After two years (2002-2003) of economic contraction, the efforts and sound policies applied by the Government achieved important positive outcomes in 2004. Today the country's economy presents strong and clear signs of recovery through indicators such as the capacity to pay its international financial obligations, the liquidity and solvency of its financial system, a substantial improvement in the perception of country risk, the elimination of unbalances in the fiscal accounts, a substantial growth of GDP, the fall in the rate of unemployment and the restraint of inflation.
Venezuelan bond issues in 2004 performed beyond all expectations in the international markets, as risks perceptions decrease and greater confidence in the country's future took hold. With the issue of US$1bn in FRNs due 2011 on April, Venezuela completed its foreign currency financing for 2004. In the domestic sector the Government paid down 83% of amortizations and the Ministry of Finance holds a balance of US$1.9 billion raised through refinancing and restructuring authorizations.
The country's international reserves have grown from 13,180 million dollars in January 2003 to $24.6 billion as of February 18th 2005. There has been a swift rebound in economic growth. GDP recovered significantly, experiencing an unprecedented increase of 17.5% in 2004. The forecasts for this year indicate that it should grow by 5 to 7%.
Inflation is under control. The annual variation decreased from 38.7% in February 2003 to 16.9% in February 2005. In February 2005 it registered the slowest increase in 17 years, a 0.2%, following a 1.9% rise in January. For 2005 we expect inflation to reach 15%, easing from 19.2% last year.
Interest rates have decreased more than half, from 34.1% in March 2003 to 15.2% on February 2005.
The exchange controls imposed at the height of the economic emergency in January 2003 have been gradually adjusted, allowing greater flexibility and the processing of most currency requests swiftly and automatically. In 2003 CADIVI authorized $5.1 billion and in 2004 it authorized $17 billion. The amount of dollars each person is allowed to use for credit card purchases was increased from $3,000 to $4,000 per year and is expected to increase gradually as conditions improve. This system has successfully been evolving towards a foreign exchange administration similar to those that are in place in Brazil and Chile. It has also allowed greater clarity in the business operations of Venezuelan enterprises, which has contributed to an increase in the collection of tax revenues and more transparency in business transactions.
All these positive economic factors have contributed to a decrease in Venezuela's country risk EMBI level from 1,474 points in January 2003 to 433.8 points on February 21st, 2005. According to the report presented by the United Nations Conference on Trade and Development (UNCTAD) last October, foreign direct investment in Venezuela increased 79% in 2003, reaching an amount of $2.5 billion.
The sustained recovery process advanced by the Government has been occurring independently, without the help of multilateral financial organizations, and it has been accompanied by ambitious and structural social programs directed towards the improvement of the education and health sectors as well as of labor conditions.
These developments are the results of persistent and sound economic policies pursued even in the face of adversity. The clear signs of recovery that have been outlined allow us to say that the difficulties experienced by Venezuela's economy in recent times have been successfully overcome thanks to the serious and responsible efforts of the Venezuelan Government.