Venezuela to Raise Spending 46% in 2012 Budget Ahead of Vote

Venezuela to Raise Spending 46% in 2012 Budget Ahead of Vote
Luiz Inacio Lula da Silva, Brazil's president, left, and Hugo Chavez, Venezuela's president, visit a soybean farm in El Tigre, Anzoategui State, Venezuela. Photograph: Milaflores Palace via Bloomberg

Venezuela’s government will boost spending by 46 percent in 2012 as President Hugo Chavez seeks resources to fund housing, agriculture and job creation plans that are pillars of his re-election bid next October.

Expenditures will jump to 297.8 billion bolivars ($69.34 billion) while estimates see the economy expanding 5 percent and the Western Hemisphere’s highest inflation rate falling to between 20 percent to 22 percent, Finance Minister Jorge Giordani said today during a presentation of the budget proposal to the National Assembly. Consumer prices rose 26.7 percent from a year earlier in September.

“The budget will help our plans for growth,” Giordani said in comments broadcast on state television. “We are already in a phase of growth, and it will be possible to grow 5 percent in 2012 thanks to our investments in oil projects and social programs.”

The bolivar won’t be devalued next year, Giordani said.

Chavez is looking to ramp up spending as he campaigns to win a third consecutive six-year term in the Oct. 7, 2012, elections. The economy, which grew 3.6 percent in the first half of 2011, is lagging others in the region, even as the average price of Venezuelan crude oil exports has averaged a record $99.58 a barrel this year.

‘Technically Correct’

The government will set a ceiling for new debt of 81.7 billion bolivars in 2012, of which 25.8 billion bolivars will be used to service outstanding borrowing, Giordani said. The country’s debt servicing costs will rise 141 percent next year after the government issued $7.2 billion of bonds this year with interest rates of 11.95 percent and 11.75 percent.

Venezuela expects to finance 55 percent of government spending with non-oil sources of income, according to Giordani.

“The projections for inflation in 2012 are technically correct and achievable,” central bank President Nelson Merentes said in comments carried on state television. “We will concentrate a great deal more on reducing inflation.”

Venezuela, the largest oil producer in South America, depends on oil for 95 percent of export revenue and almost half of government spending. The budget was calculated using an average oil export price of $50 a barrel, Giordani said. Mexico’s finance committee in the lower house of Congress approved an estimated oil price of $84.9 a barrel for next year’s budget.

Deficit, Protection

Venezuela often sets a conservative oil export prices in the budget in order to protect against volatility in the energy markets. The budget is considered a floor on spending with expenditures rising during the year through “additional credits” awarded discretionally by Chavez to ministries.

So far in 2011, the National Assembly has approved 128.6 billion bolivars in additional credits beyond the 2011 budget of 204.2 billion bolivars.

Venezuela expects a deficit of 3.6 percent of gross domestic product in 2012, a wider deficit than the 3.4 percent posted in 2010. Venezuela’s proposed budget represents 19 percent of the 1.58 trillion bolivars GDP expected next year, according to the proposal.

“Government spending in Venezuela is a tool to stimulate economic growth,” Giordani said today. “We’re dedicated to protecting the Venezuelan economy from the structural international crisis.”

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