Venezuela's internal public bond swap continues...

<a href=www.vheadline.com>Venezuela's Electronic News Posted: Wednesday, June 11, 2003 By: Jose Gregorio Pineda & Jose Gabriel Angarita

VenAmCham's Jose Gregorio Pineda (chief economist) and Jose Gabriel Angarita (economist) write: As is to be expected, the Venezuelan government's debt restructuring strategy will focus mainly on internal debt instruments, reflecting the advantages provided to the government by the exchange control system. The authorities are announcing new debt swaps to be held next Thursday June 12.

The more intensive debt restructuring activity in the internal market is expected to prevail over the alternative of making external adjustments, whose cost would be very high. The preference for rolling over internal bonds is supported by the excess liquidity now present in the economic system as a result of the controls on the foreign exchange market. But many internal public debt maturities are highly concentrated in the 2003-2005 period, implying that the Treasury will continue to apply its domestic refinancing policy.

The composition of national public debt as a percentage of gross domestic product changed between 1998 and 2002, according to Finance Ministry figures. Total debt represented 30% of GDP in 1998 and rose to 41% by 2002. Internal debt amounted to 4% of GDP in the earlier year and soared to 12% in the later one, while external debt declined from 25% of GDP in 1998 to just 19% in 2001 before rebounding to 29% of GDP last year.

The trend of internal government borrowing has been upward in the last four years, and the National Treasury is expected to continue with that policy in the rest of 2003 and quite possibly next year as well, to gain more maneuvering room and be able to meet the budget's internal and external spending commitments.

Furthermore, until the restrictions on the national economy are relaxed, operations of this kind will be beneficial to the fiscal accounts, because the banks will have no choice but to "voluntarily" acquire public securities as their intermediation activity contract.