The government estimates the growth rate will be 2% at the maximum this year.
“The strategy is to create a public instrument in which the banks place certain percentages of their targeted portfolios.”
The Minister of Economy and Finance Alí Rodríguez Araque said that the fall in oil prices would not only mean a revision of the budget revenues but that the economic growth rate is now estimated to end up 1-2% at the end of this year.
The initial goal of the Gross Domestic Product (GDP) growth was set at 6% for 2009, according to the National Budget Law which is still in effect.
The minister in charge of Venezuela’s finances emphasized to Reuters that his objective is to prevent the country from ending the year in a recession. But even then, Venezuela is not expected to devalue in the near future in order to inject more resources into the economy.
Rodríguez Araque noted that a correction of the exchange rate will only increase prices due to dependence on imports, especially since food prices in the international market — though they have declined a little — will rebound in the future.
In an interview with El Universal, the Economy and Finance Minister noted that the exchange rate must be set more to serve Venezuela’s “economic strategies than to solve fiscal imbalances” and that therefore he wouldn’t rule out a future devaluation of the bolivar.
In the reformed 2009 National Budget Law that the executive branch proposed to the National Assembly, the income level is adjusted to 156.38 billion bolivars, in keeping with the fall in the price of a barrel of oil. Among other macroeconomic variables used in the budget calculation, the oil price per barrel is reduced from $60 to $40. The inflation target, however, remains 15%.
What must be changed so the government can avoid taking additional measures?
The main variable is the situation of the global crisis and its potential impact on the oil market. . . . Venezuela, thanks to its much criticized exchange control, has a kind of wall against the shocks of the powerful waves caused by this global tsunami.
With the exception of the Stanford scam, there has been no distressed depositor who has lost his or her savings. The Venezuelan financial sector enjoys significant solidity.
So far, the measures taken by the OPEC managed to stem the decline in oil prices, but there is no evidence yet that there will be a recovery, nor is it possible even to estimate how far the oil market can be affected by a drop in demand.
If the global recession gets worse, the oil prices may fall further, and that would make us consider whatever other measure there is.
What is the ideal level of oil prices for Venezuela to comfortably pay its expenses?
We had already reduced our budget benchmark price to $40 per barrel, so we must achieve at least a floor of $40 for the Venezuelan oil basket. Now, we would love to get to the $60 average for the year, but it all depends on how things go.
What kind of measure is the government preparing in order to reduce the level of imports?
The first thing to do is to implement the program we planned for a moment like this, and it’s just beginning to be implemented. That’s sufficient for what we’ve seen this year.
When will the new price of gasoline be made public?
Here in Venezuela, we are paying people to consume gasoline — that’s a colossal waste. The current prices are not enough to pay for the process of extraction, transportation, refining, and gasoline distribution to service stations. The domestic market already consumes 650,000 barrels, which is an enormous quantity, so there is no question that it will require an adjustment, but the adjustment must be made at the best time for that.
What are the mechanisms to be used to ensure that the banks will agree to the debt issues planned for this year?
From the studies we’ve done, there is ample room for financing. If it became necessary to reduce the reserve requirement, it would be handled through the Central Bank.
The reserve requirement is now well above what it was until 2000. It has already been partly liberalized, so, when necessary, it will be similarly liberalized again. In these matters there are no rigid positions, except to remain flexible according to the needs of the economy.
President Chávez spoke of the capacity to finance up to 80 billion bolivars. . . .
That very much depends on the oil income, foreign exchange, and, therefore, the state’s policies of protection to ensure sufficient bank guarantees to protect the depositors.
Chávez demands that the banks hand over funds from their mandatory credit portfolios to the government, which will deposit them in a government fund. What is the point of this?
It’s still just an idea. The banks are required to devote certain percentages of their portfolios to financing activities such as agriculture and manufacturing. These requirements are not always satisfied, as in the case of agriculture, because there are unbankable activities, that is to say, activities for which banks cannot get enough guarantees of returns to grant loans. The strategy proposed by the president is to create a public instrument in which the banks place the aforementioned percentages of their mandatory portfolios, so the government itself would guide the financing of such important sectors as agriculture, manufacturing, and tourism. This instrument doesn’t exist yet. Nevertheless, it is now in part included in the amount of funding that we have proposed because there is an important component that is directed to agriculture and manufacturing.
Will the fund absorb the resources of the whole mandatory credit portfolios or just a part of them?
It could be only a part. It’s an idea that President Chávez raised in a generic way and that we have discussed on occasion.
And what guarantee will the government give the banks for those resources?
The government itself.
Through bonds?
In the same way that the banks allocate those loans and the government guarantees them, but it’s an idea that is not sufficiently developed. The president didn’t present it as a decision already taken, but as an idea.
What impact will the higher value added tax have on inflation?
I can’t tell you just now exactly what impact it will have, but it has some impact and we must specify how to measure them. Last year we had a significant increase in inflation: 30.9%. This year inflation has gone down, but it’s still not at the levels that we want it to be.
One of the factors that impacted inflation last year was the high cost of food that we had to import. Since we import a very large volume of food, we were also importing inflation due to high prices in the external markets. This year food prices have dropped. Probably this drop will be followed by a sharp rise because it can lower the world food production.
In other respects, the Economy and Finance Minister told AFP that the government and Techint reached an agreement on the payment of compensation for the nationalization of Sidor and that a part of it had already been canceled.
However, Rodríguez Araque refused to specify the price agreed upon for the acquisition of the steel maker. “The company itself can announce the amount,” he said.
The original article “Entrevista Alí Rodríguez Araque, ministro de Economía y Finanzas” was published by El Universal on 25 March 2009. Translation by Yoshie Furuhashi (@yoshiefuruhashi | yoshie.furuhashi [at] gmail.com).