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Venezuela's debt hell...

By Francisco Toro

While Hugo Chavez talks a beautiful left-wing game, his policies have pushed Venezuela into a massive and unnecessary debt crisis. The government's ongoing money problems make it impossible to fund the social agenda Chavez never shuts up about, and have triggered a socially disastrous spike in inflation. What's worse, the government was warned again and again that this would happen, but simply dismissed critics. Bushwhackers would do well to note the parallels here, in terms of deafness to criticism and fiscal recklessness.

At some point, you have to step back from the rhetoric and say, "ok, yes, but what's the government actually doing, in terms of policy, and what impact are those policies having on people?" Words are nice, but sometimes you have to look at the numbers.

It's little wonder revolutionaries seldom stop to do so: the answers are not kind to them.

Last October, Descifrado posted this fascinating, bone-chilling gloss on Central Bank economist Jose Guerra's projections for public finances in 2004.

Guerra says that if the government borrows as much money as it has said it wants to borrow from the internal (i.e. bolivar denominated) credit markets in 2004, its total domestic debt would rise to 36.1 trillion bolivars - a fifteen-fold increase on the Bs.2.3 trillion domestic debt Chavez inherited when he reached power.

Even in terms of dollars, the growth of the domestic debt is staggering: by the end of this year it could total $16.1 billion (figuring the bolivar at the officially projected Bs.1950:$.) That's four times as much as the $4 billion debt Chavez inherited in 1999. The domestic debt, if things continue to go this way, will be worth 20% of GDP: a fifth of the value of the economy, by the end of 2004.

But that's not the worst of it.

The worst of it is that most of this mountain of new debt has come in the form of short term treassury bills, at very high interest rates - often 25-30% a year. As Venezuelan banks became more and more exposed to the government, they became less and less willing to buy long term DPN bonds: they needed their money back in 3 or 6 months, not 3 or 4 years.

As anyone who's gone a bit overboard with credit cards knows, high-interest short-term borrowing quickly snowballs out of countrol. Compound interest is a merciless foe. And the very high interests the government has been paying for these short term loans have sent the domestic debt spiraling out of control. More...

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