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Venezuela Increases Spending Social Programs and Balances Budget

Caracas, October 19, 2005–Yesterday the Venezuelan Finance Minister, Nelson Merentes, presented a 2006 budget of $40.5 billion to the National Assembly. This budget is 27% higher than last year's and 41% of it is committed to the social programs.

Nelson Merentes yesterday said, "more resources have been assigned to the social sectors to confirm that priority is given to the social inclusion programs in financial strategy." A whole range of social programs will gain from the increased funding with education, food security, and social development getting the most. Mission Robinson, a literacy campaign, and Mission Sucre, a university scholarship scheme, will both receive roughly $3.7 Billion each from the $16.6 Billion set aside for social development. By next year Venezuela's public spending will have more than tripled than when Hugo Chavez became President in 1998. The Venezuelan budget has benefited from a four-fold increase in the price of oil over the same period.

Nelson Merentes also pointed out how 47% of this budget was from oil sales and the remaining 53% from taxes and other incomes. This is the first time a majority of state revenue has come from taxation rather than oil in almost a century. This increase in the non-petrol tax base has been explained by the improvement of tax collection under the current government.

Merentes said one of the main goals next year, "is to keep the economy growing, while lowering inflation." The Finance Ministry expects the economy will grow 5% in 2006 and that inflation will fall to 10% down from it current level of 15%. Merentes also said that the Bolivar, Venezuela's national currency, would be kept at its current official exchange rate of 2,150 to the dollar to maintain, "stability." Salomon Centeno, a member of the opposition and the deputy head of the National Assembly's finance committee has said that the process of growth, "will be accompanied by increased inflation – as opposed to what the government says."

The budget has to be approved by a vote in the National Assembly, but considering that Hugo Chavez's supporters have a narrow majority it will probably pass with few changes. Centeno has said that one part of the budget plan very likely to win support in the National Assembly is one that will make a 0.5% tax on financial transactions permanent. He has criticized this saying it, "risks slamming consumers and companies." The Venezuelan Finance Ministry has also said it intends to spend $1 billion of the foreign reserve fund this year and a similar amount next year on reducing Venezuela's foreign debt. It aims for foreign debt to be 30% of Gross Domestic Product by 2008, down from its current level of 38%. In 2003, the year of the economically devastating two-month oil industry shutdown, it was 46% of Venezuelan GDP.

Published on Oct 19th 2005 at 10.51pm