Venezuelan domestic debt jumps 62% in 2012

Forced to raise funds in order to afford skyrocketing public spending, the Venezuelan government has resorted to debt but, unlike previous years, it is now issuing debt massively in bolivars.

In this way, a likely devaluation would allow the government to obtain more bolivars for petrodollars, thus readily reducing the debt burden on public accounts.

In its latest financial report, research firm Síntesis Financiera stated that Venezuela's domestic debt, that is the debt in bolivars, ended at VEB 249.3 billion (USD 57.97 billion) in 2012, which is 62% higher than in 2011, thus climbing from 9% of GDP to 16.3% of GDP.

It is advantageous for the government to issue debt bonds and treasury bills that are sold to Venezuelan banks. Such titles are placed at very low interest rates and, should the government have trouble to repay such debt, it could force financial institutions to extend the maturity date.

Meanwhile, banks get tax-free large profits. In fact, this is one of the factors that led to an 86%-increase in profit the Venezuelan financial system in 2012.

For the first quarter this year, the Ministry of Finance plans to issue more debt bonds and treasury bills for some VEB 14.9 billion (USD 3.46 billion).

In the meantime, financial institutions such as Barclays suggest that including all the debt of Venezuela, both in bolivars and dollars, the debt-to-GDP ratio has surged from 23% in 2008 to 51% at the end of 2012.

Although this relationship remains manageable, it has grown rapidly amidst a period of booming oil prices. The government has resorted to additional indebtedness in order to close the gap between revenue and public spending, which stands at some 16% of GDP.

vsalmeron@eluniversal.com