Economy
Pressed by sinking oil prices, President Hugo Chávez said on December 27th: "The first days of January I am going to give some economic news," and disclosed that the main goal was to "increase income by means of non-oil exports."

The possibility that the enormous dependence on oil, a good that yields 93 out of 100 dollars of the income, will diminish fast in an scenario where investments dropped by 2.1 percent in 2008 and the currency is extremely overvalued, seems virtually impossible. Therefore, the government weighs the introduction of new taxes.

Financial sources explained that the Executive Office is thinking about a new tax of 2 percent for payments with credit cards, debit cards and electronic transfers, signaling the end of the era of cheap taxes.

From 2004 to 2008, the average price of the Venezuelan oil basket soared from USD 32.22 to USD 88.74.

With the help of oil, Hugo Chávez's administration was swamped with cash. The windfall of petrodollars in five years amounted to USD 294.9 billion, a wealth basically oriented towards expenditure, multiple scholarships, salaries, subsidies, preferential loans, new ministries, businesses nationalization, creation of banks, seizure of farms, and a thickened public payroll.

In terms of the Gross Domestic Product (GDP), public expenditure went from 31.9 percent in 2004 up to 39.4 percent in 2006, falling down to 35.7 percent in 2007. As a matter of fact, Hugo Chávez's administration spent in 2006 USD 71.4 billion, a hike of 102 percent versus the outlays in 2004.

Such a substantial increase of the expenditure, thanks to oil revenues, was accompanied by a reduction of the value-added tax (VAT) from 16 percent to 9 percent; removal of the bank debit tax (BDT) in 2006 and termination of the financial transactions tax, which was effective only from November 2007 to June last year.

Back to the frenzy
The urgency of the Executive Office to increase income sources is apparent. After a peak of USD 129 in July, the Venezuelan oil basket plummeted to USD 31.14 on December 19th.

The 2009 budget entails average oil prices at USD 60. Therefore, at this current time, revenues by this means show a deficit near 50 percent.

As a result of the smaller inflow of foreign exchange, the allocation of dollars for travelers was halved and most possibly the government will have to reduce the amount of goods imported with the official exchange rate of VEB 2.15 a dollar.

The possibility of borrowing in the international market is very complicated. Investors, struck by the losses resulting from the crisis in the United States, opted for Treasury notes and there is strong aversion to the purchase of bonds from emerging countries.

The country risk, a measure that shows the difference between the yield demanded by any investor to buy Venezuelan notes instead of notes of the US Treasury, reached historical levels.

In this context, analysts do not rule out devaluation.
vsalmeron@eluniversal.com

Translated by Conchita Delgado

Víctor Salmerón
EL UNIVERSAL