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STRATFOR.com
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THE INTERNET SOURCE FOR GLOBAL INTELLIGENCE
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Chavez Plan Won't Save Venezuelan Economy
February 18, 2002
Summary
Venezuelan President Hugo Chavez says he will announce a plan to try and save his country's economy from insolvency. The announcement comes amid new disclosures that state-owned oil company Petroleos de Venezuela, which accounts for about half of the total government budget, is in increasingly precarious financial health. With such economic obstacles arising by the day, it's not likely that Chavez's proposal will be a financial savior.
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Analysis
Venezuelan President Hugo Chavez said last weekend he will announce a comprehensive plan Feb. 26 to prevent Venezuela, the world's fourth-largest oil exporter, from collapsing into insolvency. Depressed oil prices and heavy capital flight are already hemorrhaging the Venezuelan central bank's international reserves.
Recent production and financial data now also confirm that state-owned Petroleos de Venezuela, which accounts for 80 percent of the country's foreign-exchange earnings and about 48 percent of the total government budget, will likely be unable to meet the government's fiscal revenue demands this year without suffering irreparable damage. Chavez's plan likely will not prevent a financial crisis from engulfing Venezuela before mid-year.
The precarious financial health of PDVSA will likely have devastating consequences for Venezuela's economic stability in the near term and may well be the final nail in the coffin of Chavez's increasingly unpopular government. In fact, PDVSA's financial situation has deteriorated so alarmingly since Chavez became president in 1999 that Venezuela's status as a major oil exporter and third-largest supplier of oil to the United States could be affected for years.
Government-mandated cutbacks in PDVSA's investment budget have limited the company's ability to expand its production capacity over the years. Company sources now say that PDVSA may experience cash-flow problems by late March if the Chavez regime does not reduce its fiscal squeeze on the company.
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(c) 2001 Stratfor, Inc.
Dan
Chavez Plan Won't Save Venezuelan Economy . . .