Venezuela strike forces budget slashes

By Brian Ellsworth UPI Business Correspondent From the Business & Economics Desk Published 1/8/2003 6:28 PM

CARACAS, Venezuela, Jan. 8 (UPI) -- Venezuela's government could soon be facing a serious cash flow shortage after being crippled by over a month of an opposition-led strike.

While the $1.5 billion dollar decline in petroleum revenue has severely damaged the finances of the world's fifth-largest exporter, a steep decline in tax revenue threatens to worsen the government's fiscal crisis.

The government has already confirmed a 12 percent decrease in this year's expected tax revenues, which make up roughly half of government funding. Finance Minister Tobías Nóbrega indicated that the current budget projections for 2003 may have to be trimmed by as much as 10 percent.

"The government was only able to collect 17 percent of its expected revenue for the month of December," said David Moran an economics professor at Metropolitan University in Caracas. "If this continues until February, the government will be facing a serious cash flow problem."

Adding to the complications, strike leaders have called for "tributary disobedience" by opposition sympathizers, who have been instructed to avoid paying sales tax. On Tuesday, thousands of opposition demonstrators marched to the offices of the country's tax collection service, tearing up tax collection forms and demanding that the government not be paid another penny.

In some of the country's supermarkets shoppers refused to pay sales tax, which last year was raised from 14.5 percent to 16 percent, leading to confrontations with storeowners who refused to exonerate the payments.

Attorney General Isaías Rodríguez warned citizens to pay their taxes and said the government may detain strike leaders for inciting tax evasion.

Regional governments complained Tuesday that the central government has not made payments on time. One governor said he was considering calling a financial emergency, and that 350,000 regional government workers may not receive their paychecks next week.

The Finance Ministry hopes to refinance bonds held by private sector banks to postpone payments. But the banking sector is unlikely to cooperate, since bank leaders announced Wednesday that they were shutting down their offices, electronic banking services and automatic teller machines for 48 hours to show solidarity with the strike.

Opposition leaders called a national strike in early December to force President Hugo Chávez into resigning or calling early elections. The petroleum industry, the backbone of the country's economy, joined the strike by shutting down refineries, paralyzing crude oil production and anchoring petroleum tankers. Most expected the strike would after several weeks, but more than a month after it started, there is no end in sight.

The government claims to have complete control over the industry, though the U.S. Energy Information Administration calculates that Venezuela is only producing 600,000 barrels per day. Countries from Chile to Jamaica have reported fuel interruptions as a result of the strike.

In addition, the U.S. Energy Department allowed oil companies to defer delivery of crude to the country's strategic reserves. Venezuela usually produces 2.8 million barrels per day.

Economic indicators continued to spiral, as the exchange rate closed on Wednesday at Bs. 1646 per dollar -- 13 percent higher than the closing rate the day before. This will make bond payments more expensive, since the government recently dollarized some bonds as part of a debt swap in November meant to solve short-term liquidity problems.

In addition, Venezuela's annual inflation rate for 2002 reached a five-year high of 31.5 percent as international reserves continue to dwindle.

The petroleum strike has weakened the financial position of the state oil giant PDVSA, who's bonds ratings have slipped to BB. Petroleum experts say that PDVSA debt, now at roughly $7 billion, has doubled in the last four years because President Chávez has made PDVSA borrow to shore up government finances.

The opposition called a similar petroleum strike in April of 2002, when political violence led to Chavez' brief ouster. An interim government dissolved the country's legislature and supreme court, provoking outraged Chavez supporters and loyalist troops to return him to power two days later.