Venezuela's economy shrank 5.8 percent in the first quarter from the same period a year earlier, the Central Bank said Tuesday in a report that revealed a deepening recession for the OPEC member.

The economy was pulled down in the first three months by a 5 percent decline in the key oil sector, a 6 percent decrease in the private sector and a whopping 27.9 percent fall in private investment, the bank said. The further drop came after a 3.3 percent contraction for all of 2009.

The economic downturn coincides with 30 percent inflation that has become a major challenge for President Hugo Chavez's socialist government. Venezuela has had the highest inflation in Latin America for five years despite government price controls on many foods and other basics.

Venezuela has not seen such tough times since 2003, when the economy contracted 26.7 percent in the first quarter in the aftermath of a failed coup attempt against Chavez and an opposition-led strike by oil industry workers.

The 5 percent decline in the oil sector in the first quarter was a major blow, since Venezuela's economy is highly reliant on oil sales — accounting for 94 percent of the country's export earnings.

The Central Bank attributed the first-quarter results to a range of factors, including a temporary restriction in the amount of dollars allocated by the government for imports, less consumer demand and investment, and a severe drought that forced electricity rationing because Venezuela relies largely on a single hydroelectric dam.

Non-oil sectors that fell included transport (15.9 percent), retail (11.6 percent), manufacturing (9.9 percent) and construction (7.8 percent).

Imports in the first quarter fell 39.7 percent, the Central Bank said. That appeared to be partly due to the temporary reduction in dollars available to importers, as acknowledged by government officials. The state currency agency helps administer Venezuela's currency exchange controls and provides dollars at the official exchange rate for approved imports.

Chavez's government devalued the currency, the bolivar, earlier this year, saying it should help boost domestic production and help the economy.

Jose Manuel Puente, a professor at the Institute of Higher Administration Studies, said inconsistent economic policy, an environment of "hyper-regulation" and systematic threats of expropriation and nationalization contributed to the contraction of the economy.

Puente told The Associated Press that the government's decision to devalue the bolivar also had a negative impact.

The government has set a goal of economic growth between 0.5 percent and 1 percent this year, but analysts are predicting the economy will shrink more than 2 percent by the year's end.



