Andean Group - March 2011 (ISSN 1741-4466)

The jump in oil prices, prompted by the unrest in North Africa and now in the Persian Gulf, will help President Hugo Chávez and the economy to start growing again this year. The government is not forecasting a spectacular recovery: the central bank president, Nelson Merentes, confines himself to saying that real GDP will grow by more than the 2% forecast in the budget for 2011.

The central bank is one of the few beacons of statistical clarity in the country. Its growth and inflation figures are generally unquestioned and used by both Chavistas and government opponents. President Chávez hailed the Banco Central de Venezuela (BCV)'s report on the final quarter of 2010, which showed a 0.6% year-on-year GDP growth rate. The opposition preferred to focus on the fact that in 2010 overall, GDP contracted 1.4% year-on-year. Chávez 's spin is that the economy is bounding out of recession; the opposition interpretation is that the economy is still in a mess and because of the way the government interferes in the economy, the recovery will be much weaker than it should be. 

One big area of government interference is the way it redirects cash earned by Petróleos de Venezuela (Pdvsa), the state oil company, into President Chávez 's pet projects. An analysis of the Pdvsa annual report for 2010 by an opposition newspaper, El Nacional, shows that its tax payments fell 24% year-on-year in 2010, while its payments into social projects (i.e. Chávez 's pet schemes, which are not necessarily monitored by congress) increased by 449%.

The analysis showed that Pdvsa's tax payments in 2010 came to US$16.32bn, down 24% on US$21.53bn in 2009. Pdvsa pays a range of fees and taxes to the government: royalties, income tax, dividends to its government shareholder, property taxes and fees for the right to export. Pdvsa's tax bill in 2010 was lower than any bill since 2005, when it paid US$17.7bn.

On the other hand, Pdvsa's social development payments increased by 449% to US$16.9bn. The annual report states that Pdvsa increased its support for infrastructure, agriculture, food, public housing, health and education. It's unclear whether these payments have actually been made for the stated purposes or have been docked from Pdvsa and are held in a government account, awaiting disbursement.

The big payments identified in the Pdvsa accounts are US$1.7bn to foreign countries and US$2.53bn to pay debt owed by the China Fund.  Neither of these categories showed up in the 2009 accounts. The biggest single item in this social development category is a payment of US$8.4bn for special projects. This dwarfs even the US$1.4bn allocated to the electricity industry.  

The US$16.9bn figure for social development projects in 2010 is the highest figure since 2004. In 2009, when the government's budget was under pressure, Pdvsa's contribution to social projects fell to US$3.08bn.

The other worrying development on Pdvsa's balance sheet is the growth of its foreign debt. This increased by 16% in 2010 to US$24.9bn.

Inflation:  Consumer price inflation is rising. In December, consumer prices jumped 1.8% month-on-month. In January this accelerated to 2.7%. In calendar 2010, inflation was 27.2%.  Merentes blames the effect of the exchange rate unification and speculation for the rise in inflation.

• Foreign debt
  According to Nelson Merentes, the country's foreign debt is between US$28bn and US$30bn. According to the finance minister, Jorge Giordani, the country's foreign debt/GDP ratio is 18.4% now, but has averaged 28.3% over Chávez 's 12 years in power.