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Editorial / Commentary / Opinion
VenEconomy : A payment and its dark side
The Central Bank of Venezuela has granted Siderúrgica del Orinoco (SIDOR) an interest-free loan of Bs.F.20 billion.
This loan will allow SIDOR, now state-owned, to pay off part of the Bs.F.3 billion debt it has with more than 460 contractors, including some 8,300 outsource workers.
But there is a dark side to this loan: the fact that the mechanism chosen to obtain the funds has been to get the Central Bank to directly finance the government's debts.
Any first-year economics student knows that this is a mechanism that will translate into spiraling inflation and, eventually, the collapse of the country's monetary system.
This is not the first time that the Central Bank has financed the Chávez administration.
The government has been resorting to this perverse practice since Chávez asked for that “mere million” back in 2005. Since then, the Central Bank has transferred $44.6 billion of its international reserves to Fonden, a fund that is managed in a way that is far from transparent and from which the government finances part of its spending. The most serious aspect of all this is that, as a result of these irregular, unconstitutional transfers, the Central Bank is technically bankrupt, as its liabilities exceed its assets by a wide margin.
The government's avidity for money has reached the extreme of amending the Central Bank Act time and again to give the theft of the Central Bank's funds an appearance of legality. The latest of these amendments was the one enacted at the start of the year that allows the Central Bank to take part in all kinds of credit operations, either directly with the private sector or to directly benefit operations and activities that the government considers “priority” or “strategic,” which could mean anything.
The National Assembly did not care less that, in facilitating financing for the government's operations, it was violating Article 320 of the Constitution and Article 1 of the Central Bank Act, which expressly forbids the Central Bank to finance fiscal deficits.
What is certain is that this is the first time that a financing operation has been conducted directly between the Central Bank and a state-owned company.
If this is allowed to happen without experts in the matter raising their voice and forcing the Central Bank to backtrack, it will be the end of the Central Bank's autonomy and there will then be no way of preventing inflation from running into three figures or the collapse of the monetary system.
Most unfortunate of all is that, because they are getting paid, the workers are celebrating and ratifying their support of the revolution, unaware of the fact that the money they are receiving now means bread today and hunger tomorrow.
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 Veneconomy , July 27, 2010. Petroleumworld reprint this article in the interest of our readers
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