Cracks in the economy become more visible The 2008 decline in oil prices delivered a large blow to the fiscal and external accounts unveiling important economic vulnerabilities. The government’s unwillingness to adjust policy has made these vulnerabilities more glaring. The economy is in stagflation, VEF real exchange rate is at an historic strong, key reserve ratios are approaching multi-year lows, net debt levels are growing far faster than reported fiscal deficits, government dollar assets are declining, oil output continues to trend lower and domestic consumption higher and social tensions appear to be rising. Barring a large increase in oil revenues or a radical change in policy, we think deteriorating conditions are set to continue, raising risks
of growing economic turbulence ahead
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