ANNUAL REPORT 2010

Summary of Economic Performance 2009 2010
Percentage variation of Gross
Domestic Product %
Total -3.3 -1.9
Oil Sector -7.2 -2.2
Non Oil Sector -2.0 -1.8
Exchange Rate. Bs/US$
End of Period 2.15 2.60-4.30
Average 2.15 2.60-4.30
Exchange Rate Variation %
End of Period - 20.9%-100%
Average - 20.9%-100%
Inflation
Cumulative Variation 25.1 27.2
Annualized Variation 22.1 24.0
Interest Rate - End of Period
Average Lending Rates (6 main Banks) 18.9 17.8
90 day Time Deposits (6 main Banks) 15.0 14.7
Source: Central Bank of Venezuela (BCV) and in-house calculations
with +US$ 19,153 million in 2009). The Balance of Services deficit (-US$ 8,857 million) and the
Capital and Financial Account deficits (-US$ 18,799 million), plus Errors and Omissions
(-US$ 3,639 million), led to a global Balance of Payments deficit of US$ 8,060 million
(-US$ 10,262 million in 2009). International reserves in the hands of the Central Bank closed
at US$ 29,500 million, 15.7% down compared to 2009.
Fiscal spending continued to drop while spending grew a nominal 13.7% which, after taking
inflation into account, means a real fall of 10.4% (-16.4% in 2009). Despite stronger oil prices,
ordinary income grew by only 7.1%, below the rate of spending, making the financial deficit
Bs 50,410 million, 41.6% more than the previous year.
Money supply grew 25.3% (21.2% in 2009) which, after taking inflation into account, means a
real reduction of 1.6% (-4.5% in 2009). This new demonetization was, on the one hand, the
result of the restrictive effect of the Venezuelan Central Bank’s (BCV) open market operations,
despite the reduction of the marginal reserve ratio from 23% to 17%, the fall in real primary
spending and the slowdown in bank lending, or credit crunch.
The monetary policy had a slightly contractionary net effect , in the order of Bs 1,494 million
versus the expansionary net effect of Open Market Operations, Bs 15,098 million in 2009,
leading to an increase in the accumulated stock of securities issued by the BCV of 9.6% which
is 3.8% of money in the hands of the public (M2).
The lending rates of the commercial and full-service banks continued to drop against the
23.2% average in 2008, and in 2010 they were down again 253 basis points (18.2%), similar to
the 20.7% reduction of 2009. Deposit rates for savings and term deposit averaged 12.6% and
14.1% respectively, which is 90 and 130 basis points less that the return on these financial
instruments in 2009. Real interest rates turned negative again, for the ninth year running in
the case of deposit rates and for the fifth in the case of lending rates. The real lending rate
averaged -6.9% in 2010 (-5% in 2009) and -9.7% for the real deposit rate (-8.6% in 2009).
Mercantil Servicios Financieros
31