Venezuela Plans “Austerity Budget” for 2009

Mérida, October 6, 2008 (venezuelanalysis.com)– Ali Rodriguez, Venezuela's minister for economy and finances, announced the need for a tight 2009 budget on Sunday, but assured that Venezuela's international reserves are safe and the economy remains unaffected by the global financial crisis.

Speaking on the program "Jose Vicente Today," Rodriguez said that austerity will prevail in the national budget for 2009, and that the government will be alert to any change in the price of primary materials, given the financial crisis in the US.

"The overriding line of the new budget that we are discussing, that will be taken to the National Assembly is austerity, to absolutely eliminate the waste that there has been in some activities," he said.

"This budget has significant restrictions. [There are] a collection of expenses that it is necessary to eliminate and others that it is necessary to reduce. Spending on certain types of vehicles, on mobile phones, and on celebrations would be eliminated. There is a lot to cut."

Wages of managers in the petrochemical industry will also be reduced.

"It's necessary to reduce costs, to end with extravagance, finish with corruption and unnecessary spending, and finish with the mega-salaries," Venezuelan president Hugo Chavez said.

Rodriguez motivated the need for Venezuelans to save, saying that these days such a habit doesn't exist, owing to the consumerism in society and that copying the north American model means that no one takes precautions for the future and that there is an illusion that "the prosperity from the income from fuel will go on for ever and its not like that, the economic reality can affect us."

He also argued that whilst the financial crisis won't immediately affect the Venezuelan economy, "it is necessary to consider how the world economy will evolve…if this financial crisis produces serious effects on the growth or contraction of industrialized countries, this could have an effect on the prices of primary material such as fuel."

Venezuela's reserves are safe

Rodriguez indicated that Venezuela's international reserves are safeguarded against the effects of the financial crisis because the Central Bank of Venezuela (BCV) is constantly monitoring the banks where Venezuela has its funds.

For the past five years they have been protected, he said, and "the bulk [of the reserves] are in the International Bank of Basel (Switzerland), 30% are stored in gold and less than 10% are in various banks, of which the BCV is alert to."

Venezuela currently has almost $40 billion in international reserves.

However, Rodriguez explained that there was a slight danger with Venezuela's structured notes (debt securities in U.S dollars) as the government has boosted its divestiture from the U.S. financial system.

When the structured notes were allocated to the banks he warned that they were a high risk whose value could arrive at zero.

Rodriguez attributed the overall safety of Venezuela from the financial crisis to the "economic measures of protection" taken on by the "new leaders" of the left in Latin America.

On September 21 the President Hugo Chavez announced that only 1% of the national monetary reserve can be found in the United States.

Purchase of the Bank of Venezuela

Rodriguez announced that the negotiations between the national government and Grupo Santander for the purchase of the Bank of Venezuela go well and that the acquisition should take place within 2 months.

He stressed that it wasn't a forced nationalization, but rather an agreement with the old owners.

Rodriguez called attention to the campaign by "some media to provoke a run on the bank, [but] the people have been absolutely indifferent, no one has withdrawn even one Bolivar from a bank."

Chavez announced the nationalization of the bank on July 31 of this year. The Bank of Venezuela is the third largest in the country and the oldest.

Financial independence

Further, Rodriguez saw the current world financial situation as a good opportunity to consolidate the Bank of the South, which was created in December last year by Argentina, Brazil, Bolivia, Ecuador, Paraguay, Uruguay and Venezuela with the aim of regional economic integration.

Last Tuesday, in Brazil, Chavez pressed the speeding up of the activation of the Bank of the South, which he saw as the best way of confronting the international financial crisis, which has already had serious repercussions in Asia and Europe.

Yesterday Chavez affirmed that Venezuela is creating its "own financial system" together with "allied countries" like Iran, Russia, China and Belarus and with the consultation of the Cuban leader, Fidel Castro.