Venezuela Invests Surplus Oil Dollars in Education, Housing, and Industry
Posted: Friday, September 4, 2009
By James Suggett
September 3rd 2009 - venezuelanalysis.com
The increase in Venezuelan government spending on public housing and education, and the re-opening of a General Motors automobile factory are among signs that the Venezuelan economy may be set to recover from its contraction of 1% in the first half of the year. Meanwhile, monthly inflation rose slightly to 2.2% in August.
In recent months, Venezuela's National Assembly approved more than 20 billion bolivars (US $9.3 billion) in credits, increasing the estimated total budget for this year from 167 billion bolivars (US $77.7 billion) to 180 billion bolivars (US $83.7 billion).
A fifth of the credits were granted to public education, for which a new Education Law that promises increased funding was passed last month, one tenth were granted to the Housing and Public Works Ministry, and nearly half of the credits were granted to the state and local governments, while the rest went to health care and agriculture, according to the Venezuelan daily El Universal.
This follows a period of conservative spending over the first half of the year, when the government adjusted its budget based on an expected average income of $40 per barrel of oil, and spent 5.2% less than it did during the first half of last year. It also raised the sales tax and increased its domestic debt to cope with a drop in oil prices from nearly $150 per barrel the previous year.
Since then, however, oil prices have risen. The average price of oil produced by the Organization of Petroleum Exporting Countries (OPEC) has hovered between $65 and $70 per barrel recently, and the average price of Venezuela's crude over the course of this year is more than $50 per barrel, indicating a budget surplus for the Caribbean country whose oil accounts for more than 90% of exports.
Meanwhile, General Motors announced it had reached an agreement with the Venezuelan government for the issuance of dollars at the official exchange rate of 2.15 bolivars, and will thus re-open its auto factory in Valencia, Carabobo state next Monday. The factory had been closed in June due to a lack of auto parts which could not be imported because the supply of government-issued dollars had been tightened.
Nelson Merentes, the president of the Central Bank of Venezuela (BCV), said the government's resolution of a series of imbalances in the supply of government-issued dollars and its payments to solicitors of these dollars is a sign that the economy is poised for a turnaround.
"The reality is that the oil prices continue to rise, CADIVI [the agency which manages the dollar supply] is improving its operations, and there is a strong relationship between the BCV and the Finance and Planning Ministries, where we are working hard so that the economy continues to grow in the coming months," said Merentes in a recent televised interview.
The president of the National Statistics Institute (INE), Elias Eljuri, explained that "Venezuela during this whole period [of the world economic downturn] has maintained its growth and its savings of important resources that have allowed it to maintain social spending and not decrease its investments."
Merentes also said the government is discussing measures to reduce the gap between the official value of the dollar and the informal market value of the dollar, which approached seven bolivars recently. These measures are expected to be announced later this month.
"The parallel dollar has a great impact on inflation," Merentes said.
In August, monthly inflation was 2.2%, a slight acceleration relative to the 2.1% monthly inflation in July, according to the INE. This brought the accumulated inflation this year to 15.6%, which is less than 19.4% the accumulated inflation over the first eight months of last year.
In addition, the INE reports that Venezuela's unemployment rate at the end of July was 8.5%, an increase over the average unemployment rate of 7.9% over the first half of the year.
Also, as of September 1st, Venezuela's minimum wage officially increased by 10% to 960 bolivars (US $447) per month. The increase completes the government's promise to increase the minimum wage by a total of 20% in two stages beginning last May 1st.
The minimum wage increase is understood to largely be an adjustment to Venezuela's high inflation rate relative to the region. Inflation was spurred by more than twenty quarters of consecutive GDP growth prior to this year's contraction. The wage increase was accompanied by a year-long prohibition of layoffs of workers earning the minimum wage without just cause.