Posted on 06/10/2002 11:53:13 AM PDT by Cincinatus' Wife
As Economy Swoons, Instability Fears Remain; Steering Toward Crisis?
CARACAS, Venezuela - President Hugo Chavez's government is driving Venezuela toward economic crisis by year's end, economists and Wall Street analysts warn.
"In the next six months, there will be a traumatic crisis," says Francisco Rodriguez, head of the oil-rich nation's congressional budget office. Venezuela, says the Harvard-trained economist, is suffering from a variety of ills: inflation, unemployment, growing poverty, a looming budget deficit, capital flight, high interest rates, a weakening currency and, on top of it all, a shrinking economy.
But the biggest problem, Mr. Rodriguez suggests, may lie with the leftist president himself. "A lot of investors are worried about Chavez," he says. "There are deep worries about the security of property rights in Venezuela and that things will get politically more difficult.
The specter of political instability has hovered over the Venezuelan economy since January, beginning with a series of mass demonstrations, strikes and, finally, an unsuccessful military coup that ousted Mr. Chavez for 48 hours, before he was brought back by loyal troops. Since then, the country has been in a fiscal swoon, despite rising prices for oil, which accounts for 80% of exports and generates about half of government revenues.
Venezuela's gross domestic product, the total value of its goods and services, contracted by 4.2% in the first quarter from a year earlier; that compares with growth of 2.7% for all of 2001. Economists predict that the GDP contraction for the second quarter will be more precipitous.
Unemployment in March rose to 15.1%, up from 13.7 a year earlier, and about half the country's workers remain in the so-called informal sector, without steady jobs or benefits. The slow and now negative growth, combined with quickening inflation, is adding to the misery of Mr. Chavez's mainly poor political constituency. According to the study just released by Caracas's Andres Bello Catholic University, about two million Venezuelans fell below the poverty line between 1999, when Mr. Chavez took office, and 2001. The Study defined poverty as sufficient family income to purchase a "basket" of basic goods and services, such as food and transportation.
The widening gap between Mr. Chavez's populist rhetoric and the economy's performance could add to the president's political woes, says Luis Oganes, and Andean-region analyst for J.P. Morgan Securities Inc.
The Chavez government has tried to counter the deteriorating purchasing power of the poor with a boost in public spending. The Central Bank reports outlays up 11% for the first two months of the year. Revenues, however, fell by 19% during the same period. Because of that trend, the Chavez administration now faces a projected year-end deficit of about $9 billion, or 9% of gross domestic product. Plugging that hole is a tremendous challenge for Mr. Chavez's new economic team, Finance Minister Tobias Nobrega and Planning Minister Felipe Perez. The two relatively orthodox economists have come up with a plan to balance the budget through a series of spending cuts, modest tax increases and borrowing.
They are also raiding a special "rainy day" account that is supposed to set aside oil revenues beyond a prescribed level to compensate for future drops in the price of crude.
Planning Minister Perez says the funding strategy is the first step in the so-called national consensus plan designed to create long-term economic growth, on a par with some of the leading economies of Southeast Asia. Critics counter that the proposal suffers from significant flaws, the biggest being the Chavez administration's assumption that it can raise some $3.5 billion in loans.
Venezuelan banks, which already keep about 25% of their portfolios in government bonds, are reluctant to increase their exposure. They don't want to be put in the same dangerous position as Argentine banks, which were hit hard by government debt defaults this year. And international lenders, including multilateral agencies, are even more reluctant to bail out Venezuela without the government's committing itself to major reforms, analysts say-although the 16-nation Andean Development Corporation said Friday it is considering a $100 million guarantee that could allow Venezuela to issue international bonds valued at $250 million to $400 million.
The government's best hope to raise the money to cover at least part of its deficit is by a steady devaluation of the national currency, the bolivar, which has dropped in value about 30% so far this year. Because of the devaluation, the government can now reap more bolivars from every U.S. dollar it earns selling oil. But the Bolivar bonanza has a drawback, economists warn. It fuels inflation and eats into family purchasing power. Inflation is at 18% for the first five months of the year, compared with 12.7% for all of 2001.
Chavez Faces $2.3 Billion Scandal*** The Central Bank of Venezuela (BCV) said Wednesday that it never received $2.3 billion from the government destined for a rainy day fund, plunging the administration of President Hugo Chávez into a major misappropriation scandal…………Influential afternoon newspaper Tal Cual charged Wednesday that the government had incurred into "a mega corruption" and said Chávez owed the nation an explanation and to reveal the true destiny of the money. "Without any doubt," said Tal Cual," it (the government) used part of the money to cover ordinary government expenditures, but a fair amount was used to finance the expenses and trips to Cuba of the Bolivarian Circles," the government's highly criticized militia.***
Venezuela: Halt in Oil to Cuba May Ease Pressure on Chavez***Cuba owes PDVSA nearly $128 million at a time when cash flow is getting very tight at the firm due to a combination of lower international oil prices, failure by the Chavez government to pay its energy-related debts to the company and increasing doubts about the availability of more than $4 billion in PDVSA cash that is supposed to be on deposit at the macroeconomic stabilization fund (FIEM).
PDVSA deposited the cash in the FIEM, which was created before Chavez was elected in December 1998, for the purpose of keeping surplus cash out of the economy so as not to trigger higher interest rates and inflation. Rodriguez said May 27 that the funds would be used for oil and gas investments, not to underwrite the government's current spending needs.
However, with the Chavez regime facing a cash flow shortfall estimated at nearly $11 billion -- due to its rapidly pending liabilities to state governments, workers and foreign and domestic creditors -- it's likely that PDVSA's funds are no longer in the FIEM. In fact, in order for PDVSA to withdraw the $4 billion, Venezuela's Central Bank likely would have to draw down its international reserves by an identical amount.
Following a first quarter 2002 GDP contraction of 4.2 percent and a $3.7 billion balance of payments deficit, the Central Bank can't transfer $4 billion of its declining foreign exchange reserves to PDVSA without accelerating the currency's devaluation and raising interest rates even higher.***
Venezuela to increase taxes, seek new loans - Budget shows $8-billion deficit***But with the recent drop in oil exports and a national financial system overloaded with government bonds, his administration has run up a fiscal deficit this year estimated at 8.8 percent of gross domestic product.
To breech the gap, the government announced an emergency fiscal program that will combine higher tax levies, loans, and spending cuts.
Officials plan to shave 10 to 12 percent from public spending and seek $3.5 billion in foreign financing, a move that Chávez had vowed since his 1998 election campaign to never make.
Minister Nóbrega said he expects to raise about $1 billion from multilateral institutions such as the World Bank and Interamerican Development Bank, and the rest from private banks.
Venezuelans will also have to dig deeper into their pockets to pay for tax hikes. The 14.5 percent sales tax will be boosted to 15.5 percent and the array of products exempted from the tax reduced.
A 0.75 percent tax on bank transactions will be raised to 1 percent, while the individual income tax rate will be increased and deductions decreased.
The tax on liquor and tobacco products will also be increased slightly, as will efforts to combat income tax and customs duties evasion.***
Jimmy Carter to mediate post-coup Venezuela talks *** CARACAS, Venezuela -- Former President Carter accepted Venezuela's invitation to mediate talks between the government and opposition, which aim to restore stability following a failed coup, Venezuela's vice president said Sunday. "Ex-President Jimmy Carter told me that he has instructed his office to touch base with Venezuela and organize his visit," Jose Vicente Rangel told state news agency Venpres. Rangel said that a delegation from the Georgia-based Carter Center would visit Venezuela in two weeks. He did not say when Carter would come. Venezuela invited Carter last week, hoping to salvage flailing reconciliation talks with opposition leaders.***
Actually, that's the thing about Chavez himself. If he weren't so dangerous, he'd be funny. People who refer to themselves in the third person always are.
I don't feel like contributing today. ~~~ Wait until you see "Unable to locate server"
I don't have money. ~~~ Help with the fundraiser. Bump the threads, ping your FRiends.
There's plenty of time to donate. ~~~ Bill collectors don't see it that way.
I don't know where to contribute. ~~~ Credit card, mail: FreeRepublic, LLC, PO BOX 9771, FRESNO, CA 93794 , Paypal: JimRob@psnw.com
I've got too many other things to do first. ~~~ Don't we all?
I can't contribute much, what's five dollars. ~~~ If everyone contributed one dollar a month, we'd never have a fundraiser again.
The dog ate my credit card. ~~~ Shoot the dog.
Just let me finish freeping. ~~~ BWAHAHAHAHAHAHAHAHA!
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Pretty much says it all. You could say the same thing about almost every tin-pot dictator. Arafat, Gadafi, that twit in Zimbabwe, none of them live in the real world. Unfortunately they have real weapons wielded by real "true believers" to backup their loony causes.
a.cricket
Despite his anti-capitalist rhetoric, Chavez is hoping to raise money from foreign and private investors by partially privatizing the telecommunications and energy industries. So far investors have been distrustful of Chavez' contradictory policies, and incoming investment has slowed, with foreign investors reluctant to invest even in oil ventures, let alone non-export industries.
With state oil revenues generating a windfall of government funds, Chavez is expanding government spending at an even faster pace. Chavez recently announced plans to spend additional billions this year to inaugurate a new stage of "economic revolution." Though details are lacking, given Chavez' background, his economic revolution is likely to entail confiscation and redistribution of wealth, and an increase in government interference in the economy.
Even with $30 oil, Chavez is spending beyond the government's means, given that government expenditures are expected to reach 20% of GDP. This has led Chavez to raid $2 billion from the central bank, crushing its façade of independence. To further compound the problem, the central bank's currency policy is the same as was once pursued by Indonesia and Thailand: a "controlled" devaluation, with a weaker currency each month, devaluing 9.9% in 1999, and over 6% so far in 2000. The combination of government spending and devaluation has resulted in inflation of over 15%.***
August 2001 - Rising capital flight worries Venezuela's Chavez-***CARACAS (Reuters) - Venezuelan President Hugo Chavez said he was ``worried'' by rising capital flight from his South American nation and warned unnamed ``capitalists'' he said were trying to derail his government: ``We are watching you.''***
August 2001 - Venezuela Orders US Offices Vacated***Venezuela has ordered the U.S. military mission to vacate offices in the main military headquarters in Caracas but denied the move seeks to loosen military ties with the United States. U.S. Embassy sources said the move came as a surprise. In a statement, the embassy said ``we regret this decision as it will make it difficult to carry on our long-standing relationship with the Venezuelan government's military.'' The action came on the eve of President Fidel Castro's two-day visit to southwestern Venezuela. The United States is the biggest importer of Venezuelan oil, and the two countries cooperate closely on counter-narcotics efforts. But President Hugo Chavez vocally challenges what he describes as U.S. political and economy dominance abroad.***
November 2001 - Hugo Chavez Tightens Grip on Venezuela's Oil*** Now, the government wants to create a steadier revenue flow by imposing the world's highest royalty rates on companies exploring and exploiting Venezuela's state-owned oil fields. The Hydrocarbons Law raises royalty rates from 16.7 percent to 30 percent. Giusti warned the new rates will drive investors to other oil producing countries, where rates do not exceed 20 percent and the average rate is 7.1 percent. Among Venezuela's fellow OPEC members, the average is 14.7 percent.
Critics were unappeased by a compromise allowing payments as low as 20 percent for the most high-risk projects, such as heavy crude oil fields in the environmentally fragile Orinoco River Delta. Allowing for rates of 20 percent ``can only be considered a gesture. This doesn't change the law's central objective, which is to impose absolute state control over the oil industry,'' said economist Orlando Ochoa in an editorial published last week in Caracas daily El Universal.
The Hydrocarbons Law is among the most contentious of 49 laws that Chavez passed last month under special powers that allowed him to bypass Congress. Several business leaders and opposition legislators have threatened to ask the Supreme Court to strike down all 49 laws, arguing that Chavez passed them without consulting the private sector. Business leader have also called a Dec. 10 strike to protest the laws. [End Excerpt]
March 2002 - Bush to Be Tough on U.S. Aid During LatAm Trip***During his talks with world leaders at the conference, Bush will promote his initiative to help poor nations that respect human rights, root out corruption, open their markets, and have education and health care systems. "I'm going to be tough about it," Bush told a group of regional reporters Tuesday in a preview of his trip. "I'm not interested in funding corruption."***
A good litmus test to determine whether or not a country is a Turd World nation is to look into how much respect and laws they have regarding property rights at all levels...if there's no property rights and inflation, you've got a Turd World Nation. Eat that, Jesse Jackson...
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