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Venezuelan budget running short on money?

By Daniel Duquenal

11/10/04 - The perennial quest for fresh cash in Venezuela. According to the official propaganda machine we are experiencing now in Venezuela an economic boom without precedent. Jobless rate is going down, price of oil keeps us flush in cash, exports are improving, growth is in the two digit numbers and what not!

Unfortunately numbers cannot be audited, PDVSA installations cannot be visited by third parties, real oil production is not known, growth is in double digits because recession was double digits, etc, etc...

Of course Chavez apologists tend to ignore all the facts and fix their attention only on the propaganda machine which seems everyday more effective. Unfortunately there are some recent facts to indicate clearly that the government tales are just that, tall tales. Let's see a short summary.

Last week the government announced that it will make permanent the provisional tax on financial transactions. In Venezuela for the last two years when you withdraw cash from the ATM, you pay 0.75 % in tax. To make sure that this tax will not affect Chavez electorate, that retention occurs only when your account balance is above a certain amount(1). This tax, a punitive one and a very detrimental one for the smooth functioning of the economy, was created when oil was in the 10 USD a barrel. But now we are in 42.5 USD (!!!!) and the government makes it permanent though at 0.5% and probably for people with larger assets and business in general. Go figure!

But it gets better. Yesterday in yet another shocking display of anger and thuggery, Chavez's Alo Presidente reserved us a couple of fiscal announcements.

The first one was the elimination of some investment exemptions in difficult oil fields. In a way it is OK as the price of oil now does not justify such exemptions, amen of the word of the Venezuelan government.

The second one was again a series of threats against the Central Bank who refuses to give up its "monkey" monies. These monies are "apparent income" due to devaluation of the currency. For reasons too complex to go into detail in this blog, this pseudo-income is paper income due only to financial plays and not due to any significant increase in domestic production or even efficiency. Injecting this money in public spending can only result in weakening further the Venezuelan currency and triggering yet more inflation. This of course does not stop the Chavez administration to put pressure against the Central Bank to put its greedy hands on that cash, amen of the Central Bank autonomy.

Meanwhile back at the ranch we read that public spending has increased by 53% in the last 7 months (!!!) We also learn as a bonus that poverty index places 60.1 % of people as poor. Among these poor, 28.1% are in extreme poverty, which means that 53.1 % of homes are poor or extremely poor. Amen of these numbers coming from the official statistics agency and thus not really verifiable.

Now, when I lived in the US I was considered a liberal for my positions on civil rights and the fact that I did like some of the social programs. Though I was on occasion at odds with my liberal friends when I stated that the government could only spend what it took in. I mention this to make it clear that I am not opposed to social programs provided that they are accountable and that some cost benefit results from them, even if society accepts that the cost for some might outweigh the benefits. But what we are seeing in Venezuela is ridiculous.

How can we explain such a fiscal voracity? How come the Venezuelan government appears so much strapped for cash with record high oil prices? What is in store for us when oil prices go down some, say to 30 USD, still more almost thrice what Chavez got when he reached office? Which are the answers: Corruption? Inefficiency? Electoral spending? Plain waste? All of the above?

PS: as a side bonus do not miss Gustavo Coronel article on the Trans Africa Forum organization and how this one like many US cheap leftists are trying to co-opt Venezuela in their own agenda.

(1) people like me avoid this tax by either cashing their pay checks and paying a lot of stuff in cash; or having part of their check deposited directly to their creditors thus avoiding once the 0.75% (credit cards are exempt of that transaction, for example).

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