The reserves are falling ... drawdowns seen behind decline

Caracas Daily Journal (Jeremy Morgan): Venezuela's official reserves are declining even as world oil prices appear to be coming off the top amid warnings that a global recession could drive them down further. While the reserves are still deemed to be more than sufficient to meet the country's needs short of an outright crisis, they are getting near the official estimate for "adequate reserves."

The reason behind the recent downward trend in the level of reserves does not appear to be a slowdown in world oil prices. Instead, the decline is attributed to drawdowns by the government – and more of that is on the way. Latest figures from the Venezuelan Central Bank (BCV) put the reserves at $32.004 billion as of February 6.

This marked a drop of $151 million from $32.155 billion a week before and of $884 million from a recent peak of $32.888 billion at the end of 2007. Plans were for the BCV to transfer a "first tranche" – for this year, that is -- of $800 million to the National Development fund (Fonden) during the course of this past week. Whether this actually happened isn't clear.

Either way, another tranche of $700 million is on the books for the first days of March. This would take the total doled out by the central bank to Fonden this year up to then to $1.5 billion. The question is whether oil cash will continue pouring into the reserves in sufficient quantities to ensure that these stay above the official floor, currently set at $31.9 billion. The gossip mill has it this may be about to be lowered.

According to some estimates, the reserves are declining at a rate of around $700 million a week. The reason, financial analysts say, is the government's need for ready cash, and a reform of the central banking law in 2005 makes it much easier for ministers to get their hands on the reserves.

Before the law was changed, the BCV wielded autonomous control over the reserves. The state oil corporation, Petróleos de Venezuela (PDVSA) was legally obliged to hand over its hard currency earnings from oil exports to the central bank, which put the money directly into reserves.

If the government then wanted to use some of the money from the reserves, it had to ask the central bank, which in those days had a tendency to say no. President Hugo Chávez got parliament to change the law, and now PDVSA hangs on to a handy portion of its revenues, under orders to spend them on social welfare programs. And the BCV no longer has the near-absolute control over the reserves it once had.

Fonden is a key recipient of money transferred from the reserves by the BCV since 2005, again at the behest of the president. In that year, Fonden received $6 billion from the BCV, followed by $4.275 billion in 2006, and a (so far) all-time high of $6.77 billion last year.