ESPACIO PUBLICITARIO
CARACAS, Monday February 11, 2013 | Update
 
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DEVALUATION

Devaluation raises Venezuela's debt burden to 70% of GDP

The size of the economy has shrunk following the adjustment of the exchange rate

José Guerra, an economist and professor at the Central University of Venezuela (File photo)
EL UNIVERSAL
Monday February 11, 2013  12:24 PM
VICTOR SALMERÓN

Pressed by the need to fill the gap between expenditures and revenues, the Venezuelan Government devalued the currency -a move that increases the amount of bolivars per petrodollars, but also creates negative effects on public finances as it raises the debt burden.

The increased debt burden means that the market perception of risk worsens and the country has to pay higher interest rates to obtain new financing. At the same time, the government has to pay higher amounts for the principal and interests payable on the debt. This absorbs a larger portion of the budget and cuts down the funds available for sectors such as health, education and infrastructure.

Economist and professor at the Central University of Venezuela (UCV) José Guerra, who conducted a research together with his colleague Luis Oliveros to assess the trend of Venezuelan debt, asserted that devaluation dilutes the amount of debt in bolivars because the government will need fewer petrodollars to repay the debt. However, the move also cuts the size of the economy, that is, the gross domestic product, while the foreign currency debt remains unchanged.

If one takes all the debt in bolivars and converts it into dollars based on the new exchange rate of VEB 6.30 per US dollar, and if the foreign debt is included, the total debt of the Venezuelan republic is USD 180 billion.

When the GDP is converted into US dollars, the total debt, after the devaluation, represents 70% of GDP, up 20 points compared to the level recorded with the exchange rate at VEB 4.30 per US dollar.

While this not an unmanageable debt-to-GDP ratio, it is no longer a comfortable level and triples the amount recorded in 2008.

Just like in the 1970s, the country has increased the debt amid a cycle of high oil prices, while skyrocketing public spending has failed to diversify the economy.

Translated by Maryflor Suárez R.
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Is protest over?

That political protest in Venezuela has lost momentum seems pretty obvious: people are no longer building barricades to block off streets near Plaza Francia in Altamira (eastern Caracas), an anti-government stronghold; no new images have been shown of brave and dashing protesters with bandanna-covered faces clashing with the National Guard in San Cristóbal, in the western state of Táchira; and those who dreamed of a horde of "Gochos" (Tachirans) descending  in an avalanche to stir up revolt in Caracas have been left with no option but to wake up to reality.

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