Posted on 05/31/2002 2:58:49 AM PDT by Cincinatus' Wife
CARACAS - With political uncertainty plunging the economy into recession, the Venezuelan government on Thursday said it plans to raise taxes and seek loans to plug a gaping $8 billion budget deficit.
''We have a difficult situation that is very affected by the political situation,'' Finance Minister Tobías Nóbrega said. ``Obviously, this year we are not going to grow.''
The Central Bank of Venezuela announced this week that the economy fell by 4.2 percent in the first quarter, with the crucial oil sector plunging 7.6 percent in line with a decrease in export volume caused by OPEC's production quota cutback in January.
SHRINKING SECTORS
The non-oil sector shrank by 2.6 percent, with construction, commerce and manufacturing the most walloped sectors as political turmoil is drying up investment flows.
''The panorama does not look good,'' said Orlando Ochoa, economics professor at the Institute of Higher Administration Studies in Caracas. ``There's no political stability to establish growth.''
On April 11, a civilian-military coup overthrew President Hugo Chávez, who was reinstated two days later by the armed forces.
But support for Chávez remains precarious with the opposition attempting to oust him through constitutional means, and a wave of restlessness rippling through military ranks.
The sour economy will make Chávez's grip on power even more tenuous, analysts said, as effects will pummel the poor and working classes who form most of his support.
Inflation is expected to soar to over 30 percent this year from 10 percent in 2001, and unemployment has already edged up to 14.5 percent, from 12.2 percent at the end of 2001.
The Treasury is increasingly in arrears with its payments, causing vociferous complaints from local governments and state-run universities, whose unpaid professors have held angry street demonstrations.
On the back of record high oil prices and heavy lending from domestic banks, Chávez has boosted public spending by about 40 percent since he took office three years ago to payfor social programs and government expansion.
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.
CONCESSIONS PROGRAM
The government also plans to start ''an aggressive concessions program'' by offering private investors contracts to run public infrastructure such as highways, airports, sea ports and power stations, Nóbrega said.
Analysts said the steps seem sound, but if the political situation is not stabilized soon, the economy will continue in free fall.
''The measures go in the right direction,'' said Alejandro Grisanti, chief economist at Santander Investment in Caracas.
``But there's a huge political uncertainty right now, and it remains unknown if the National Assembly will approve this.''
Opposition legislators are already hinting that they will balk at any financial plan proposed by the government as they point to $4 billion in extra oil revenue that was supposed to be deposited in a windfall savings account earlier this year, but has apparently been spent without authorization.
One of the major disagreements centered on the Ministry's insistence on adhering to OPEC production cuts, but forcing PDVSA to continue producing surplus oil that has now filled every available storage facility. Although PDVSA cannot sell the oil, the catch is that it still must pay royalties for producing it to the central government, Lameda revealed after his departure.
"I started warehousing" when prices were $26 per barrel, he told El Universal newspaper. "They're now $16. The barrels are worth less every day. I told the minister that I have to go out and ask for $500 million in loans while I have $300 million in the warehouse." ***
.75 percent tax on bank transactions will be raised to 1 percent
individual income tax rate will be increased
tax on liquor and tobacco products will also be increased
yup, that's the ticket, raise every tax in sight
good way to find out what a 100% underground barter economy looks like
six months from now, the n.s.a. will have this conversation on tape -
"unca fidel, i raise all of dez taxes, jez like you tol me, and now my treasury big boss-man he tell me der iz no revenues for the stealing, wha should i do now?"
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