Published On: Thu, Dec 11th, 2014

Venezuela looks to tourism to shore up falling oil revenues

VenezuelaCARACAS, Venezuela -- With revenue from the world's largest reserves of crude oil plummeting along with the price of global oil, Venezuela is seeking to improve its image and promote its diverse natural attractions to make tourism a major source of revenue, tourism minister Andres Izarra said.

Venezuela's topography runs the gamut from tropical beaches and coral reefs to vast plains, from the Orinoco River delta in the east to the snow-covered Andes mountains in the west.

The goal is to increase tourism's current 4 percent contribution to the gross domestic product (GDP) to 9 percent by 2019, Izarra said during the 2014 Venezuelan International Tourism Fair last week.

The national strategic plan for the tourism industry calls for adding 60,000 hotel beds by 2019, enhancing the quality of tourism services and tripling the number of foreign visitors to two million a year.

However, along with political issues and public safety concerns, Venezuela has never been able to present an appealing image for international tourism like Mexico, Colombia, the Dominican Republic and Cuba have done.

Predictably, Izarra blamed the situation on the international media.

According to the World Bank, only 710,000 foreigners visited Venezuela in 2012, a number below the 904,000 visitors who travelled to the small Dutch Caribbean island of Aruba, and a far cry from the almost 23.5 million tourists visiting Mexico.

Among the factors hampering the development of Venezuela's tourism industry is the widespread suspension of flights to the country by international airlines as a result of non-payment of some US$4 billion in fares collected in local currency.

This situation has caused a drastic reduction in airlift and a steep increase in fares, now generally only payable in hard currency.

Meanwhile, Venezuela needs cash to compensate for lost revenues from declining oil prices, but there's no easy way to get it.

Days after OPEC decided not to accede to Venezuela's plea to cut oil production, President Nicolas Maduro announced several moves to raise money, including plans to slash 20 percent of "unproductive" spending and an attempt at "perfecting" the country's foreign exchange system.

"Clearly the government is trying to send signs to the market that they are working on necessary adjustments that the economy needs in order to honour international commitments and keep up with social policies, which are essential for political stability," said Diego Moya-Ocampos, a senior political risk analyst at IHS, an economic and political consultancy in London. "However, these policy adjustments are not enough."

Juan Pablo Fuentes, an economist at Moody’s Analytics, agreed: "The decrees that President Nicolás Maduro recently announced will do little to lift the economy or slow inflation.”

Barclays predicts that the economy will contract 6.2 percent and inflation will surpass 120 percent in 2015. However, the IMF projects Venezuela's economy to decline by a more modest 1 percent.

Last week, Venezuelan Finance Minister Rodolfo Marco went cap in hand to China in a search for loans. He's expected to visit Iran and Russia next.

However, China has already loaned tens of billions of dollars to Venezuela -- which Caracas repays in oil shipments in ever-increasing quantities as the price of oil declines.

But political instability in Venezuela could prompt China to cut back on what has been a critical source of revenue, analysts say.

Perhaps the most interesting move by the cash-strapped country -- and perhaps the greatest sign of its desperation -- is that the leftist leadership is in talks with capitalist Wall Street. Venezuela has been in discussions with US investment bank Goldman Sachs to sell at a deep discount the debt owed to it by the Dominican Republic and Jamaica, under the PetroCaribe alliance, an 18-country cooperative agreement through which Venezuela provides oil to Caribbean and Central American nations at low rates and deferred payment terms.

While no deal appears to have been struck yet, such an agreement would turn debt that both countries owe to Venezuela under PetroCaribe into bonds that would be sold to investors. Venezuela may sell PetroCaribe debt.

In the meantime, rather than correcting Venezuela’s woefully unbalanced official exchange rate and the bizarre multi-tiered foreign exchange system, Maduro appears to be trying to divert blame elsewhere.

In a recent interview he explained that the administration of US President Barack Obama is “trying to destabilize Venezuela.“ He also argued that Venezuela’s economy is on solid footing and directed his criticism towards the IMF, an organization that he blames for being “responsible for the hunger of the world… the theft of billions of dollars from our people… [and] massacres and murders.”

Maduro dismissed recent remarks made by the International Monetary Fund (IMF) chief Christine Lagarde, saying they show a lack of respect for the region.

During a visit to Chile last week, Lagarde said "The proliferation of trade groupings, such as MERCOSUR, ALBA, UNASUR and SICA, has created a ‘spaghetti bowl’ of regimes and preferences whose aggregate benefits are unclear."

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