Financial News from a Parallel Universe

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CARACAS – Amid the ongoing rout in oil prices, President Nicolás Maduro reassured Venezuelans once again that the nation is well placed to withstand the crisis. “Thanks to the revolution’s prudent stewardship of the most recent capitalist oil boom, our Macroeconomic Stabilization Fund still has $167.6 billion on hand to cushion this blow,” Maduro said, adding “the revolution finally put an end to the imperialists’ reckless vice of gambling the pueblo’s future on oil prices continuing to rise forever!”

President Maduro reasserted his year-old policy of making up much of the budgetary shortfall arising from lower oil prices by drawing down savings in the Stabilization Fund – known as FIEM, for its Spanish acronym.

“For years our opponents slammed us for saving part of the oil windfall instead of giving in to the temptation to spend it all at once. But today we see the wisdom of the Eternal Comandante’s vision. We owe it to him that we’re able to weather this storm in peace,” the president said.

But critics in the National Assembly noted that FIEM’s balance has fallen almost $30 billion from its high of $196.3 bn. in August 2014, with some worrying the government may need to draw down the fund by as much as a further $60 billion this year if oil prices fail to recover. “That would leave us with barely $100 billion in FIEM, a national disgrace!” charged opposition congressman José Guerra, who often speaks for the opposition on economic issues.

Others in the opposition slammed the Maduro Government for seeking to take credit for the fund, which was actually enacted in 1998 just before the current government took power. “Now president Maduro talks as though FIEM had been their idea,” said Julio Borges, minority leader in the National Assembly following PSUV’s landslide victory in December’s parliamentary election. “Chavistas forgot that FIEM was around long before them.”

President Maduro dismissed the claim as ludicrous, saying “of course the pelucones” a favorite term of abuse here, “enacted FIEM…when oil was at $10 a barrel! It took the visionary leadership of our Eternal Commander Hugo Chávez to stick with it when oil prices rose, bucking the temptation to just spend all of the windfall. Because just imagine what would have happened if a pelucón had been in power at that time! They would’ve spent it all…and then some! We’d be going into this recent oil slump with no savings, probably deep in debt. Who knows, people might even be talking about default at this point, ¡que Dios no lo quiera!

Nonetheless, markets remain jittery. The bolivar slid to Bs.1.92 to the dollar in free market trading, from as little as Bs.1.44 at the peak of the oil market, with some analysts worried it may soon test the psychologically important Bs.2.00 barrier. Local market watchers worried about the spike’s impact on inflation, with some forecasting it could reach a worrying 8% at the end of 2016, as GDP growth slumps to just 1.8% this year, down significantly from the 4.7% average of the 2009-2014 oil boom years.

30 COMMENTS

  1. In this story, the Norwegian economic minister sites Venezuela as the other only oil producing nation that understands the management of a macro economic stabilization fund.

  2. It’s funny you forget to mention that the depletion of the fiem is actually being used, following the plan de la patria, in investment in education, generation of electricity from renewable sources, promoting the services and manufacturing industries (the bs is obviously artificially low to favor exports) and other long term strategies, you simply want to favor short term populism and are unable to see in the medium and long term.

    No volverán!

  3. *clears troath*

    The cuento derecho is that after the success of the empresas mixtas program and Venezuela productiva initiative a huge ammount of those funds came from sources other than simple petrodoyare$$, since it was the revolution’s plan what got the money in the first place, it should be up to us to decide what to do with it, and if the people voted for our plan to keep diversifying, that’s what should be done.

    Like el presidente obrero said in his memoria y cuenta “it’s just not possible for the oil prices to cross the $55 barrier ever again, even if it miraculously did it would be plain suicidal to make plans depending around the price of one commodity”.

    We should not panic here, oil barely accounts for 40% of our income, it’s still way too much, but acording to the plan de la patria it should account for 30% by 2019.

    Just keep working and don’t feed the negative matriz de opinion because it might start to impact negatively the tourism sector.

  4. Great post!!! According to Giordani’s memoirs this is what he suggested President Chávez to do to with the oil rent above $10 to which Chávez suggested that he would be ousted from power if they did that. Squaring that with Acemoglu and Robinson’s appreciation of “extractive institutions” making Nations fail makes you wonder if Chavez was right. Were the Venezuelan “institutions” ready to save 150bn from the windfall? Wouldn’t the line of “que hay pa mi” try to get rid of the owner of the keys to that enormous wealth? I think these are valid questions as the process of recovering from this crisis will entail rewriting many foundational social contracts.

  5. Very clever way of illustrating what the real problem of our country is .

    If we had simply done the common sensible thing in saving some of our oil revenue to take care of bad times we would not be in the mess we are in right now , many other countries did it and its been something which all respectable economists and analysts (Hausman . Naim ) have recommended but our main leader was drunk on the hubris or being Big Sugar Daddy for all his followers , come what may .

    Two things to note : The income shown on the graph would have been much larger if Pdvsa had continued to be handled in the professional commercial basis it was handled before its management was eviscerated in 2002. without gifties to Cuba , without the waste and corruption thats been characteristic of the Roja Rojita Pdvsa that succeeded the former .

    The secon thing to note is that the resource curse would not hae prevented Venezuela from keeping itself whole in the current pricing debacle , the diversifictacion of the Venezuelan economy however desirable and necessary , wasnt absolutely essential to keep the economy going on a healthy basis .

    The problem is our political incapacity to handle the countries oil resources in a rational and balanced manner !!

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