VENEZUELA: Congress approves US$53.5bn budget for 2007
On 23 November, congress approved the government's budget of US$53.5bn for 2007. The president of the finance committee, Rodrigo Cabezas, pointed out that 45% of the spending would go on health, education, housing and law and order.
Cabezas pointed out that the government was now devoting 7% of government spending to education, which meant that it was meeting the norm set by the UN agency, Unesco. Even so, the government is still paying a huge price for its borrowing binge: 17% of the budget is still going on paying debt, both foreign and domestic.
The 2007 budget is equivalent to 32.7% of GDP.
The government is basing its budget for 2007 on growth of between 5% and 6% and a highly conservative forecast for crude oil: only US$29 a barrel. Currently Venezuelan oil is fetching US$49 a barrel. The average price for the first 10 months of the year has been US$58 a barrel. The export price of Venezuelan oil has fallen by almost a third in the past three months.
The government is also budgeting on inflation falling to 10% (it will be around 15%, again this year) and unemployment tumbling to 7%. Before the budget, the finance minister, Nelson Merentes, had expected inflation to fall to below 12% in 2007. This year inflation looks like exceeding 15%. The government had originally budgeted on inflation of 10% in 2006, but increased this target to 12% at the end of September.
The government is forecasting that oil production will be 3.5m bpd. This figure will, presumably, fall if Venezuela's efforts to persuade Opec to lower its quotas in order to push up oil prices are successful.
The government is also forecasting no change in the official exchange rate for the dollar: 2,150 Bolívares per dollar. The government's imposition of exchange controls and the surge in oil prices has meant that the central bank's reserves now stand at over US$36bn. This is the highest in the country's history. On top of this the Fondo de Inversión para la Estabilización Macroeconómica (Fiem) has assets of a further US20bn.
This economic firepower means that the economy is well placed to withstand any collapse in oil prices, even though the government is so strongly committed to social welfare programmes. The government claims that it is working to reduce what it calls the "social debt".
For this year the government is now forecasting that growth will be over 10%. The planning minister, Jorge Giordani, made this forecast on 20 November. He noted that growth in the third quarter had been 10.2%, according to official figures from the Banco Central de Venezuela. This was the 12th consecutive quarter of year-on-year growth. In 2005 the economy grew by 9.4%; in 2004 it surged by 17.3%.
Previously, the government had been forecasting that the economy would grow 9% this year and by at least 6% in 2007.
Giordani stressed that recent growth is being driven by the non-oil sector. He noted that the private and non-oil sector accounted for 80.4% of the economy's output in the third quarter.
The central bank, in its report on the third quarter, painted a similar picture. It said that the strong growth was the result of strong consumption, investment and the expansion of credit to productive sectors. The central bank also said that the increase in public spending on social programmes had also contributed to the strong growth.
In the first half of the year the economy grew by 9.6%. Domingo Maza, the most influential director of the central bank, said that growth in 2006 would be between 7% and 8%.
The strength of the growth in the third quarter certainly surprised the finance minister, Nelson Merentes, who had been cautiously forecasting third quarter growth of at least 8%.
The financial sector is benefiting from the boom. In the third quarter, banks' profits rose by 22% (year-on-year) and bad loans were extraordinarily low at less than 2% of total loans. Only Chile's banks have made fewer dud loans.
Bonus: The government of President Hugo Chávez is bringing forward the Christmas bonus for public sector employees to November. This is just before voters decide whether to give President Hugo Chávez another six years. The country goes to the polls on 3 December. The bonus is the equivalent of three months' pay. The cost of this largesse is likely to be around US$3bn.
Inflation: In October inflation improved to 0.7%, less than half the 1.9% rate recorded in September. This brought the 10-month rate to 13.4%. The 12-month rate is 15.5%, already above the 2005 rate of 14.4%.
