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Venezuela's budget charade

From | VenEconomy

20.10.05 | On Tuesday, October 18, the Finance Minister presented the 2006 Budget Bill to the National Assembly with the usual display of paraphernalia. It is regrettable that the nationís budget is turned into a charade with the figures that bear no relationship to the true situation and the National Assembly failing to fulfill its obligation of studying them and evaluating them in depth.

To begin with, it is untrue to say that the Bs.87 trillion of the 2006 budget represent a 27% increase, as the increase in the budget is only 10%, if account is taken of the ordinary budget for 2005 of Bs. 69 trillion plus the additional credits, a total of Bs.80 trillion. Besides, the budget does not include the resources in the National Development Fund or in Fondespa, which amount to more than $8 billion and do not have to go through the formality of being submitted to the National Assembly.

Moreover, a number of the premises on which the 2006 budget is based are false. For example, the price of oil is estimated at $26 per barrel, which is half the current price of $50.78/bbl. Although most analysts forecast that oil prices will remain high at least until 2007, what matters to the Executive is that the revenues are underestimated. With this underestimation, the Constitutional Allocation of funds to the regions (states and municipalities) is automatically reduced, so leaving the regional governments at the mercy of central government (read the President). This, besides preventing governors and mayors from planning the activities in their regions, makes them easier to manage and bend to the mandates of the revolution.

The 2006 budget also forecasts that the rate of exchange will remain at Bs.2,150:$. This will most favor importers and the Bolivarian governmentís new foreign partners/beneficiaries, to the detriment of domestic producers. Another item in the budget submitted by Finance Minister Nelson Merentes is the continuance of the Bank Debt Tax in 2006. This is a tax that produces distortions, is terribly regressive, and affects some sectors more than others, the mass consumer goods sector being one of the hardest hit. The National Assembly had agreed to pass a Casinos Law, which would have generated the Treasury sufficient resources to allow the elimination of the Bank Debit Tax, but it seems that the barons of the games of chance business had more clout than the interests of the population at large.

Now all that is left to do is to sit down and wait for Minister Merentes to keep the promises he made to the Legislature and to see how he manages the feat of reducing the public debt in the midst of a year of presidential elections.

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