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Report 2011: Moody´s says Venezuela´s economic situation is weak.

Moody´s credit rating agency severely jugded Venezuela economic perspectives during 2011 Photo Credit Maria Toutoudaki Getty Images

Moody’s Investors Service says that during 2011, Venezuela´s domestic currency, its foreign currency government bond ratings, and unstable outlook reflect very weak political and economic institutions marked by an absence of checks and balances on executive authority, as well as a highly pro-cyclical fiscal policy (more income, more spending) evidenced by a rapid increase in spending and corresponding growth in debt at a time of historically high oil prices. However this situation can deteriorate due to the crash of the crude oil prices during the first semester of 2012.

The Moody’s yearly report also highlights Venezuela’s “lack of transparency in the government’s accounts coupled with significant extra-budgetary spending and borrowing; heavy dependence of both the economy as a whole and government finances in particular on the oil sector; and a consequent vulnerability to a drop in oil prices.”

In the report,  Moody’s says the country has experienced stagnant oil production and declining non-oil exports, and lower private investment levels. This is the result of the high degree of state intervention in the economy together with significant macroeconomic imbalances and economic distortions, including “runaway inflation and an increasingly overvalued currency.”

According to Moody’s, Venezuela is now vulnerable to negative external economic shocks, like the one Europe is experiencing right now.  This vulnerability is due to a sharp decline in foreign exchange reserves together with rising external debt; and significant contingent liabilities related to claims stemming from the government’s many nationalizations.