VenAmCham: Venezuelan government plans to borrow abroad
<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 04, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita
VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: According to information published in official media, Finance Minister Tobias Nobrega is overseas negotiating for public credit to try to improve the condition of Venezuela's fiscal accounts.
The problems experienced in the early months of the year provoked a reduction of fiscal revenue equivalent to 5% of GDP. Today, unlike the first months of the year, the National Treasury is in better shape due to the recovery of oil production plus the spending of only 60% of budgeted outlays. The latter is due mainly to lengthy time lags in making transfers to the universities and the state and local governments.
However, the officials responsible for carrying out fiscal policy in Venezuela should act cautiously. It is necessary to recall that the foreign exchange restriction is choking private enterprise, resulting in a nominal reduction of non-oil tax collections in comparison with last year. On the other hand, there are strong pressures on the spending side, including a higher level of government purchases to import essential consumer goods, and debt service obligations that must be fulfilled in 2003.
As of the end of the first quarter the outstanding balance of internal public debt came to 13.3 trillion bolivares (not including Treasury Bills). This figure reflects a 6.9% nominal growth vs. the end of 2002. When Treasury Bills are included, the domestic public debt reaches 15.1 trillion bolivares, far higher than the 2.2 trillion figure in 1998.
Note that in spite of the exchange controls, the authorities have found it very difficult to make new short-term debt placements on the internal market through public offerings. The Treasury offered 2.4 trillion bolivares of such debt in the first quarter and could only place 39.7% of it (981.6 billion). The same is true of its attempt to place 560 billion bolivares of National Public Bonds (NPB); only 67.4% of that volume (377.6 billion) could actually be placed.
Will the country be in a position to increase its overseas debt in view of all these considerations? Clearly, any external debt placement would have a very high cost given Venezuela's country-risk rating, because the economic agents predict a deep contraction of the economy, high inflation, and rising unemployment, all of which will make it harder for the government to generate more fiscal revenue from internal sources. Moreover, it is facing strong pressure to increase spending, because debt service represents a high proportion of the total budget.
Finally, it is important to note that this external borrowing policy could be implemented under circumstances in which one of the chief sources of "stable" funding, the internal tax base (made up of private-sector taxpayers) is being strangled by the control policies.