Devaluation increases Venezuela's debt burden on the economy
Non-recorded debt amounts to USD 25.4 billion
Pressured by the growing gap between expenditure and income, it is very likely that the Venezuelan Government devaluates the local currency (bolivar) in 2013. Such an action may increase the amount of bolivars it will receive per the so-called petrodollars, yet this may bring about negative effects on the State's accounts as the burden of the country's debt will increase.
A higher impact of the debt on the economy means that the market will increase its risk perception and the country will end up paying higher interest rates to obtain new financing. Likewise, the principal amount payable and accrued interest demands a larger portion of the budget, lessening funds for health, education, and infrastructure.
University professor and economist José Guerra along with his colleague, Luis Oliveros, has evaluated the debt's trend to explain how devaluation eases the burden of the debt in local currency. According to the economist, the Government will require fewer petrodollars to pay its debt. However, it will also reduce the size of the economy, that is to say, Gross Domestic Product (GDP) whereas the debt in US dollars remains the same.
Guerra stressed that if the current foreign exchange rate (VEB 4.30 per US dollar) is kept, if all the country's liabilities are included and economic growth for 2012 is projected, Venezuela's current debt may account for 57% of the GDP.
By doing the same at a VEB 5.2 per US dollar foreign exchange rate, taking into account that a portion of the economy relies on operations carried though the Transaction System for Foreign Currency Denominated Securities (Sitme), the burden of the debt will amount to 65% of the GDP.
If devaluation adjusts the foreign exchange rate to VEB 7 maximum per US dollar -a very conservative scenario considering the forecast made by financial institutions such as Bank of America- the country's total debt will jump to 70% of the GDP. Although such a figure may be handled, it is a bit concerning and it will triple the amount recorded in 2008.
Guerra also explained that Venezuela's foreign debt stands at USD 131 billion, including the money borrowed from China. For its part, demestic debt at the current foreign exchange rate amounts to USD 57.3 billion. Guerra added that a non-recorded debt is also pending.
By a non-recorded debt "We referred to the debt that must be paid and does not derive from bonds. It includes Pdvsa's liabilities (the state-run oil company) to suppliers and joint ventures. It also entails all the money it must pay after seizing the assets of companies such as Rusoro, Conoco, Exxon, among other" Guerrero remarked.
The non-recorded debt amounts to USD 25.4 billion. It almost totals the country's international reserves.
Moreover, unlike most oil producers, Venezuela does not have a savings fund it can rely on if oil prices slump.
Translated by Jhean Cabrera
Cristian Fonseca, a businessman in La Candelaria district downtown Caracas, was doing the accounts in his small shop office on Sunday December 21, 2008. The Christmas shopping season kept him working late hours into the night. It was around 11 p.m. and his phone rang. A friend broke the bad news to him over the telephone.