[Pen-l] Venezuelan oil issues

["michael a. lebowitz" <mlebowit@xxxxxx>]

Doug asked:
Production volume aside, what's the impact of the halving of oil prices been on the Venezuelan budget?

    Oy! Things are tough with budget cuts. (Our institute, which comes under the Minister for Higher Education, is scrambling.) The original budget was set on the assumption of a $60 price (pretty conservative given that prices were $90 at the time); when prices tanked, they shifted to the basis of $40 and haven't since adjusted. Ministries have been cut back substantially (and were suffering before oil prices fell--- because of the restructuring of the state). My information is that the governors are suffering in particular now and are cutting back on employment for this reason (the irony being that with iron-clad  public sector employment protection-- from the days when the AD and Copei traded government-- the opposition folks are protected while recent contract hires, the Chavists, are out). So, lots of anecdotal stuff re job loss but the April figures showed 7.7% unemployment, the lowest in a long, long time. At this point, the best information in English can generally be found on Links or Green Left Weekly. Vzla, btw, could solve much of its budget problem pretty easily by devaluing. Here's an excerpt from a recent GLW of an interview conducted back in April when I was in Oz./michael

With the global economic crisis, Venezuela is relying on much-reduced oil income. What policies is the government implementing to tackle the crisis?

Nothing fundamental so far. Venezuela has a very nice cushion in the form of US$40 billion in international reserves. So in the face of reduced revenue, and oil is a very substantial part of their budget, 80% I think, state budgets have been cut and waste is being tackled.

What the government has done is take $12 billion out of reserves so it could be used for maintaining the pro-poor social programs.

That part is fine, but other measures are not entirely clear yet. The minimum wage has been raised by 20%, although this is still below inflation. Also the Value Added Tax, a regressive tax, has been increased.

There was some talk about raising gasoline prices, currently extremely cheap, as a way of increasing revenue, while simultaneously discouraging wasteful overuse of gasoline and ensuring that the burden falls on the wealthy hummer-drivers rather than the poor.

I think if gas prices increase, the government will definitely ensure a subsidy for all public transport to protect the poor.

Also, the government is hesitant on devaluation of the bolivar, which would solve a lot of problems because with every dollar in oil revenue, it would receive more bolivars. This could solve a lot of budgetary problems.

Ali Rodriguez, the finance minister, said they would not devalue the bolivar in order to solve budgetary problems. However, he said they would consider the question in terms of strategic economic issues. The over-valued bolivar (and there is no question that it's over-valued) means that it is very cheap to import goods and it is very difficult for local agriculture and local industries, including cooperatives, to compete with imports.

Devaluing would reduce imports and strengthen local manufacturing and local agriculture. Strategically, with the government's goal of ending reliance on the oil industry, this is very important. The government is hesitant to devalue, however, because the oligarchy, which has taken its money out of the country and holds it in dollars, would therefore be able to receive a wealth gift by transferring the cash back to bolivars.

We can see why all of the opposition newspapers are shouting ?Devalue!? Sure, because the rich oligarchs will benefit.

One of the things I have heard they may attempt to do is introduce a selective devaluation depending on what is being imported. For example, luxury cars. Why should buyers of luxury cars get a better rate? A selective removal of items from the current official bolivar rate would allow for a selective devaluation that wouldn?t give that wealth gift to those who hold dollars outside.

I think before long there will be new proposals for reforms. Right now, what they have done is definitely inadequate---  raising taxes and reducing government spending in an economic crisis does not reduce the crisis but increases it.

Further, the reduction in oil export revenue and what that means for the ability to import may compel the government to take more vigorous steps to increase agricultural production (which may involve recovery of latifundias (large landholdings), which could be used to produce for domestic needs.

-- 
Michael A. Lebowitz
Professor Emeritus
Economics Department
Simon Fraser University
Burnaby, B.C., Canada V5A 1S6

Director, Programme in 'Transformative Practice and Human Development'
Centro Internacional Miranda, P.H.
Residencias Anauco Suites, Parque Central, final Av. Bolivar
Caracas, Venezuela
fax: 0212 5768274/0212 5777231
www.centrointernacionalmiranda.gob.ve
mlebowit@xxxxxx

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