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According
to the most recent Finance Ministry data, total public debt has grown by
9.8% since Chávez was elected, reaching US$ 30.3 billion in June.
Resources in the Macroeconomic Stabilization Fund (2.27 billion
dollars on 30 June) are insufficient to finance the government's ambitious
spending agenda. Thus, public borrowing is likely to provide for the
shortfall.
The Chávez administration claims that increased debt issuance is
an essential measure needed to finance important public investment
projects to continue to boost the economy, which grew by only 1.5% in the
first half.
However, the flooding of domestic markets with public sector paper
is likely to crowd out private sector borrowers seeking to finance their
capital needs.
As a result, the recovery in the private sector is likely to be
forestalled.
The
rising share of internal debt adds a new liability to fiscal accounts,
which so far have deteriorated most sharply when international oil prices
drop.
In a scenario of lower oil prices, the substantial increase in the
domestic debt burden could add an additional structural debility to the
excessive dependence on oil revenues.
Panellists, meanwhile, remain optimistic about the fiscal accounts
for this year, as high oil prices will provide for needed public revenues.
The 2000 deficit is expected to reach 1.5% of GDP.
Chávez
introduces new cabinet.
At the end of August, president Chávez presented his new cabinet.
Few significant changes were made to the existing cabinet members.
Key officials such as Planning and Development Minister Jorge Giordani,
Finance Minister Alejandro José Rojas, Foreign Minister José Ignacio
Rangel and Energy and Mines Minister Alí Rodríguez Araque were all
reconfirmed in their posts. Blancanieves Portocarro replaced Labour
Minister Lino Martinez, Luis Romero took over the Trade Ministry and Ana
Lisa Osorio was appointed new Environment Minister. Only the Labour
Minister position appointment is considered important, given that the 1999
Constitution prescribes a major overhaul for the labour code and the
existing social security system. Both reforms are likely to be an
important determinant of the scale of foreign investment recovery, since
the reform will affect firms’ operating environment and willingness to
make new commitments in Venezuela. During the debates in the
Constituent Assembly, Portocarro displayed inexperience in economic
matters and her actions are likely to be monitored closely by observers as
reform discussions get underway.
Note:
The above text is an abridged version of the LatinFocus Consensus Forecast
briefing on Venezuela. For more details please click here.
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