital city last month.
Recent policy decisions by Chávez appear to be his preparation for elections. Wage hikes of 15% on May 1 followed by a further 10% in September will bring wages up to $360 a month. The increase is still, however, lower than the 27% inflation which the country found itself suffering in 2010.
It was announced last week that $1.63 billion will be ploughed into Venezuelan universities, increasing wages of university professors as well as administrative staff. Also on the list were nurses and other public administration staff, set to see wage increases of 45%. The wage hikes are thought to be costing the Treasury $4.02 billion.
Inflation figures of 22.9% for the year through to April, down from 30.4% in the same period last year, will surely put a damper on any public celebration. The CPI rise of 1.4% in April was lower than the same period last year, where the figure rose 5.2%.
His need to find funding for a $7 billion housing initiative has forced Chávez to ask the central bank to lower reserve requirements by as much as 3%. This would lower the 17% of banks’ funds which must be held with the central bank. Central bank president Nelson Merentes suggested that this could free up around $2.3 billion.
The move, like many of Chavez’s, appears slightly ad hoc. He said: “We are going to lower, we want to lower, we need to lower reserve requirements. Look, we’ve raised 10 billion bolivars in 10 minutes.”
Oil Tax Downplayed
Oil prices hit $110.33 per barrel last week, up from the previous week’s $108.29. This raises the year average to $95.04. The oil windfall taxes announced last month, whereby a 95% tax—up from 60%—will be levied on oil revenue when prices breach $100 per barrel, has been downplayed by the government, keen to mollify investors.
Oil minister Rafael Ramirez insisted that companies investing in new development would only pay the higher rates after their original investment had been recouped.
“This tax change is likely to have a chilling effect on private sector investment,” said a note from Nomura, who went on to describe it as ‘bordering on confiscation’. This ‘confiscation’ may bring $12.7 billion into government coffers this year if prices continue to be buoyed.
In fact, it is high oil prices which led investment bank Morgan Stanley this week to increase its estimate of Venezuelan 2011 economic growth to 3%, up tenfold from 0.3%.
The 2012 forecast is also up to 3.6%, previous 1.6%. However, the report was keen to stress that oil no longer has the same buoying effect on the Venezuelan economy it once did, suggesting that the previous two years have shown a correlation between oil prices and the country’s macroeconomic indicators deteriorate.
China Said to Invest $40 Billion
As it pulls Latin America from the United States, China is thought to be investing $40 billion in Venezuela’s energy sector. An anonymous oil ministry source told Platts that the joint investments are likely to reach that figure over the next decade.