MercoPress. South Atlantic News Agency

Venezuela: “surplus” development funds or magic accounting?

Venezuelan president Hugo Chavez has announced the transfer of over 12 billion US dollars from “surplus” Central Bank international reserves to help finance government projects and keep the economy growing.

However a leading financial publication from Caracas questions the accounting behind the transfer of funds and believes the cosmetics hide the country's vulnerability, particularly since the international oil price collapsed. According to the official data, international reserves at the end of 2008 stood at 43.05 billion US dollars, including 828 million US dollars belonging to a contingency fund. Under legal coverage the administration of President Chavez has been using international reserves to finance public works and other social projects through a special development fund, Fonden. "We've estimated according to the bill on optimum international reserves that the ideal level for Venezuela is 30 billion US dollars. Therefore the Central Bank in the coming weeks, (it already has begun transfers) to the tune of 12 billion and fraction…in December and January", announced President Chavez during the recent meeting with his counterpart from Brazil, Lula da Silva. "We're going to make sure the Venezuelan economy keeps growing at its current level", ensured Chavez. But in spite of official optimism, Veneconomy, questions the whole operation as an act of magic, which if proved truth could mean Venezuela is heading for "a serious balance of payments crisis". The publication which has been around since before President Chavez irruption into politics (1982vs1990) points out to the fact that based on government data, the Venezuelan Central bank reserves jumped 5 billion US dollars in just two days, from 38 to 42 billion, at the end of December 2008. "It so happens that on December 29, 2008, the Central Bank reported that the international reserves came to $37.18 billion; but then, two days later, on December 31, they rose to $42.23 billion. In other words, in the space of 48 hours, Venezuela saw its international reserves go up by an historical $5.14 billion, for no apparent justifiable reason" and until then the Central Bank has not given an official explanation of this strange act of magic". Veneconomy says that according to unofficial sources, this sleight of hand works as follows: some 2 billion of the increase of 5.14 billion are dividends paid by the government owned Petróleos de Venezuela, which comes as a surprise since the company has not paid its contractors for the past four months. And even more surprising is the fact that the remaining 3.14 billion are transfers received from Fonden, since by law (Windfall Tax) Fonden is a net recipient of funds. Since the implementation of the bill the Central Bank should have transferred 10.8 billion USD to Fonden, plus a further 3 or 4 billion in the last three months of the year. "It's hard to understand why Fonden should return money to the Central Bank". Veneconomy argues that "if that were all, then the situation would not be that serious and it would be simply yet another example of the craftiness employed" by the Chavez administration. But since the announcement of the 12 billion US dollars current transfer to Fonden of "surplus" reserves and if the Venezuelan Central Bank had entered the transfers made to date correctly on the accounts, it would now be "technically bankrupt", that is below the 30 billion US dollars optimum level of reserves. "If this transfer is made, it would be the first step towards a balance of payments crisis and would unleash the most dramatic spiralling of inflation in the history of Venezuela" concludes the financial report.