Venezuela increases debt to feed parallel funds

[ChangoLoa]

The government's financial management is similar to someone who decides to borrow money with his credit card despite the fact that he has a huge amount of money in his checking account. The effects are negative because credit card debts have a much higher interest rate than interests earned by deposits in current accounts. However, Hugo Chávez's administration thinks that it is a strategic plan, from the political point of view.


"I have my savings, believe it or not. I have a financial cushion," Chávez said in December 2010. How much money does the cushion hold? According to Venezuela's balance of payments, which was released by the Central Bank of Venezuela at the end of the first quarter, the government has deposits abroad amounting to USD 24.2 billion in parallel funds such as the National Development Fund (Fonden), in which the money has fewer controls than the regular budget.

Economic research firm Ecoanalítica has estimated that the funds actually amount to USD 14.2 billion. The difference with the figures reported by the BCV is because Ecoanalítica deducts from the total amount reported in the balance of payments, some funds that have been earmarked for different projects but have not been disbursed yet.

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While the government maintains a "financial cushion," it borrows money at a fast pace. So far this year, state-owned oil company Petróleos de Venezuela (Pdvsa) has assumed new commitments amounting to USD 8.5 billion (with China, Japan and several bond issuances), while the National Assembly okayed an 86.5 percent increase in the borrowing ceiling in 2011. The interests earned by Venezuela for the money placed in parallel funds are far lower than the money it has to pay for new debt.


http://english.eluniversal.com/2011/06/20/venezuela-increases-debt-to-feed-parallel-funds.shtml