Jump to content
Washington DC Message Boards

Chavez Talks Austerity As Oil Boom Softens


Recommended Posts

By 2013 the latest "And that Includes Bad weather, and other natural disasters" we better have KICKED our dependency of Venezuelan oil.


Because NOT? He "Chavez" WILL KICK IT for us.






President Hugo Chavez has signaled that Venezuela's heady days of easy oil wealth are coming to an end, but many believe his tendency to spend will stay intact.


The president and his closest officers have insisted that "austerity" will be practiced in the 2009 budget to be released this week, as oil prices have fallen far below the level needed to sustain the state's fiscal purse.


Prices for Venezuela's crude fell to $81.78 a barrel last week, far below the all-time high above $126 that it hit in July. The reversal is so sharp, analysts say, that there will need to be cutbacks in spending - which had been rising at a pace in line with prices - to avoid a producing a fiscal deficit.


"I hope to see some moderation," said Tamara Herrera an economist with consulting firm Sintesis Financiera, referring to next year's government outlays. "But social spending will still remain a priority," for Chavez.


Mindful of upcoming municipal and state elections in November, Planning Minister Haiman El-Troudi has made it clear that less spending does not mean cutting social programs. During his years in office Chavez has spent billions of dollars in social initiatives popular with the poor who remain his loyal supporters.


Still, observers do expect some areas to face more constraint. Initially, financial and energy aid to allied nations in the Caribbean and Central America could be constrained, as well as spending on military equipment.


Since Venezuela's price per barrel fell below $100, Caribbean countries involved in the PetroCaribe energy accord have seen a generous credit program reduced to 40% of the total bill, down from 50%. PetroCaribe gives members the chance to pay a portion of their energy bill over 25 years at 1% interest. In some cases countries can also pay with products and services, a controversial issue among Venezuelans.


Similarly, Chavez has purchased $4.4 billion of Russian military equipment since 2005, that includes Kalashnikov rifles and Sukhoi Su-30 fighter jets. Last month, however, Chavez acquired a $1 billion Russian loan to buy more military equipment, the first time the president has sought financing for such purchases.


Chavez has shown little willingness to cut back on spending in the past. Even in lean times early in his presidential mandate, he pushed the fiscal envelope, often announcing spending plans and wage hikes before his finance ministry had found ways to finance them.


So now, after five years of record oil revenues, many believe the idea of fiscal prudence won't sit well with the Venezuelan president. Chavez may call for another constitutional reform referendum next year, some say, and this will require more money.


Already the president's spending ahead of November elections has broken all estimates and pushed inflation to an annualized 36% year-on-year as of September.


What's more, many analysts believe the downward tendency that began when oil prices first dropped from record levels over the summer will continue. Venezuela and other members of the Organization of Petroleum Exporting Countries have already called for a November extraordinary OPEC meeting to discuss the issue. Venezuela is expected to push for an output cut to stem the decline in prices.


Caracas-based economic consulting firm Ecoanalitica is forecasting that the Venezuelan government will push spending to 29% of gross domestic product next year with a deficit of 0.1% of GDP. But that prediction optimistically assumes an oil price of $96.5 per barrel for Venezuelan crude providing 2.4% of GDP in financing needs.


At $85 per barrel, Econanalitica estimates, the government deficit would rise to 2.3% of GDP next year. And in the extreme case of $50 a barrel, its fiscal gap would represent 8.9% of GDP.


The parameters of Chavez's 2009 budget are still unknown, but few people expect an alteration from the nominal growth trend that successive budgets have shown. The past trend doesn't mean much, however, as prior results have frequently differed greatly from actual results. Typically, official budget numbers understate expected oil revenues and state spending.


By some estimates, Venezuela's state outlays will end this year at $86 billion, 34.6% higher than the $63.9 billion programmed in the 2008 spending plan. Economists expect the same divergence from the budget in the coming year.

Link to comment
Share on other sites

Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Create New...