VZCZCXYZ0000
RR RUEHWEB

DE RUEHCV #0704/01 0751203
ZNR UUUUU ZZH
R 161203Z MAR 06
FM AMEMBASSY CARACAS
TO RUEHC/SECSTATE WASHDC 3575
INFO RUEHBO/AMEMBASSY BOGOTA 6141
RUEHBU/AMEMBASSY BUENOS AIRES 1068
RUEHLP/AMEMBASSY LA PAZ MAR LIMA 9977
RUEHQT/AMEMBASSY QUITO 1843
RUEHSG/AMEMBASSY SANTIAGO 3331
RUEHGL/AMCONSUL GUAYAQUIL 0354
RUCPDOC/DEPT OF COMMERCE
RUEHC/DEPT OF LABOR
RUEATRS/DEPT OF TREASURY
RHEHNSC/NSC WASHDC
RUMIAAA/HQ USSOUTHCOM MIAMI FL

UNCLAS CARACAS 000704 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/AND, WHA/EPSC, EB 
TREASURY FOR OASIA - GIANLUCA SIGNORELLI 
USCINCSO FOR POLAD 
BUENOS AIRES FOR TREASURY - MHAARSAGER 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV VE
SUBJECT: VENEZUELA MACROECONOMIC UPDATE 
 
REF: A. CARACAS 00485 
 
     ¶B. CARACAS 00512 
     ¶C. CARACAS 03601 
     ¶D. CARACAS 03782 
     ¶E. CARACAS 00632 
     ¶F. CARACAS 00208 
 
SENSITIVE BUT UNCLASSIFIED.  NOT FOR INTERNET DISTRIBUTION. 
 
-------- 
OVERVIEW 
-------- 
 
¶1.  (SBU) Venezuela,s strong economic growth performance 
will most certainly continue through 2006 given the continued 
high oil price scenario and profligate BRV spending this 
election year, which is fueling a consumption boom.    We 
also expect the state to continue to consolidate its role in 
the nation,s economic life.   The quality of economic growth 
remains poor with low net new job creation, private sector 
direct investment remains anemic given the uncertain 
political environment, and the high levels of monetary 
liquidity are creating their own set of difficulties for the 
Central Bank.  For now, the high levels of BRV spending, 
which could reach 40 percent of GDP this year, will continue 
to mask a multitude of economic distortions and structural 
weaknesses that have been created through Bolivarian economic 
mismanagement. 
 
--------------- 
ECONOMIC GROWTH 
--------------- 
 
¶2. (U) Real GDP grew by 9.3 percent in 2005.  The 2004 
economic recovery continued in 2005, driven largely by a huge 
increase in government expenditures as a result of the 
continued oil bonanza (see table).  Importantly, the non-oil 
sector has led the economic growth in 2005: mining (1.7 
percent), manufacturing (8.7 percent), electricity and water 
(8 percent), commerce and repair services (19.9 percent), 
construction (20.1 percent), transportation and storage (13.9 
percent), communications (15.9 percent), and finance and 
insurance (27.2 percent).   The oil sector has only 
registered 1.7 percent growth due to low PDVSA investment to 
support increased production.  The increase in economic 
growth in the oil sector is mainly due to the high oil 
prices.  In 2006, we expect the economy to grow around 6 to 7 
percent, assuming continued high oil prices and anticipated 
aggressive BRV election year spending (at least 30.5 percent 
of GDP, with potential off-budget spending of up to 10 
percent of GDP). 
 
                     REAL GDP GROWTH RATE 
                         (PERCENTAGE) 
                     -------------------- 
 
                       OIL      NON-OIL     TOTAL 
 
1999                  -3.8       -6.9       -6.0 
2000                   2.3        4.2        3.7 
2001                  -0.9        4.0        3.4 
2002                 -14.2       -6.0       -8.9 
2003                  -1.9       -7.5       -7.7 
2004                  11.6       17.8       17.9 
2005 (1)               1.7       10.3        9.3 
2006 (2)               3.0        7.4        6.7 
 
(1) Preliminary figures. 
(2) Projections. 
 
SOURCE:  Central Bank of Venezuela and Metroeconomica 
 
------------ 
UNEMPLOYMENT 
------------ 
 
¶3. (U) Second semester 2005 figures from the National 
Institute of Statistics (INE) show an average unemployment 
rate of 11.4 percent, the lowest in seven years. However, 
workforce shifts from unemployed to inactive, rather than 
substantial new job creation, have helped to lower the 
unemployment rates. The inactive category includes all 
persons 15 years or older who are not seeking employment. 
This includes students, homemakers, retirees, those 
physically unable to work, and those that work for less than 
15 hours a week without pay for other family members. The 
informal sector of the economy accounted for 48 percent of 
the occupied working labor force. 
 
¶4. (U) Despite 2005,s impressive economic growth rate of 9.3 
percent, the number of private sector jobs decreased by 
230,890 (2.5 percent) and public sector jobs increased by 
47,914 (2.8 percent), from December 2004 to September 2005. 
Some analysts suggest that private firms are producing more 
with the same number of employees because of the high costs 
to hire an additional employee. Under current Venezuelan 
labor laws, large companies in the formal economy pay on 
average the equivalent of 24 months of salary per employee 
per year. The increase in unemployment to 12.9 percent for 
January 2006 is normal for the first month of the year, after 
an adjustment for seasonal increases in employment for the 
Christmas holidays. 
 
    UNEMPLOYMENT (percentage in second semester) 
   --------------------------------------------- 
 
1999                              14.5 
2000                              13.2 
2001                              12.8 
2002                              16.2 
2003                              16.8 
2004                              13.9 
2005                              11.4 
 
2006 
JAN                               12.9 
 
SOURCE:  BRV National Institute of Statistics (INE). 
 
---------------------- 
INTERNATIONAL RESERVES 
---------------------- 
 
¶5. (U) The Central Bank (BCV)-held international reserves 
increased to USD 30.4 billion at the end of 2005 because of 
higher than expected oil export revenue (approximately USD 
48.1 billion).  This level of reserves covers approximately 
15 months of imports.  The reserves would have been higher, 
but the BCV transferred USD 6 billion to the National 
Development Fund (FONDEN) during the last quarter 2005, as 
required by the Central Bank Law (passed in July 2005). The 
level of international reserves is expected to decrease 
during 2006 because the Central Bank Law established that 
PDVSA will only transfer foreign exchange earnings needed for 
its domestic expenses, taxes, royalties, and dividends to the 
BCV, and the rest to FONDEN. (Note:  Currently, FONDEN has 
USD 8.425 billion, including direct transfers from PDVSA. End 
Note.) In February 2006, Chavez called for the transfer of 
USD 4.0 billion from the BCV to FONDEN. The Central Bank Law 
also directed the BCV to determine the adequate level of 
reserves, which we anticipate will be USD 25 billion, based 
on prior Chavez, statements (reftel A). 
 
¶6. (U) The results below include the Macroeconomic 
Stabilization Fund (FEM), which was originally established in 
1998 as a savings fund to reduce the impact of oil income 
fluctuations on the fiscal, foreign exchange and monetary 
balances (a rainy day fund). The maximum level reached by 
this Fund was USD 7,116 million on December 12, 2001.  In 
2002 and 2003, the Venezuelan government used the funds to 
cover the fiscal deficit and in a widely publicized scandal 
suspended transfers of USD 3.2 billion to the FEM.  The 
balance was USD 737 million on March 1, 2006. 
 
           INTERNATIONAL RESERVES (USD MILLIONS) 
          --------------------------------------- 
                      BCV       FEM        TOTAL 
 
1999 DEC            15,164       215       15,379 
2000 DEC            15,883     4,588       20,471 
2001 DEC            12,296     6,227       18,523 
2002 DEC            12,003     2,857       14,860 
2003 DEC            20,666       700       21,366 
2004 DEC            23,498       710       24,208 
2005 DEC            29,636       732       30,368 
 
2006 
JAN                 27,888       734       28,622 
FEB                 28,603       736       29,339 
 
SOURCE:  Central Bank of Venezuela. 
 
--------------- 
MONEY SUPPLY/M2 
--------------- 
 
¶7. (U) Monetary liquidity or money supply grew 52.7 percent 
during 2005, largely as a result of foreign exchange controls 
and increased government expenditures (reftel B).  This is 
the third annual consecutive huge increase, which implies 
potential higher inflation rates in the medium-term.  Most of 
the excess liquidity accumulated in the economy during these 
months has been withdrawn by the Central Bank (BCV) issuing 
short-term certificates of deposits, mostly to domestic 
banks. The net balance in circulation of certificates of 
deposit was 30.10 trillion Bolivars (approximately USD 14.0 
billion) at the end of January 2006, or 42.7 percent of the 
total money supply. 
 
¶8.  (U) The Finance Ministry also issued USD 3.0 billion in 
dollar-denominated bonds, purchasable in local currency 
(reftel C). This alleviated some of the excess liquidity, 
which if left unchecked, would cause inflationary pressures. 
The BRV also purchased USD 2.8 billion and resold 
approximately USD 1.1 billion in dollar-denominated Argentine 
bonds to local investors(reftel D).  In both cases, local 
investors could sell the bonds overseas, obtaining dollars, 
and reducing the supply of Bolivars. We anticipate that the 
BRV will complete similar issuances in 2006. 
 
           MONEY SUPPLY/M2 (3)     MONETARY BASE 
          --------------------   ------------------- 
 
End of: (million Bs.) Pct.Chg. (million Bs.) Pct.Chg. 
 
1999     12,740,836     20.0      4,909,822    32.1 
2000     16,284,578     27.8      5,790,841    17.9 
2001     16,976,364      4.2      6,478,295    11.9 
2002     19,573,369     15.3      7,701,120    18.9 
2003     30,835,975     57.5     11,274,439    46.4 
2004     46,363,672     50.4     16,524,461    46.6 
2005     70,794,342     52.7     23,086,512    39.7 
 
2006 (4) 
JAN      70,434,577    (0.5)     22,042,400    (4.5) 
 
(3) M2 includes currency, demand deposits, savings, 
    and certificates of deposit. 
(4) Preliminary figures. 
 
SOURCE:  Central Bank of Venezuela (BCV). 
 
----------------------------------- 
EXCHANGE RATES AND BCV LIQUIDATIONS 
----------------------------------- 
 
¶9.  (U) The National Exchange Control Administration 
(CADIVI), created in February 2003, oversees authorized 
foreign exchange transactions.  Currently, approximately 95 
percent of the private foreign exchange is processed through 
CADIVI and approximately 5 percent is processed by the 
parallel market. Public sector entities can acquire foreign 
currency directly from the Central Bank for public sector 
imports, debt payments, and other expenses abroad.  In 2005, 
CADIVI authorized on average USD 83.2 million a day, and the 
BCV liquidated on average USD 78.6 million a day in exchange 
transactions. The parallel market exchange rate was 2,616 
Bolivars per dollar as of March 1, 2006.  BRV officials have 
promised no devaluation for this year.  At 2,150 Bolivars per 
dollar, we estimate that the Bolivar is approximately 20 
percent overvalued. Economic sources anticipate a devaluation 
in early 2007. 
 
                 END OF PERIOD EXCHANGE RATES (Bs./USD) 
                        AND BCV LIQUIDATIONS 
--------------------------------------------- -------------- 
                                      OFFICIAL FOREX 
      OFFICIAL MARKET  PARALLEL MARKET LIQUIDATIONS 
                                      (MILLIONS USD) 
--------------------------------------------- -------------- 
 
1999        648.25 
2000        699.75 
2001        763.00 
2002      1,401.25 
2003      1,600.00     2,875.00         4,594.52 
2004      1,920.00     2,673.41        14,780.80 
2005      2,150.00     2,586.08        19,430.50 
 
2006 
JAN       2,150.00     2,643.80         1,867.20 
 
SOURCE:  Central Bank of Venezuela, and Metroeconomica. 
 
 
-------------------- 
CONSUMER PRICE INDEX 
-------------------- 
 
¶10.  (U) The BCV reported that consumer prices for the 
Caracas metropolitan area rose 12.5 percent from February 
2005 to February 2006. This is the lowest annual inflation 
rate of the last 50 months.  However, around 50 percent of 
all consumable goods have been under a price control regime 
since February 11, 2003. Core inflation removes the most 
volatile categories from the CPI. Both indicators increased 
at similar rates during the last two years. Effective 
February 1, 2006, the government increased the minimum wage 
by 15 percent to 465,750 Bolivars (USD 216.6) per month. This 
is expected to have a limited effect on 2006 inflation, which 
could be higher than 2005. For 2006, the BRV has an inflation 
target of 10 percent (Dec-Dec). 
 
 CONSUMER PRICE INDEX (1997 AVG = 100) and CORE INFLATION 
--------------------------------------------- ------------- 
              CPI          CPI     CORE INFLATION 
          END OF PERIOD  (% change)   (% change) 
 
1999         181.6            20.0           N/A 
2000         206.0            13.4          12.8 
2001         231.3            12.3          11.3 
2002         303.5            31.2          31.2 
2003         385.7            27.1          37.9 
2004         459.7            19.2          21.1 
2005         525.7            14.4          14.6 
 
SOURCE:  Central Bank of Venezuela. 
 
------------------- 
BALANCE OF PAYMENTS 
------------------- 
 
¶11.  (U) The overall balance of payments may show a deficit 
during 2006 for the first time in the last four years because 
of the expected continued capital flight, including PDVSA,s 
depositing funds abroad. This deficit is the equivalent to a 
decrease in the international reserves.  During the period 
2003-2005, with exchange controls in force, private sector 
capital flight increased by around USD 15.7 billion. 
Additionally, public sector assets abroad also increased 
during those years by USD 18.9 billion. One of the main 
reasons for the large public sector deposits abroad for 2005 
is the reform of the Central Bank Law in July 2005 by which 
the BCV transferred USD 6 billion to the National Development 
Fund (FONDEN). Currently, FONDEN holds an estimated USD 8.425 
billion, including transfers from PDVSA. With additional 
transfers from PDVSA and an additional USD 4 billion transfer 
from the international reserves, FONDEN could have USD 18 
billion by year,s end. 
 
 
                      BALANCE OF PAYMENTS SUMMARY 
                             (USD BILLION) 
            --------------------------------------------- - 
 
                         2002  2003  2004  2005 2006 
                                          (1)  (2) 
 
 
CURRENT ACCOUNT (A)      7.6  11.4  13.8   25.4   13.7 
  EXPORTS, FOB          26.8  27.2  38.7   55.5   55.4 
  IMPORTS, FOB         -13.4 -10.7 -17.3  -24.0  -31.8 
    TRADE BALANCE       13.4  16.5  21.4   31.5   23.6 
  NET SERVICES AND RENT -5.6  -5.0  -7.5   -6.0   -9.8 
  NET TRANSFERS         -0.2  -0.1  -0.1   -0.1   -0.1 
CAPITAL AND FINANCIAL 
ACCOUNT (B)             -9.2  -5.0  -9.0  -16.1  -11.9 
  DIRECT INVESTMENT     -0.2   1.3   1.9    1.5    3.2 
  PORTFOLIO INVESTMENT  -2.3  -1.0  -2.0    2.7    3.1 
  OTHER INVESTMENT      -6.7  -5.3  -8.9  -20.4  -18.2 
NET ERRORS AND 
OMISSIONS (C)           -2.8  -1.0  -2.9   -3.8   -3.4 
OVERALL BALANCE 
(A) (B) (C)             -4.4   5.4   1.9    5.5   -1.6 
 
(1) Preliminary figures. 
(2) Projections. 
 
SOURCE:  Central Bank of Venezuela, and Metroeconomica. 
 
----------- 
OIL EXPORTS 
----------- 
 
¶12. (U) Total value of the oil exports reached USD 48.059 
billion during 2005 with an average export price for the 
Venezuelan oil basket of USD 45.4 per barrel. Venezuela,s 
current OPEC production quota is 3.22 million barrels. 
However, Venezuela,s oil production remains below the quota, 
according to OPEC figures. According to OPEC,s Monthly Oil 
Report for February 2006, Venezuela,s oil production was 
2.54 million barrels per day. The average oil price per 
barrel was USD 53.0 as of February 24, 2006. 
 
 
                  OIL EXPORTS (THOUSAND B/D) 
          ----------------------------------------- 
                            AVERAGE 
             EXPORTS (1)  EXPORT PRICE    EXPORTS 
           (THOUSAND B/D)   (USD/B)    (USD MILLION) 
 
1999          2,785          16.0          16,735 
2000          2,791          25.9          27,874 
2001          2,711          20.2          21,745 
2002          2,681          22.0          21,532 
2003 (2)      2,339          25.8          22,029 
2004 (2)      2,635          33.1          31,917 
2005 (2)(3)   2,900          45.4          48,059 
 
(1) Includes crude oil and oil products. 
(2) Figures for 2003 onward appear to include orimulsion and 
production from Strategic Associations. 
(3) Preliminary figures. 
 
SOURCES: Central Bank of Venezuela, Ministry of Energy and 
Petroleum, OPEC, and Embassy,s estimates. 
 
------------------------- 
MERCHANDISE TRADE BALANCE 
------------------------- 
 
¶13. (U) Total imports increased 38.7 percent during 2005 
compared to 2004, largely due to the economic recovery, and 
increased approvals and liquidations of foreign exchange 
requests by CADIVI.  With continued exchange controls, we 
believe the Bolivar, valued at 2,150 per dollar, is 
overvalued by approximately 20 percent, acting as a subsidy 
for imports to Venezuela.  According to the National 
Statistics Institute (INE), the United States was the largest 
exporter to Venezuela (30.4 percent), followed by Colombia 
(11.0 percent), Brazil (9.2 percent), Mexico (7.2 percent), 
Japan (3.8 percent), and China (3.7 percent). For 2006, we 
expect a continued high merchandise trade surplus due to a 
stable oil price outlook. 
 
             MERCHANDISE TRADE BALANCE (USD BILLION) 
            ------------------------------------------ 
 
 
                     2002  2003  2004  2005(1) 2006(2) 
 
OIL EXPORTS (A)     21.5   22.0   31.9    48.1    47.1 
 
NON-OIL EXPORTS (B)  5.3    5.2    6.8     7.4     8.3 
 
TOTAL EXPORTS (C)   26.8   27.2   38.7    55.5    55.4 
 
TOTAL IMPORTS (D)  -13.4  -10.7 - 17.3   -24.0   -31.8 
 
MERCHANDISE TRADE 
BALANCE (C)-(D)     13.4   16.5   21.4    31.5    23.6 
 
(1) Preliminary figures 
(2) Projections. 
 
SOURCE:  Central Bank of Venezuela, and Metroeconomica. 
 
------------------------- 
FOREIGN DIRECT INVESTMENT 
------------------------- 
 
¶14. (U) Foreign direct investment showed an inflow of USD 
1,497 million during 2005. Foreign oil companies operating in 
Venezuela reinvested USD 1,519 million of earnings, and 
non-oil companies in Venezuela made new foreign direct 
investments of USD 990 million. On the other hand, the 
Venezuelan oil sector increased investments abroad for an 
amount of USD 1,332 million, including reinvestment of 
earnings. Foreign direct investment in Venezuela has been 
relatively low since 2002 because of the uncertain political 
environment, increased government intervention in the 
economy, and BRV support for expropriations and seizures of 
land and property. 
 
         Abroad      In the country       Net flow 
 
1997          -557           6,202          5,645 
1998        -1,043           4,985          3,942 
1999          -872           2,890          2,018 
2000          -521           4,701          4,180 
2001          -204           3,683          3,479 
2002        -1,026             782           -244 
2003        -1,318           2,643          1,325 
2004           348           1,492          1,840 
2005 (1)    -1,460           2,957          1,497 
 
(1) Preliminary figures 
 
Source: Central Bank of Venezuela. 
 
---------------------------- 
CARACAS STOCK EXCHANGE INDEX 
---------------------------- 
 
¶15.  (U) The Caracas Stock Exchange (CSE) index recovered 
during the first two months of 2006 after declining 31.9 
percent in 2005. This recovery could be explained by the 
excess liquidity in the market, the decreasing interest rates 
in the Venezuelan banking system, the government controls on 
the capital movements, and the lack of options to invest. 
According to the CSE President Nelson Ortiz, 2006 could be a 
good year for the Venezuelan capital market. As an indicator 
of the current strong market, local media report that in 
three years the price of a trading desk at the Caracas Stock 
Exchange increased from USD 14,000 to USD 465,000. 
 
          CARACAS STOCK EXCHANGE CAPITALIZATION INDEX 
                     (DECEMBER 1993 = 1,000) 
          ------------------------------------------- 
 
                    2004        2005        2006 
 
JANUARY          27,956.14   29,303.14   25,119.59 
FEBRUARY         27,484.76   30,388.61   28,260.50 
MARCH            26,579.69   28,977.07 
APRIL            25,879.34   25,089.14 
MAY              25,405.73   22,493.91 
JUNE             25,285.17   21,595.64 
JULY             25,611.18   20,561.79 
AUGUST           27,263.38   19,702.21 
SEPTEMBER        30,111.62   20,769.36 
OCTOBER          29,618.87   19,651.74 
NOVEMBER         29,306.54   19,992.69 
DECEMBER         29,952.18   20,394.83 
 
 
SOURCE:  Caracas Stock Exchange, Banco Mercantil, and 
         Metroeconomica. 
 
------------------------------------ 
CENTRAL GOVERNMENT FINANCIAL RESULTS 
------------------------------------ 
 
¶16. (U) Total central government ordinary expenditures 
increased to 27.4 percent of GDP. This increase in public 
spending was initiated in mid-2003, and has been possible 
because of stronger oil prices, as well as higher internal 
tax collection, especially sales tax and import duties. The 
Venezuelan Tax Authority (SENIAT) has increased tax 
collection 106 percent from USD 8.66 billion in 2003 to USD 
17.85 billion in 2005. Although the 2005 central government 
financial results show a fiscal surplus (2.1 percent of GDP), 
total government off-budget expenditures could have reached 
USD 5 billion.  During the first two months of 2006, the 
National Assembly approved 8 trillion Bolivars (USD 3.7 
billion) in additional credits to be spent by the government. 
This is in addition to the already approved 2006 National 
Budget (USD 40.5 billion).  We anticipate that at government 
expenditures to be at least 30.5 percent of GDP, with 
potential off-budget spending of up to 10 percent of GDP in 
¶2006. 
 
             CENTRAL GOVERNMENT FINANCIAL RESULTS 
                  (Percentage of GDP)(1) 
            -------------------------------------- 
 
 
                                2004(2)    2005(2) 
 
TOTAL REVENUES                   23.9        29.5 
   Oil income                    11.5        14.6 
   Non-oil income                12.5        14.9 
 
TOTAL EXPENDITURES               26.3        27.4 
 
OVERALL FISCAL SURPLUS/DEFICIT(-)-2.4         2.1 
 
(1) Including FONDEN 
(2) Preliminary figures 
 
Source:  Central Bank of Venezuela. 
 
------------------ 
PUBLIC SECTOR DEBT 
------------------ 
 
¶17. (U) The government has been actively refinancing its 
domestic and external debts since 2003. In late February, the 
Finance Minister announced that the BRV will reduce debt by 
27.4 percent by the end of 2007.  The BRV plans to prepay 
some of its most expensive external debt and improve the 
maturity profile of domestic debt (reftel E). During November 
2005, the Ministry of Finance allocated bonds for the 
equivalent of USD 3.0 billion (reftel C). These dollar 
denominated bonds, which mature in the years 2016 and 2020, 
were bought by local investors in local currency.  Domestic 
debt increased substantially (295 percent in current US 
dollars) during Chavez, administration, from USD 4.1 billion 
at the end of 1998 to USD 15.5 billion at the end of 2005. 
 
                   END OF PERIOD PUBLIC SECTOR DEBT 
                             (USD BILLION) 
       --------------------------------------------- ------- 
 
                                           2003    2004 
2005(1) 
 
CENTRAL GOVERNMENT              38.6    42.0    46.0 
 
   FOREIGN DEBT                 23.7    26.6    30.5 
 
    RESTRUCTURED DEBT            5.8     4.8     4.4 
    NON-RESTRUCTURED DEBT       17.9    21.8    26.1 
 
   DOMESTIC DEBT                14.9    15.4    15.5 
 
AGENCIES                         1.1     0.9     0.6 
                                 -----   -----   ----- 
PUBLIC SECTOR DEBT  (2)         39.7    42.9    46.6 
 
 
(1)  Preliminary figures. 
(2) It does not include PDVSA,s nor Central Bank,s debts. 
 
SOURCES:  Ministry of Finance, and Santander Investment. 
 
-------------- 
BANKING SYSTEM 
-------------- 
 
¶18. (U)  Profits (net financial margin) decreased during 2005 
because around 32 percent of the total loans given by the 
banks must be allocated by law to specific economic sectors 
at preferential interest rates, including housing (10 
percent), agriculture (16 percent), micro-busines (3 
percent), and tourism (2.5 percent) (reftel F). However, 
loans for consumption increased 91 percent during 2005. This 
increase can be attributed to the strong economic growth (9.3 
percent) prompted by increased BRV spending, relatively low 
interest rates, and probably a desire to buy now before an 
expected devaluation in early 2007.  The car loans increased 
180 percent during 2005, while the mortgage loans increased 
by 146 percent. A new government-owned bank (Treasury Bank) 
started operations during 2005, but it is not fully 
operative. The BRV created the Treasury Bank in August 12, 
2005 to act as the BRV financial agent, to pay the debt 
service for domestic and external debt, conduct foreign trade 
operations, receive income taxes, and serve as the BRV 
cashier.  The new Treasury Bank will also hold accounts for 
FONDEN and FIEM (Now FEM). 
 
                    BANKING SYSTEM KEY INDICATORS 
                             (percentages) 
                -------------------------------------- 
 
                           DEC 04    JUL 05    DEC 05 
Past due loans/ 
gross loans                  1.65      1.47      1.08 
 
Credit portfolio allowance/ 
past due loans             224.45    205.99    251.34 
 
Equity/total assets         12.57     12.03     11.12 
 
Net financial margin/ 
average asset                5.89      3.57      3.66 
 
Net financial margin/ 
average equity              45.21     30.86     32.49 
 
Net loans/ 
total deposits              48.04     47.75     54.86 
 
Source:  SUDEBAN 
 
-------------- 
INTEREST RATES 
-------------- 
 
¶19. (U) The BCV started to apply interest rate regulations at 
the end of April 2005, by which a maximum and a minimum 
levels were set for the banking system lending (28 percent) 
and deposit (6.5 percent) interest rates. On January 31, 
2006, the BCV issued a resolution keeping the same maximum 
and minimum interest rates, but reducing the interest rates 
that the BCV pays on the certificate of deposit issued by the 
monetary authority (28 days) from 11.5 percent to 10.0 
percent (reftel B). 
 
            AVERAGE INTEREST RATES OF THE SIX MOST IMPORTANT 
                   COMMERCIAL AND UNIVERSAL BANKS 
--------------------------------------------- --- 
                   Loans            Deposits 
                  -------      ------------------- 
                                Savings   90 days 
 
1999               31.89          7.05     18.90 
2000               23.91          3.35     14.80 
2001               25.64          2.40     14.13 
2002               37.08          3.90     28.29 
2003               24.05          6.15     17.58 
2004               17.06          4.52     12.93 
2005               15.36          6.64     11.74 
 
2006 
JAN                14.93          7.39     10.48 
 
SOURCE:  Central Bank of Venezuela. 
 
------------------ 
INTERNET RESOURCES 
------------------ 
 
¶19.  INTERNET RESOURCES: 
 
AMEMBASSY CARACAS WEBSITE:  www.embajadausa.org.ve 
- 
EXCHANGE RATES AND INTERNATIONAL RESERVES:  www.bcv.org.ve 
- 
STOCK EXCHANGE:  www.caracasstock.com 
- 
TRADE AND LABOR FORCE STATISTICS:  www.ine.gov.ve 
- 
BUSINESS INFORMATION:  www.venamcham.org 
- 
INVESTMENT OPPORTUNITIES:  www.conapri.org 
- 
PETROLEUM INFORMATION:  www.pdvsa.com, 
www.mem.gov.ve 
- 
PUBLIC FINANCE INFORMATION: www.mf.gov.ve 
- 
FINANCIAL INDICATORS:  www.sudeban.gov.ve 
- 
ECONOMIC PUBLICATIONS:  www.metroeconomica.com.ve, 
www.veneconomy.com, www.bancomercantil.com, www.provincial.com 
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NEWSPAPERS:  www.eluniversal.com, 
www.el-nacional.com 
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LEGAL PUBLICATIONS:  www.datalegis.com.ve, 
www.bpmaw.com, www.traviesoevans.com, 
www.tpa.com.ve, www.drba.com.ve 
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VENEZUELAN GOVERNMENT: www.venezuela.gov.ve, 
www.platino.gov.ve 
 
 
BROWNFIELD