Last week, the price of the Venezuelan oil basket sent a loud and clear message: the accounts do not cash up; the budget is unviable, and the import bill is sort of heavy.
The budget for the upcoming year is based on an oil barrel of USD 60 and exports around 2.9 million bpd, which should yield a daily income of USD 174 million. However, the latest available official numbers show that the Venezuelan oil barrel stands at USD 39.59. Therefore, the administration of President Hugo Chávez will receive daily USD 114.8 million, i.e., USD 59.2 million below the estimates.
A hedge hopping of imports shows that the numbers are becoming complicated. According to the forecast of investment banks and specialized firms, in 2009 the import bill will go up to USD 50 billion and oil prices signal that the country will receive only USD 41.9 billion.
The picture gets more complicated if the following is added to the equation: if the economy is to grow, imports need to continue raising; the Republic should repay USD 766 million in foreign debt in 2009; pay around USD 5 billion for the nationalization of companies and also cover make provision for foreign currency for additional needs, such as trips, students, remittances and repatriation of dividends of foreign companies.
Everything points to an unavoidable adjustment of the official foreign exchange rate, either for restricted imports or devaluation, and also curtailed public expenditure. Analysts agree on saying that a higher exchange rate would speed up inflation as imports will be more expensive. In the meantime, the reduction of funds injected by the government to the economy would result in lower growth.
However, Hugo Chávez has launched an election campaign to grasp indefinite reelection. Therefore, the possibility that the government will take action to adjust the economy has been postponed until after the referendum.
Since the Executive Office has available around USD 20 billion in savings deposited in funds, such as the National Development Fund (Fonden), the adjustment can wait until the second quarter. Hugo Chávez recently said, "I would not like to spend 2009 in a protracted debate. It should be now (the call for the referendum). Today the offensive, the battle starts."
In the opinion of Abelardo Daza, guest lecturer at the Institute of Higher Administration Studies (IESA), "the adjustment will be delayed by using the Fonden monies and curtailing expenses in infrastructure. Projects such as the subways of Valencia and Maracaibo, the prairies freeway will be delayed. As savings will be depleted, in the absence of bouncing oil prices in the second half of 2009, the country will be more fragile and there will be no choice but orthodox adjustment."
Asdrúbal Oliveros, director of think-tank Ecoanalítica, agrees on saying that any steps to be taken to offset the economy will be left behind by the political agenda. But, he wondered, "there must be an implicit or covered adjustment with these oil prices."
"We would see Cadivi (the Venezuelan government's foreign exchange control board) restricting foreign currency for sectors regarded as non-priority sectors and (state-run oil holding Petróleos de Venezuela) Pdvsa exchanging dollars in the parallel market, which means factual devaluation," he added.
As far as José Guerra, the ex manager of economic research at the Central Bank of Venezuela (BCV) is concerned, "the use of Fonden for current expenditure violates the law, but also it will be inflationary, because, in the practice, the dollars taken from the Central Bank will be exchanged twice into Venezuelan bolivars, that is, the BCV will back public expenditure."
"The adjustment," he added, "will be through falling international reserves."
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