High social spending seen as a burden; BCV seems to be under strain

Caracas Daily Journal (Jeremy Morgan): While the official reserves are seen to be stable, there's concern that high spending on government social welfare programs could have an adverse effect on the outlook for the balance sheet at the Venezuelan Central Bank (BCV).

The problem centers on disbursements by the central bank to the National Development Fund (Fonden), which in turn uses the money to finance a flock of social programs and other projects. Critics claim the money becomes unaccountable once it's at Fonden, whereas the books at the BCV are subject to scrutiny.

José Guerra, a prominent economist and former director at the central bank, pointed to the certificates of deposit issued by the BCV, saying these had reached BsF 14 billion. He warned that the growing mounting of state debt paper could become a burden on the balance sheet at the central bank.

The BCV issues the certificates and other forms of state debt paper for two reasons. One is to soak up excess money supply, which is seen as a primary source of inflationary pressures. The other is to raise money so that it can disburse funds to Fonden and other state organizations without having to drain the reserves. Either way, the certificates will have to be repaid – and in the meantime, the BCV has to carry the cost of paying regular interest payments. Unofficial estimates suggest the bill for interest alone is piling up and, in turn, imposing further strain on the BCV.

In the meantime, spending on President Hugo Chávez' "missions" goes on rising. Moneys received reached BsF26.13 billion last year, compared with the equivalent of BsF21.76 billion in 2006. These social programs are financed by Fonden and the state oil corporation, Petróleos de Venezuela (PDVSA), which passes on what is deemed to be a surplus from oil export revenues.

PDVSA transferred BsF7.4 billion to the missions last year, marking an increase of 31.2 percent from BsF5.64 billion the year before. Not all of this was hard cash; some of the contribution was made in the form of food, which PDVSA now distributes to alleviate food shortages.