VENEZUELA'S CURRENT ACCOUNT, 1974-80

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T00608R000600070010-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 13
• Document Creation Date: December 16, 2016
• Document Release Date: December 8, 2004
• Sequence Number: 10
• Publication Date: March 31, 1975
• Content Type: MF

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Vene::uela's CLirx'c;nt Account, 1974-80 ';
1. Venezuela is unlikely to have sufficient funds
by the 1980s to support substantial foreign aid,'for 'any
purpose, particularly the large
amounts that wo.ild be required
to create raw material stockpiles.
Caracas proiably will
begin to eat into its foreign reserves as rapid 'import
growth puts th-a current account in the red. Although
petrochemical, and metal exports will increase dramatically
during the late 1970s, they will only be large enough to
offset a probable drop in c',.ii exports.
2. The service' account will remain negative throughout
the period. As foreign reserves fall, investment earnings
will drop off. Other services, which probably will include
large payments to oil companies for service contracts, will
be in defig.it.
25X
J tiominal .oil prices in 1975 are'; those set on
1 January 197E;. In 1976, oil prices are projected to increase
8% and in 1977, 5%. Impo.-t price increases are, assumed to
be 1.2% in 197h;, 9% in 197', and 6% in 1977. Constant export
and import pr=.ces are assumed during 1978-80, however. Freight
and insurance outlays are assumed to equal 12%.of the f.o.b.
value of imports. Luring 1975-80, Venezuela's; acquisition
of tankers and other ships is expected to haveilittle impact
on the freight account. Investment income receipts are
assumed to equal 8% of the value of assets. The other services
category includes payments on service contracts'': to foreign
oil and iron companies, interest payments on fQIreign debt,
and inflows and outflows of remittances. i~o
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3. Capital inflows might case the situation slightly,
but large surpluses on capital account are unlikely., In
recent years, diminished oil investments have caused the
capital account to fluctuate between small deficits and small
surpluses. Now, with Venezuela's membership in the Andean
I,+
Pact and its strong Support of the Pact's rules! requiring
majority domestic ownership in many areas and complete public
ownership in oil and iron and steel, substantial;' new capital
inflows may well be hindered despite the economy,'s^probable
increased attractiveness as a location for. direct foreign
investment.
4. Projection;; to 1980 are extremely tentative because
of uncertainties in the world economic situatiori';and thus
in the range of oPeti(:)ns that might be open to V,pnezuela.
Looking beyond the'next few years multiplies the difficulties
of forecastipg -- particularly in the areas of world oil
demand and supply, and of Venezuela's progress in developing
exports of petrochemic:als,;steel, and aluminum.
Exports
5. ? Oil export earnings reached $10'.3 billion in 1974
when production averaged nearly 3.0 million b/d .(see Table 1).
Earnings ? from oil are 'expected to drop gradually J ,over the next
few years because of the government's oil conserYation policies.
!i
To conserve the country's declining oil reserves;, Venezuelan
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planners project that by 1.980 production will 1?6 limited
to about 2.0 Trillion b/d, down from the 2.4 million b/d
projected for 1975. Domestic oil consumption i,s now growing
about 7% annually and is projected to rise to 10% after
1977, mainly because of expanding consumption I the
petrochemical industry. By 1980, exports thus will slip
to about 1.55 million b/d,' contributing about ~7.0 billion
to export earnings.
6. The composition of oil exports is not expected to
change substantially by 1980. About t,,o-thirdsi'of exports
are now crude, while,refined product exports consist mostly
of residual fuel oil,, priced below crude. The government
is conducting extens..ve surveys to determine how to raise
the value of oil exports.' It has recently entered into an
agreement with the Japanese to build a refinery! ,designed tD
handle heavy c:udes with high metal and sulphur content.
Nevertheless,; any significant shift'' in the composition o:;:
oil exports will not Abe felt until after 1980. The plants
are expensive and time-consuming to build, and the shakedown
period will be lengthy. Moreover, the resistance of,traditional
world marketing patterns w:Lll hamper Venezuela's'! attempt to export
higher valued products.'
7. We project non-oil exports to expand rapidly after
1977, reaching about $3.55 billion by 1980. Ex rts at
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this level wou:'.d nearly offset the drop in the value of
oil exports -- just about' restoring total earnings to
the 1974 level. Majcr steel and aluminum projects are
scheduled for c:ompletiort in the late 1970s. St?el exports,
by then will more than offset the drop in the vlllue of iron
ore exports. The first phase of Venezuela's long-delayed
petrochemical development also is expected to be;'fully
operational by the late 1970s. At the same time, large
fertilizer sales will also 'be adding to non-oil iexport
earnings. Although the fertilizer plants are presently in
operation, 1975 production is still far below capacity and
is insufficient to meet domestic
such as coffee and cocoa are not
during the period, however.
Import
-'
needs. Traditional exports
likely to increase in volume
10
8. With 't'he sudden- sharp increase in foreign exchange
availability in 1974, imports jumped about 65% approximately
25% in real terms -- to $4.6 billion. Trading partner data
indicate that the major categories of goods generally
increased propo::tionat:ely. Thus, their shares off, the total
probably remain close.to the recent levels; consumer goods,
20%; capital goods, 45%;,an3 raw materials and intermediate
products, 35%..
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rmrtITIAI
9. We project the volume of imports during 1975 to
rise at about the 1974 rate. Assuming a 12% increase in
prices, the value of imports thus will. jump to $6.4 billion.
Several factors are supporting the continued raid growth
of imports. Caracas', extensive development programs
particularly in petrochemicals, stee3, and aluminum, require
large imports of capital goods. Many of these projects
will just be getting underway this year. At the same time,
rising consumer incomes will require increased .mports of
finished consumer goods and raw materials and intermediate
products for import substitution industries to restrain
inflationary pressures. Preliminary reports on?tonnages
.1.
moving through Venezuelan ports in the first two'.months of
1975 indicate that import volume is running ahead of last
10. Our projections assume, however, that real import
growth. will,d#p to 15% in 1976 and to 10% in each of the
following years. To limitlthe growth of imports,ito these
rates will require tightened import restrictions: It is
assumed that the government will take such measures to
postpone large
of the foreign
trade deficits, thus stretching out the life
reserves. A 10%
annual increase i~.n the volume
of imports probably is the~bare minimum needed
t1o suppo t
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Cl,FIDENTIAL
real economic growth rates of 7%-8%. With the!' volume of
imports growing only 10% nnually during 1977-00, present
government plans for industrial development probably will
have to be trimmed.
Services
11. The services account probably will remain in
deficit throughout the period. Inflows of investment
income are ex-pected?to rise through 1977 but will decline
as foreign reserves'fall in subsequent years. PIt is assumed
thFt: the services account will be further dampened by large
payments under contracts with foreign oil companies to
maintain certain management and exploration operations in
Venezuela. As trade deficits are incurred after 1977, it
is further assumed that grant-type assistancelcaill be terminated
to ease strains on the current account.
Current Account Balance
12. Under our.forecoing assumptions, tne,!current
account will be in surplus only through 1976.;~,Considering
only the current account, foreign reserves will reach a
peak-of $9.0 billion in that year. With growing trade
deficits in subsequent years, the current account deficit
wi:.l also rise, eating into foreign reserves.IiBy 1980, foreign
reserves would be depleted. If the rise in inport prices
after 1977 were to substantially exceed that of oil prices,
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foreign reserves could be depleted even earlier'.
Implications for Foreirjn Aid
13. Thus far, Caracas has made only a few;, mostly
small commitments tO provide foreign aid for apy purpose,
and has generally insisted on strictly commerc ei terms.
As its balance-of-payments surpluses decline over the next
few years, we expect. Venezuela to be even lessi,willing to
undertake foreign aid commitments. This will be particularly
true for schemes to,finance commodity stockpiles and other
measures to boost world raw material prices. To be effective,
such schemes :require large initial outlays and,,; because of
the generally weak financial positions of the beneficiaries,
concessional financing. Even in its present affluent
situation, Caracas offered only short-term loans totaling
$40-$80 million to finance a Central American
with repayment on commercial terms.
Alternative P.roj ect:ons
coffee stockpile
14. The foregoing analysis has assumed that Caracas
,will move to slow import growth after 1975 to conserve
foreign reserves. An al-Eernative assumption would be that
the government would adopt a policy of allowing the volume
of imports to grow at 20% annually while pushijrig development
. ~t
projects ahead as rapidly as possible in the hope th-,L- in
the 1980s, exports -- particularly of petrochgmicals -- would
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be great enough to reverse the rise in the trade deficit.
As is shown in Table 2,: under such a policy a.aarge ; trade
deficit would- develop by 1?77 and foreign reserves would
be depleted by mid-1979,.
15., Another possible, assumption would be that the
government would adopt a policy of maintaining qil production
through 1980 at an average, rate of about 2.4 mi lion 'b/d,
the expected 1975 output level. Venezuela probably has the
capacity to sustain production at this level. But, toward
the end of the decade with-large new non-OPEC supplies
entering the world market, Venezuela's sustaining oil
production at 2.4 million b/d would require further production
cutbacks by other OPEC members. This in turn would further
increase the stress on the cartel in coping with the problem
of prorationincj oil production. In this case, if imports
were restricted after 1975 to the levels previously assumed,
I .i
a trade deficit: would be postponed until 1980 (see Table 3).
Under these circumstances,,
allow imports to grow- at to grow at 20% annually, a
1977, and foreign ,reserves
way, Venezuela's
however, Caracas probably would
much higher rate. I ,they continue
trade deficit would develop by
I .i
would be depleted byHi979. Either
capability to provide foreign did in the
1980s would be negligible.
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c~ t i idL
Venezuela: Projected Current Account Balance
Exports f.o.b.
Oil
Non-oil
Imports f.o.b.
Trade balance
Net services
Freight & insurance
Investment inane receipts
Other
Grant-type assistance
Current account balance
1974
1975
1976
10.7
8.9
9.5
10.3
8.4
9.0
0.4
0.5
0.5
-4.6
-6.4
-8.0
- 2.5
1.4
-1.0
-0.9
-1.1
-0.6
-0.8
-1.0
0.3
0.6
0.7
-0.8
-0.8
-0.8
-0.1
-0.2
-0.2
5.0
1.4
0.2
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1977
1978
1979
1980
9.3
9.9
10.1
10.5
8.8
8.1
7.5
7.0
0.5
1.8
2.6
3.5
-9.4
-10.3
-11.4
12.5
0.0
--0.4
-1.3
2;0=-
-1.4
- 1.6
- 2.0
- 2.3
_-1.1
- 1.2
- 1.4
- 1.5
0.6
0.6
0.4
0.2
-0.9
- 1.0-
- 1.0
- 1.0
-0.2
-1.6
- 2.0-
- 3.3
- 4.3
Million US $
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Venezuela: Alternative Projection of Current Account Balance 1/
Million US $
1974
1975
1976
1977
1978
1979
1980
B:cports f.o.b.
10.7
8.9
9.5
9.3
9.9
10.1
10.5
Oil
10.3
-
8.4
9.0
8.8
8.1
7.5
7.0
Non-oil
0.4
0.5
0.5
0.5
1.8
2.6
--3.5--
Imports f .0.1-J.
-0.4
-10.6
- -12.0
--15.-3
18:4-
Trade balance
Net services
-1.0
--0.9
11.1
- 1.5
- 2 . J_
- .- 2.7
- 3.2
Freight & insurance
-0.6
-0.8
-1.0
- 1.3
- 1.5
- 1.8
- 2.2
Investment income receipts
0.3
0.6
0.7
0.7
- 0.4-
- 0.1?
??-
Other
-0.8
-0.8
-0.8
- 0.9
- 1.0
- 1.0
- 1.0
Grant-type assistance
-0.1
-0.2
-0.2
- 0.2
Current account balance
5.0
1.4
-O.2
3.0
- 5.0-
- 7.9
-11.1
Assuming real import growth of 20% annually in 1976-80:
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Venezuela: Alternative Projection of Export Earnings 1
1974
J.9-i5
1976
1977
E3tports f.o.b.
10.7
8.9
9.5
9.8
10.8
11.5
12.4
0il.
10.3
8.4
9.0
9.3
9.0
8.9
8.9
Non-oil
0.4
0.5
0.5
0.5
l:8
2.-6
--3.5
Million US $
1. Ecport earnings if crude output is mauitained at 2.4 million b/d through 1980.
OINHBEN, DIAL