CARACAS: The lifeblood of Venezuela’s economy is oil, and the dollars it brings in. So with crude prices low, the government is taking desperate measures to get badly needed hard currency.
And analysts say it is all a recipe for disaster in the country with the world’s largest proven oil reserves.
Venezuela’s budget deficit has ballooned to tens of billions of dollars because it relies entirely on oil for its hard currency and the price of oil is half what it was not long ago.
As if that were not challenge enough for its budget, Venezuela imports about 60 percent of its food and medicine.
Yet, despite its current and potential oil wealth Venezuela is finding it increasingly hard to get trade credit with suppliers because in many cases it owes them millions of dollars.
Many economists have called it a de facto selective bankruptcy.
And suppliers not surprising increasingly don’t want to lend unless they are paid in cash. Venezuela could choose to make major budget cutbacks but has chosen not to do what would be massively politically unpopular.
– Rock and a hard place –
So Venezuela is giving indebted oil customers like Jamaica and the Dominican Republic big discounts in exchange for receiving the rest of the debt in cash immediately.
Uruguay, for instance, got a 38 percent “haircut” to its debt in exchange for coughing up $400 million right away.
In recent months, Venezuela has raised several billion dollars by doing this.
President Nicolas Maduro’s government is also hocking its gold reserves and selling off assets.
Part of the country’s gold reserves were swapped with international banks for $1.5 billion, for instance.
It also issued debt and arranged loans to the tune of $2.5 billion through Citgo, the state-run oil company PDVSA’s refining unit located in the United States.
The country is like a runaway train, economist Orlando Ochoa warned.
“This really looks like suicide. The Maduro government is simply burning up assets to make it to 2016, without an economic reform plan, and even with murky transactions involving oil assets,” Ochoa said.
Legislative elections are scheduled for December of this year, and polls say that for the first time since 1999, the opposition might win.
Other woes abound, too: runaway inflation, shortages of goods as basic as soap and toilet paper, and the yawning budget deficit.
The economy is a mess but the government is shunning reforms that are needed out of fear it will lose ground in the upcoming election, analysts and opposition leaders say.
There is only so much more the government can sale to raise cash, Ochoa said.
He noted that a refinery PDVSA owned jointly with Exxon Mobil Corp was sold this year for $330 million.
“By 2016, there will not be anything left to sell except Citgo,” Ochoa warned.
Besides the hurried sales of assets and the debt relief deals, the government has reduced imports by nearly 50 percent since 2013.
