Venezuela's 2005 Budget: Fantasy and fiscal irresponsibility
27.10.04 - Venezuelan budgets have traditionally been a mix of reality and fantasy - a tradition that was not broken with the change from the Fourth to the Fifth Republic. This year's budget is yet more convincing proof of just how creative Venezuelan finance ministers can be. The fiction is clearly evidenced in the explanatory statement of the 2005 Budget Law, which does not even specify variables such as volumes of oil exports and imports, or the expected exchange rate.
What is realistic is the projection of the current deficit estimated at Bs. 11.6 trillion, equivalent to 5% of GDP. This figure has to be inflated by the Bs.6.1 trillion in public bonds maturing in 2005, giving a total amount to be financed of Bs.17.7 trillion, equivalent to 7.6% of GDP.
The reality is that the Chavez administration spends more than it receives. In terms of the ordinary budget, the regime spends Bs.5 for every Bs.4 received in revenue. This reckless overspending is in the best Saudi style of President Carlos Andrés Pérez (CAP) in the 1970s. In a rerun of CAP’s first term, not only is the oil bonanza being squandered but an enormous deficit is being built up. President Chávez has taken this practice to surprising levels, now with the addition of the explosive ingredient of the demands of his populist plans, transformed into missions. The immense resources that the administration will need to indulge its voracious spending, will require very unorthodox measures: the Bs.2.9 trillion that the Central Bank looks set to hand over from supposed exchange gains; the continuation of exchange controls as a way of maintaining high levels of liquidity and forcing the banks to hold public debt bonds; and other equally demagogic sleight of hand that will do great harm to Venezuelans in the long run.
The 2005 budget is a combination of fantasy and reality mounted on a basis of fiscal irresponsibility.
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