Venezuela runs short of cash
By Owain Johnson,
UPI Business Correspondent
CARACAS, Venezuela, (UPI) -- Venezuela'sstate-owned oil producer PDVSA received official permission Wednesdayto withdraw $2.4 billion from the country's Macroeconomic StabilityFund.
PDVSA previously had a total of $4.1 billioninvested in the fund, but this latest withdrawal leaves it withjust $1.6 billion in savings. Company President Ali Rodriguezwrote to Venezuela's National Assembly to say the company neededto withdraw the money to meet its current commitments.
The oil producer has been affected in recentmonths by falling crude prices and by the production cuts agreedby the Organization of Petroleum Exporting Countries, of whichRodriguez was until recently the secretary-general.
PDVSA has also seen its operating costssoar as a result of the Venezuelan government's decision in mid-Februaryto allow the national currency, the Bolivar, to float more freelyagainst the U.S. dollar. The consequent 30 percent fall in thebolivar's value sent the price of the company's imports soaringas well as creating inflationary pressure within Venezuela thatalso led to higher pay claims by employees.
The oil producer is also currently spendingsignificant sums on several new exploration and development projects,of which the most important is the Plataforma Deltana offshorenatural gas project located in Venezuelan coastal waters nearTrinidad and Tobago.
Production and Trade Minister Ramon Rosalessaid Tuesday the government accepted PDVSA's reasons for needingto withdraw its savings from the Fund.
He said, however, that he had received assurancesfrom company directors that the majority of the money would beinvested in the company's operations rather than used to pay debtsor fund imports.
Rosales said he was hopeful that by investingits $2.4 billion in productive activity, PDVSA would help sparka revival in the recession-hit Venezuelan petroleum sector, whichcontracted 7.6 percent in the first quarter of 2002.
Despite the minister's attempt to put abrave face on the company's decision, the withdrawal is far fromgood news for Venezuela. Firstly it means that the oil-rich country'smost important company and key source of foreign income is currentlyfacing a cash-flow problem so serious that it needs an additional$2.4 billion in order to meet its current commitments.
Secondly, and perhaps more seriously, thewithdrawal leaves Venezuela's Macroeconomic Stability Fund shortof cash at a time when the country is facing a deepening politicaland economic crisis.
The fund was created in 1998 to bolsterVenezuela's international reserves and to limit the economic impacton the country of fluctuating prices for oil, Venezuela's majorexport. It holds funds invested by Venezuelan state agencies,chiefly the national and regional governments and PDVSA. PDVSA'swithdrawal will leave the fund with just $2.9 billion comparedto the $6.2 billion it held at the start of 2002. This balancerepresents the remainder of the oil company's savings plus $1.3billion belonging to Venezuela's regional governments.
The government of President Hugo Chavezhas already withdrawn virtually its entire savings from the fund.The national government has made three withdrawals totaling $965million to date in 2002, meaning the authorities now have just$48 million left in the fund.
The Chavez's government's handling of theMacroeconomic Stability Fund has proved extremely controversialin Venezuela and has led to accusations that the national authoritiessee the fund as a cash cow that can be milked to meet short-termneeds.
The National Assembly's Economic and FinancialAssessment Department has already said it considers the government'swithdrawals this year to be illegal.
Department director Francisco Rodriguezsaid the authorities broke the law by not seeking permission fromthe National Assembly before removing the money. He also saidthe government removed more than the legally allowed amount fromthe fund. Current legislation allows the authorities to removea maximum of two-thirds of the sum invested in the previous year.
Apart from the scandal surrounding its withdrawals,Chavez's 'social revolutionary' government is also facing judicialinvestigations into its deposits into the fund -- or lack of thereof.Former Finance Minister Nelson Merentes admitted earlier thisweek that on two occasions he decided not to make payments intothe Macroeconomic Stability Fund that had been mandated by theNational Assembly.
Merentes said the government had used themoney, a total of 2.3 billion bolivares, $3 million at the thenexchange rate, to pay outstanding public-sector salaries. Investigationsare still continuing, but it is likely Merentes and other seniorofficials could face a charge of misappropriating public funds.In Venezuelan law, misappropriation means handling public fundsin an illegal fashion rather than for purposes of personal enrichment,and in this sense Merentes has already virtually admitted hisguilt. Analysts have noted that even if the government repaysthe missing 2.3 billion bolivares, the impoverished MacroeconomicStability Fund will still lose out. The bolivares were supposedto have been transferred into dollars and deposited well beforethe exchange rate mechanism was liberalized, whereas now theirdollar purchasing power will be at least 30 percent lower.
The opposition has seized upon the caseof the missing fund deposits to highlight what they allege issimply another example of high-level administrative incompetencein the Chavez administration. Francisco Rodriguez said his departmentwelcomed Merentes' confession, but that a number of questionsstill remained to be answered about the affair. "If the fund'sresources were used to pay salaries, then what is still missingis the money that was designated to pay those salaries in thefirst place," he said. "There is still a great unknownhere. I don't think he has answered the question of where theseresources finally ended up."