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The collapse of oil production will destabilize the country's economy

November 15, 2018 – 11:26

The prolonged decline in oil activity has become the most critical variable threatening to destabilize further economy Venezuela, warns the National Academy of Economics in its report for the third quarter of 2018.

They point out in the document that if last August's production is compared with 1.23 million barrels per day according to the secondary sources of the Organization of Petroleum Exporting – an average of 2017, the oil is reduced to 587,000 barrels per day, which partly explains the collapse of the entire economy, as these exports contribute to 96% of the country's income.

They point out that the reduction in abstraction has hindered the favorable impact of the rebound in international oil prices for the country. At the end of August, Venezuela's crude price was $ 68.86 a barrel, nearly $ 24 more than last year.

The reduction in extraction is evidenced by the reduction in the number of active drilling installations, an indicator of future production rate. A Baker & Ges report in May shows that activity dropped to 27 exercises averaging 49 in 2017.

The Academy's analysis notes that "at the end of the third quarter of this year the contraction of the Venezuelan economy seems to continue to accumulate 19 consecutive quarters of the fall in GDP." He states that, although there are no official figures, the National Assembly published on September 12 the latest forecasts for the development of an economic activity index shrinking 25% in the first quarter of 2018.

The decline in GDP, according to the Academy, closes stores due to the sharp drop in demand and purchasing power of wages and the reduction of the manufacturing sector due to the decrease in market orders and the lack of inputs and raw materials of imported origin.

"At the pace of the productive collapse of the Venezuelan economy, ECLAC's and IMF's conservative estimates of between 8.5% and 15% will be much lower, all showing a worsening before the serious situation of companies due to the lack of inputs, the collapse of basic services and the apparent collapse of the oil industry, "the Academy says.

It asserts that the non-oil export sector "continues to decline" due to the difficulties of exporting goods and services at a lower exchange rate than that to be applied to imports of raw materials and inputs.

He adds that capital inflows have been suspended due to the precarious economic situation of the Republic and Petróleos de Venezuela vis-à-vis external creditors due to the effects of the sanctions imposed on President Trump's Executive Order 13808 in August 2017.

"Venezuela remains on the international market in a complex situation of selective default, and in October, in addition to the PDVSA 2020 bond, it did not keep its commitments for debts represented in international bonds."

Debt arrears or a breach of Peteróleos de Venezuela and the Republic exceed $ 6.3 billion, but in the last quarter of 2018, $ 3.5 billion of maturities will accumulate, totaling default and delays up to $ 10 billion.

The National

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