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Venezuela's oil bonanza feeds boom in spending, credit

Venezuela's oil bonanza feeds boom in spending, credit

Venezuelans are increasingly pulling out their credit cards as an economy flush with soaring oil profits experiences a consumption boom.
Credit spending _ through credit cards and auto loans _ more than doubled in 2006 compared to the previous year, reaching some US$5.3 billion (euro4 billion) by the end of November, according to a study by the Venezuelan banking research company Softline.
That figure doesn't include December credit spending, but it's already 101 percent higher than the full-year total for 2005, showing that Venezuelans are choosing to spend rather than save, said Jose Grasso, an economist and the director of Softline.
The South American country is the world's fifth largest oil exporter, and growing spending by President Hugo Chavez's government amid high oil world oil prices has helped infuse the economy with cash.
On Wednesday, National Assembly Finance Commission president Rodrigo Cabezas said economic growth will top 10 percent this year.
"This is the highest rate in Latin America, and it reaffirms a significant path of healthy economic growth," Cabezas told reporters. "Next year we will grow for a fourth consecutive year."
But Grasso said the economy has some imbalances, noting that interest rates offered by banks average less than 7 percent while inflation stands at 14.9 percent, so saving money is often a losing proposition.
Instead, Venezuelan consumers are sinking their money into cars, computers, appliances and home improvements, Grasso said.
The Central Bank last year set a minimum interest rate for savings at 6.5 percent and a maximum rate for credit at 28 percent.
Former Central Bank manager Jose Guerra, who is critical of Chavez's government, noted that Venezuela's inflation rate is the highest in South America.
Guerra said inflation has been boosted by the glut of cash and by price increases for many imported goods because the bolivar currency has lost value in bond trading against the U.S. dollar.
Venezuela has strict controls on currency trading, effective since 2003. While the official exchange rate stands at 2,150 bolivars per dollar, the rate in black-market trading and in bond transactions is at about 3,300 bolivars to the dollar, which has contributed to higher prices for food imports and other basic goods.