Jose Manuel Puente : Sooner or later the bomb will explode

Por Venezuela Real - 28 de Octubre, 2008, 12:16, Categoría: Economía

BBC News /Public Policy Centre, Caracas
October 28, 2008

The Chavez government has been running an expansionary fiscal policy in order to pay for many of the social programmes for the poor known as "missions".

This is one of the reasons why Mr Chavez remains popular, but the fiscal deficit has mushroomed in the first half of 2008.

Inflation is running at 36% in the last 12 months, the highest in Latin America.

And the balance of payments is heavily in deficit despite an estimated US$85bn in oil revenues this year. This is because a record amount of imports, nearly half from the US, has been sucked in to fuel a mini-consumption boom.

"Everything is linked to the oil boom," says Mr Puente. "If oil prices continue to fall, the country simply will be unable to continue importing to meet rising demand, maintain the exchange rate and the expansionary fiscal policy, and keep this illusion of harmony."

Ticking time bomb

Critics say President Chavez's aggressive nationalisation policy has put off foreign investors, with the result that most investment now comes from the state, and not private companies.

According to figures from the UN Conference on Trade and Development, total foreign investment in Latin America last year was worth about US$126bn.

Of this, only US$600m was invested in Venezuela, compared to more than US$8bn in neighbouring Colombia, and US$15bn in Chile.

Another structural problem is that despite the high oil prices, Venezuela's oil output has actually been falling, from more than 3m barrels per day in 1997 to about 2.4m bpd now.

The problem, according to analysts Oxford Analytica, has been the absence of capital investment and of skilled management personnel in the state oil company, PDVSA.

Not all analysts paint a bleak picture. They point out that there are plenty of non-essential activities which the Chavez government could cut both at home and abroad.

President Chavez himself has spoken of the need to make revisions and to be more efficient in spending.

Few doubt that Mr Chavez will face tighter funding next year - but how much is hard to quantify as the oil price is so volatile.

Mr Puente is convinced that the "warning lights on the dashboard" are serious. "In the medium term", he says, "sooner or later the bomb will explode."

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