Caracas, February 9, 2007 (Venezuelanalysis.com)— Ricardo Sanguino, head of the Venezuelan National Assembly’s finance commission, announced Wednesday that the government planned to issue US$5 billion (€3.85 billion) in bonds, as part of a drive to curb a growing rise in the inflation rate.
Sanguino said that Venezuela’s state-owned oil company, PDVSA, would sell US$3.5 billion (€2.7 billion) in bonds, and the Ministry of Finance would issue another US$1.5 billion (€1.16 billion) in joint "Bonds of the South" with Argentina, according to the AP.
Although dates for the sale of the bonds were not given, Sanguino said the bonds would “most probably” be issued in the local currency, Bolivars, at the official US dollar exchange rate of 2,150 bolivars per dollar.
In November last year Venezuela and Argentina successfully sold their first US$1 billion (€770 million) worth of “Bonds of the South.” Demand for these first bonds exceeded the amount on offer by more than nine times, the Ministry of Finance said at the time. The Chavez government hailed these bond sales as a further step in Latin American integration.
It is hoped that the bond sales announced Wednesday will contribute to lowering inflation by soaking up some of the high amounts of liquidity in the economy at present.
The Central Bank of Venezuela (BCV) announced last week that inflation in January rose 2 percent, traditionally a low inflation month. Inflation last year reached 17 percent, the highest rate in Latin America, despite the BCV targeting a rate of between 10 and 12 percent.
Many analysts have pointed to the record levels of government spending as the major factor behind this increase in inflation. For example, social spending has risen from 8.2 percent of GDP in 1998 (the year before Chavez came to power) to 13.2 percent of GDP in 2005 (the latest available year for figures).
In addition, in the face of currency exchange controls in place since February 2003 many private domestic investors, who face difficulties accessing dollars at the official exchange rate and/or who perceive the present economic climate as uncertain, have turned to the black market in the search for foreign currency, especially dollars.
As a result the U.S. dollar is currently trading at around 4,000 bolivars on the black market – around 86 percent higher than the official exchange rate of 2,150 bolivars. This has helped push up the price of imported goods, which Venezuela has an extremely high dependence on, as well as other products.
Also on Wednesday, Venezuela’s recently appointed Minister of Finance, Rodrigo Cabezas announced the government was designing an anti-inflation package that aimed to bring inflation down to 12 percent this year.
“In the announcements that will be made in the macroeconomic area, we expect that measures will be taken in the areas of exchange-rate, fiscal, monetary and the real economy,” said Cabezas, according to the Venezuelan daily, El Universal.
According to BCV figures, between 1999 and 2006 the inflation rate under the Chávez government has averaged 19.3 percent. This compares with 59.6 percent under the previous government of Rafael Caldera.
Moody’s Ranks PDVSA as “Stable” Investment Risk
In related economic news, on Wednesday Moody’s Investors Service gave PDVSA a global rating of B1, both as a local and foreign currency issuer, saying it had a “stable outlook.”
Last year, Moody’s withdrew PDVSA’s ratings in response to the company’s de-registration with the U.S. Securities and Exchange commission (SEC) and what it alleged were protracted delays in the receipt of timely and transparent financial information, according to El Universal.
Since then, PDVSA has produced updated audited financial statements for the fiscal years 2004 and 2005 in accordance with International Financial Reporting Standards (IFRS), and interim unaudited results for 2006.