Venezuela’s cabinet approved a law to raise the country’s debt ceiling by 30 billion bolivars ($7 billion) this year for pensions and social spending, Vice President Elias Jaua said.
The law, which would increase the debt ceiling by 37 percent to 111.7 billion bolivars, will be forwarded to the National Assembly for approval, Jaua said yesterday on state television after a ministerial meeting in Caracas.
The move is designed to pay off outstanding pensions as President Hugo Chavez begins campaigning for an Oct. 7 election in which he’s seeking to extend his 13 years in power, said Francisco Rodriguez, an economist at Bank of America Merrill Lynch in New York. While the government will eventually need to sell dollar-denominated bonds to finance imports and prevent international reserves from falling, it will probably continue this year’s policy of issuing debt in bolivars for now, he said.
“The government wants to be able to tell people they’re going to have their money by the time that they go to vote,” Rodriguez said in a phone interview. “They’re doing this to carry out domestic issuance that they had already foreseen. I don’t see this being the route through which international issuance is going to take place.”
Local Debt Sales
Venezuela has sold 53.1 billion bolivars in local debt this year through June 29, Rodriguez said. That’s 66 percent of the total debt that was initially approved in the budget.
Chavez in March adjusted the finance law to reduce the need for authorization from the National Assembly and the central bank to boost debt issuance above the amount set in the annual budget. The government can bypass congress and the central bank for additional debt operations needed to refinance public debt, guarantee “food sovereignty,” invest in social and defense projects and fund responses to natural disasters.
Venezuela hasn’t sold dollar-denominated bonds since October and has depended on local currency bond sales to raise money and drain liquidity. In May, state oil company Petroleos de Venezuela SA sold $3 billion of bonds due in 2035 in a private placement with the central bank.
Chavez last year signed a bill to increase the country’s debt ceiling by 45 billion bolivars, almost doubling the initial amount set in the budget. The government and PDVSA, as the oil company is known, sold a record $17 billion of dollar-denominated bonds in 2011 to finance social programs ahead of this year’s election.