12/12/08

Venezuelan government delays economic adjustment

por Larry Correo electrónico  276 palabras

It is typical Venezuelan behavior to delay everything until the last moment. Those at the head of our government are no different (why should they be?) and are delaying the adjustments the Venezuelan economy urgently needs until who knows when, perhaps until after it's too late to do anything.

The National Assembly —with the token opposition of former chavecista party PODEMOS— is expected to approve the 2009 central government budget, with expenditures rising to 167.4 billion Bolívares Fuertes (BsF), which is equivalent to nearly 34.2 billion dollars at the parallel exchange rate.

The problem is that the assumptions on which this budget is based are highly dubious: $60 per barrel of PDVSA's crude oil (currently at $35), an inflation rate of only 15% (this year's NCPI is coming around 30%) and 6% real GDP growth (this year's GDP growth is around 4-5%).

Of all these assumptions, perhaps the hardest to predict is the price of oil, Venezuela's main export commodity, source of nearly 90% of foreign currency and more than half of the government's revenue. I don't expect the price of oil to stay this low for much longer, certainly not during all of 2009. The incredible amounts of monetary inflation being created on global scale by central banks will push prices higher, eventually.

The problem for Venezuela's government is that eventually may be too late for them. The Chávez' administration has increased and plans to continue increasing public spending, through what they call “misiones” (missions), social programs intended to hep the poor, but whose only durable result is creating more dependency on public handouts.

The more the adjustments are delayed, the worst it will be when the "day of reckoning" arrives for Venezuelans.

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15.12.08 @ 06:22:24 -0430 VET
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