The "shield" against the global financial crisis is thinning out

Lack of money is apparent and it seems that savings did not total USD 50 billion after all

The plunge of oil revenues will restrict the apportionment of US dollars among several economic sectors (File photo)

Economy
Embarked upon a campaign which would give him the trophy of indefinite reelection, President Hugo Chávez blatantly said that Venezuela was shielded against the global financial crisis. As a matter of fact, on January 13th, a defiant Chávez said, "as for public expenditure, with regard to social welfare programs in 2009, I tell you, even in the event of oil prices at zero, I will cross that bridge when I get to it."

On March 22nd, the Ministry of Finance added numbers to the president's speech and said that only in the National Development Fund (Fonden), a facility where the government keeps petrodollars to cover investment projects, the country had available a deposit of USD 57 billion.


However, there are multiple signals of scarcity. Only in the last two weeks, sectors such as the Venezuelan Chamber of Importers, Manufacturers and Suppliers of Dairy Products (Cavelácteos), the Packages Industry and the National Chamber of Trade of Car Parts have made it clear that for quite a few months they have not received any foreign currency to import inputs.

At the same time, the presidents of major Venezuelan universities noted that the lack of funding will make them stop research; state-run oil holding Petróleos de Venezuela (Pdvsa) reported on cutting costs and expenses by 64.7 percent; the Venezuelan Guayana's Corporation (CVG) has accounts payable to suppliers, and labor protests everywhere have not stopped.

Apparently, the shield referred to by President Chávez is quickly yielding to the losing shine of oil, a product which accounts for USD 94 out of USD 100 entering the country and half of the domestic income.

As a result of the falling demand of energy in major world economies, thus far this year the Venezuelan oil basket averages USD 43 a barrel. Based on this volume, the income this year is estimated at USD 32 billion versus USD 87 billion in 2008, that is, a 63-percent plunge.

While the collapse of oil prices has an impact, it should be noted that according to the official figures, the US dollars available in the government wallet are by no means similar to the amount claimed during the election campaign.

Much less
The Ministry of Finance reported that ending 2008, the sums of money available in Fonden which had not been yet allocated to selected projects, account for as little as USD 7 billion. This is a tiny amount compared with USD 50 billion uttered by the Ministry of Finance.

The balance audited by the Treasury Bank also cast light and noted that as of December 2008, Fonden, the Venezuelan Economic and Social Development Bank (Bandes), the National Treasury Office and the National Fund of Community Councils had lodged with the trust fund managed by the Treasury Bank around USD 12.5 billion in investments in foreign currency.

Out of this amount, about USD 8.7 billion have been invested in short-term securities, whereas USD 3.8 billion has been deposited in several structured notes.

Cut and debt
The measures taken by President Chávez's administration unveil troubles to settle the accounts this year; hence, they are focusing on shortened expenses and are taking some actions to thicken revenues.

Cadivi, the agency responsible for the apportionment of foreign currency at the official exchange rate among all the sectors of the economy, cut short by 28 percent the delivery of US dollars during the first two months of 2009. The government will expend USD 72 billion, that is, a 15-percent drop compared with USD 85 billion last year. Also, the VAT rate was upregulated by 3 percent.

Furthermore, the National Assembly (AN) passed a law to enable borrowing by the central government by selling inside the country notes for the amount of USD 17 billion.

Concomitantly, the Parliament left the door open to borrowing from autonomous institutes by means of supply of notes intended to expand resources.

As an additional step to add money to the public accounts, the Central Bank of Venezuela (BCV) transferred USD 12 billion of the international reserves early this year.

Swimming against the tide
Unlike the Venezuelan government, the rest of major economies in the hemisphere are applying a recipe which entails rising expenditure and lower taxes, in order to foster consumption and keep the engine of economy running.

The Venezuelan economy, under the impact of private investment at a stalemate and diving oil income, is slowing down at a fast pace. In the fourth quarter of 2008, the economic growth totaled 3.2 percent, with the 11.4-percent peak in 2006 being lagged behind.

Analysts think that as President Chávez's administration is running out of money, it cannot afford to increase the expenditure, lower taxes and inject enough foreign currency. The corollary then is that growth will increasingly cool off in 2009.