2011 Venezuela Budget Depends Less on Petroleum

Merida, October 22^nd, 2010 (Venezuelanalysis.com) – Hoping to increase social spending from last year’s 45%, legislators discussed the budget framework presented in the National Assembly Thursday, which includes an overall income and expenses of  Bs 204.208 billion (US$ 47.5 billion), 28% higher than the 2010 budget of Bs 159 billion.

The Minister of Finances and Planning, Jorge Giordani, presented the annual report for 2010 and the most important variables of the 2011 budget to the National Assembly, opening discussion on the details of the distribution of resources.

The more detailed budget is then usually approved at the start of December. Legislator Ricardo Sanguino, of the finance commission, said he was sure that social investment would be “higher than the 45%” of this year’s budget.

Giordani’s report sets basic spending and expenses parameters, based on a price of $40 per oil barrel, with a production of 3.176 million barrels daily and an average export rate of 2.675 million barrels daily, an estimated GDP growth of 2%, and an annual inflation rate of 23-25%. It also maintains the fixed bolivar/dollar exchange rate at 4.30 bolivars to the dollar and 2.6 for exempted goods such as those pertaining to health.

The current price of Venezuelan oil is $73.88 per barrel, and this year’s budget was also based on a safe price of $40. The 2010 budget was also operated on an estimated 0.5% GDP growth and 20-22% inflation.

Giordani said that such numbers and estimates meant the budget would be based on “austerity and efficiency” and would aim to “maintain investment and the payment of accumulated social debt”.

The report sets an ordinary income of Bs 163.698 billion, and an extraordinary funds income of Bs 40.509 billion, for a total income that is equal to the projected expenses.

The ordinary income includes petroleum derived income of 22% of the budget or Bs 45 billion and the vast majority of the rest of ordinary income comes from tax income, (Bs 110.06 billion), with a small share of income also coming from telecommunications and mining activity.

While the petroleum income is up from this year’s budget of Bs 39.4 billion, it is a decrease from 25% to 22%.

Giordani said it was important to maintain “prudence” when calculating Venezuela’s income as Venezuela has one important earner, the petroleum sector, that is affected by external or international factors as well as speculation on the futures market.

However, he stressed that Venezuela has become less vulnerable as its public debt has decreased in relation to its Gross Domestic Product (GDP) as well as compared to other Latin American nations.

The social missions and other social policies have been oriented towards inclusion and a redistribution of this income, resulting in an increase in Venezuela’s Human Development Index, Giordani added.

In terms of expenses, the Bs 204.208 billion are to be broadly distributed along the following lines: Bs 121.268 billion (59.3%) on administered (discretionary) expenses, Bs 48.314  billion (23.6%) on legal expenses, Bs 25.603 billion (12.2%) on servicing debt  and Bs 9.629 billion (4.7%) on debt projects.

The “debt projects” are part of the government’s plans of social investment and strategic sector investment in areas such as agriculture, infrastructure, and energy.

In his speech to the National Assembly, Giordani highlighted the necessity of going beyond the “Venezuelan capitalist model” to a model based on work, and in his 45 page report he argued that, “the budget, as a means to channel material resources from the state to society, orienting them towards concrete ends… constitutes a powerful instrument of social and economic policy”.

He stressed however that the budget is a “means not an end” and this recent budget outline was formulated within the context of the national economy, which he said was “changing its tendency towards an economic cycle of recuperation, growth, and reduction of inflationary pressures”.

He said the budget aimed to maintain social investment with a “policy of inclusiveness” but also to raise the amount of income from sources other than petroleum, mainly through higher taxation efficiency and preventing tax evasion.

During the discussion of the budget, the main concern the opposition has expressed has been over the allocation of resources to the states and mayoralties, an issue which will likely be discussed in the National Assembly next Thursday.

Opposition legislator Hermes Garcia criticised the budget, saying the real price of petroleum was between $80-100 per barrel, meaning, “It leaves the president with a differential of 100% to use discretely and execute additional credits.”  Private regional newspaper El Carabobeno said that this year the government has approved Bs 70 billion in extra credits, amounting to almost half of the 2010 budget.