Venezuela to Pump More Dollars Into Economy With Oil Tax
Venezuela will channel more resources from its oil exports to the central bank this year as it seeks to alleviate a shortage of dollars that has crimped imports, Oil Minister Rafael Ramirez said yesterday.
The government plans to reduce levies on the oil industry by changing rules on the so-called windfall tax that will now only be triggered on oil prices above $80 a barrel, instead of $70 a barrel. The move will reduce funding to President Hugo Chavez’s off-budget development fund known as Fonden and pump more dollars into the central bank, Ramirez said. The changes need to be approved by Congress.
The measure is part of an economic growth plan approved by Chavez as he undergoes treatment for an undisclosed type of cancer in Cuba, the minister said. A shortage of foreign currency led to a 53 percent plunge in the bolivar to 18.35 per U.S. dollar in the black market in the past year, stoking inflation and fueling shortages of staple goods such as chicken, milk and corn flour.
“We are making every effort to make an adjustment to the distribution of foreign currency to attend to the demands of our country,” Ramirez said yesterday at a news conference in Caracas. The measure was taken to “increase the availability of foreign currency and relieve tension on our currency created principally by the speculative sector.”
Yesterday’s announcement shows that the government will enact only timid economic measures and isn’t likely to devalue the bolivar given the country’s political uncertainty, analysts at Eurasia Group, a New York-based consulting company, wrote in a report. While the measure should help reduce shortages and rein in inflation, they won’t improve the state oil company’s cash flow or ability to invest.
“The measures announced imply that the government has no political incentives to make any material economic adjustments and instead will maintain the current system, potentially tweaking policy at the margin,” Eurasia Group analysts Risa Grais-Targow and Daniel Kerner wrote in a report yesterday.
The tax changes will increase state oil company Petroleos de Venezuela SA’s cash flow by $1.42 billion this year and increase the amount of dollars it sells to the central bank by $2.47 billion, Ramirez said. Fonden received about $15.5 billion last year from PDVSA, as the Caracas-based company is known, and will get about $12.6 billion this year with the updated tax plan.
PDVSA will sell a total of about $49 billion to the central bank this year, Ramirez said, adding that he would not comment on the country’s exchange rate policy.
The state oil company “and its partners are unlikely to benefit from the reform, since PDVSA will not have more funds with which to invest and, rather than benefitting from a devaluation,” will have to sell dollars at the regulated rate, Eurasia Group’s Grais-Targow and Kerner said.
Venezuelans use the black market when they can’t get access to the central bank’s Sitme exchange, which sells dollars to businesses for 5.3 bolivars, or the so-called Cadivi system that sells dollars at 4.3 bolivars for priority imports.
The tax changes will allow PDVSA to increase inflows of currency as well as oil output, said Jose Luis Saboin, an economist with Caracas-based financial consultancy Ecoanalitica.
“In the short term, the central bank will have more room for maneuver and a better capacity to provide funds to Cadivi,” he said in a telephone interview.
Venezuela has also proposed payment changes to the Petrocaribe accord that provides subsidized oil to Central American and Caribbean countries, Ramirez told reporters yesterday in Caracas without providing additional information.
PDVSA has no plans to issue dollar bonds this year, Ramirez told reporters, adding that the company had previously issued dollar bonds to supply the Sitme market.
“We’re not selling any bonds,” said Ramirez. “It doesn’t make economic sense for us to continue issuing debt in dollars to obtain bolivars. It’s a mechanism to supply the Sitme, and we’re not going to keep doing it. Sitme forces us to issue at a rate that makes international loans more expensive.”
Venezuela will maintain its preference for issuing local over foreign debt in 2013, Finance Minister Jorge Giordani said last month. The country hasn’t offered bonds denominated in dollars since 2011, when it issued a total of $7.2 billion, according to data compiled by Bloomberg. PDVSA, South America’s largest oil producer, last sold dollar-denominated debt in May.
PDVSA said Jan. 22 that its total debt climbed 15 percent to $40 billion last year. The company’s debt soared 40 percent in 2011 when it issued $10 billion of dollar bonds.
Venezuela needs oil at around $100 a barrel because of Organization of Petroleum Exporting Countries’ production quotas, Ramirez told reporters yesterday in Caracas.
The South American country is developing plans to expand its gold mining industry and is in talks with China’s Citic Group Corp and South African companies to do so, Ramirez said. Chavez approved the transfer of areas holding 81.3 million ounces of gold to a state mining company controlled by PDVSA, the company said in a statement yesterday.
Ramirez denied a Bloomberg News report published Jan. 25 that said foreign oil companies were slowing investments in the country over the uncertainty surrounding Chavez’s health.
“Ask Sechin. It’s false. Everyone is here, and we’re all working,” said Ramirez. “The oil business has never been easy, but there’s always a pulse because it’s a great business. The resource is ours, and we’ll enforce our laws. People can decide to invest here or elsewhere. Let everyone take their own risks.”
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