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VenEconomy : More hocus-pocus

 


On Tuesday, five days late, Finance Minister Rodríguez Araque presented the Budget for 2010, which came as a surprise as, last week, Planning Minister Jorge Giordani had announced that the 2009 budget would be rolled over.
But both were right, because, broadly speaking, the new budget is not far a formal carry over.In 2010, each ministry will be allocated the same quota as for fiscal year 2009. This gives a total amount of Bs.F.159 billion, the same in nominal terms as the 2009 Budget, but 30% less if account is taken of inflation. This figure includes borrowing of Bs.F.35 billion and the oil barrel at $40. And while oil will finance 24.7% of spending, borrowing (which is already excessive this year) will finance 22.1%.

The formula of underestimating oil revenues is repeated. And while it has been used by nearly all previous administrations, none had taken it to such extremes as the present government. This has resulted in growing discretion and lack of transparency in the allocation of spending and its monitoring. As a consequence, much of the spending has been executed via additional credits that are not subject to either discussion or critical analysis in the National Assembly and frequently appear allocated at the President’s whim during his Sunday television program.

In 2006 alone, the total amount in additional credits came to nearly half the initial budget. Between 2004 and 2008, increases in additional credits averaged 31.2%.

The main objective behind all this is no longer a secret to anyone. By underestimating the oil price, the government seeks to create “surplus” resources that can be disposed of at discretion throughout the year, a primary objective bearing in mind that 2010 is an election year. It also means that the funds that have to be allocated to the regions by constitutional mandate (situado constitucional) will be less, as they will continue to be calculated on the false premise of $40/bbl, although the impact will not be the same for all regional governments, as here is where the mechanism of the additional credit, allocated totally at discretion, comes in.

Soon, the hemorrhage of credits will start on the slimmest of pretexts: missions of different types, new projects, and so on, aimed strategically at influencing the perception of well-being necessary in order to achieve better results in the upcoming elections. This is a tried and trusted game that has been successfully played in the innumerable electoral contests the government has invented practically every year.

In the case of a transparent government that acts within the law, being conservative in estimating revenues would be considered laudable. But in this case, everyone knows that it will take a long time for the difference between estimated and actual revenues to be recognized and transferred to the autonomous regions. There are legal mechanisms for claiming these funds, but, unfortunately, there are no independent institutions capable of deciding these cases. Nor, it seems, are there any institutions that are accountable to the general public with regard to the investments initially stipulated in the budget, much less the use that is given to the large number of additional credits generated each year. In short, the 2010 Budget is no more than yet another formality.

 

VenEconomy has been a Venezuela's leading specialized publisher on financial, political and economic data since 1982. VenEconomy's Points of View on the issues of the day, as seen by VenEconomy during the last week. Petroleumworld does not necessarily share these views.

Editor's Note: This commentary was originally published by VeneEconomy on 10/21/2009. Petroleumworld reprint this article in the interest of our readers .

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Petroleumworld News 10/22/09

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