Mérida, December 3rd 2009 (Venezuelanalysis.com) – The Venezuelan National Assembly approved the Finance Ministry’s 2010 national budget proposal without modifications on Wednesday. Nearly 46% of the budget is allocated to public education, social development, health care, and the innovative social missions which have improved the poor’s access to health care, education, economic stimulus, and food security over the past five years.
This fulfills the government’s promise to maintain social spending even amidst the world economic crisis and subsequent falling oil prices.
The total budget is 159.41 billion bolivars (US $73.9 billion). It is based on the cautious estimate of a $40 barrel of oil, even as the average price of oil from the Organization of Oil Exporting Countries (OPEC), of which Venezuela is a member, currently hovers around $75 per barrel.
The estimated daily production of oil, which is Venezuela’s principal source of export earnings, will remain at more than 3 million barrels per day. Earnings from oil exports will account for approximately 38% of the total budget, while tax revenues will make up more than half the budget, according to the Finance Ministry.
The rest of the budget will be made up of both domestic and foreign debt. The National Assembly approved an increase of $35 billion bolivars (US $16.3 billion) in debt for next year’s national budget.
The 2010 budget is also based on an estimated 0.5% GDP growth and 20-22% inflation. This year, accumulated inflation between January and October was more than 20%, and GDP growth is expected to finish the year at nearly zero, following more than five years of consecutive growth.
Public investments in 2010 will be focused on strengthening the national productive sector as a whole, particularly food and energy production, reducing the persistent national housing shortage, and on building infrastructure.
The government will also maintain the fixed exchange rate of 2.15 bolivars to the dollar in order to control inflation.
The exchange rate is greatly linked to inflation because, even though Venezuela’s non-oil productive sector has grown over the past ten years since President Hugo Chavez took office and broke with neo-liberal, free market economic policies, Venezuela still depends on imports to fulfill its needs for many basic goods. The government controls the issuance of dollars to importers at the fixed exchange rate in order to prevent capital flight.
A small group of opposition legislators in the National Assembly, led by the leader of the social democratic party PODEMOS, Ismael Garcia, criticized the 2010 budget for incurring too much debt and underestimating inflation.
Garcia recommended that accumulated inflation be estimated at 26%, which is approximately what it is estimated to be at the end of this year. He also said that the emphasis on national social programs and the national government’s investments in the productive sector would have the effect of starving state and municipal budgets.
While the governing United Socialist Party of Venezuela (PSUV) controls three quarters of the state governorships and more than 80% of the municipal governments nation-wide, Garcia said the budgets of opposition-controlled governments would be arbitrarily cut as a political tactic.
PSUV Legislator Ricardo Sanguino responded to Garcia, saying, “It is not true that they are being denied resources, they are mounting a campaign against the legally constituted government.” He also defended the Finance Ministry’s conservative projections for oil prices and GDP growth, emphasizing the uncertainty of the world economy.
In early 2009, oil prices plunged to nearly half the budget estimate of $60 per barrel. As a result, in March, the government reduced its overall budget by more than 6%, nearly tripled its internal debt, adjusted the estimated price of oil to $40 per barrel, and maintained its social spending.
Venezuela’s international currency reserves remain in good shape at more than $34 billion. The reserves were given a boost in 2008, when oil prices peaked above $140 per barrel while Venezuela’s budget was based on a $35 barrel of oil.
Also on Wednesday, the Finance Committee of the National Assembly approved an additional credit of 96 million bolivars (US $44.7 million) in higher education grants for Venezuelan students.