Why is Venezuela running out of money?

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But the national budget was prepared using $40 per barrel. According to Venezuelanalysis, the goal was to produce 3.1 million barrels per day (last paragraph at http://www.venezuelanalysis.com/news/4881).

So how come the government is incurring so much debt if the oil price is much higher than assumed in the budget? It seems oil production isn't what they thought it would be. OPEC reports Venezuela's crude oil production averaged 2.32 million barrels per day in 2010. Let us assume they also produced 0.2 million of condensates (it's hard to tell since OPEC doesn't breakdown the condensate production). This adds up to 2.52 million barrels per day. So production is 80 % of what was forecasted.

Now we have to correct for national consumption, which is reported to be about 0.5 million barrels per day. This national consumption is sold at a subsidized price, below cost. Therefore it doesn't really factor into national government income. And we should also factor in about 0.1 million barrels per day in oil given away to other nations. Thus, we get:

Estimated by the government, money earning oil sold = 3.1 - 0.5 - 0.1 = 2.5
Estimated using OPEC's figures, money earning oil sold = 2.5 - 0.5 - 0.1 = 1.9
Ratio of 1.9 to 2.5 = .76

Ratio of $72 (price to date) versus $40 (price the government said they were using): .55
Inverse ratio: 1.8
Actual versus estimated cash flows: 1.37

In other words, the government ought to be raking in about 37 % more cash than forecasted.

So why are they running out of money, and issuing so much debt? My guess is not all of the oil is being sold for cash, in previous years they borrowed money from the Chinese. The agreements were not disclosed, but it appears they committed to pay with oil. So it's possible some of the oil being produced now is sent to China, and doesn't get the full price, or any price at all? Another factor is the cash going to the multinationals which own a piece of the action in the oil industry. Remember the famous negotiations where the government gave these foreign companies 40 % of the action? We don't know exactly how much money they really get, because they have to pay taxes, but we can guesstimate they get say $1 billion per year as a reward for not walking out the way Exxon and Conoco did.

To complicate matters even more, the government doesn't disclose the accounts (a lot of it is sent to funds controlled by Chavez which don't report their ins and outs at all). So a lot of what we have is speculative. What's my conclusion? They keep two books, one with the fake figures they disclose to the public, with the 3.1 million barrels per day production numbers, and a second book with the real accounting.

This allows for the revenue loss due to production being lower than they say, and also for the oil they give away, and the oil they sell at discounted prices to their friends in Cuba and the other beggar nations in Petrocaribe and so on. And of course there's the oil being sent to nations we owe money such as China. And when they work their real books, not the imaginary book they show the public, they don't have enough cash to spend on all their social missions, the money used to invest abroad in refineries and other stupid investments they shouldn't be making, and of course all those toys for the military.

This is the reason why they're borrowing so much now - the official books aren't real, and the real books are not balanced even though oil prices are a lot higher than allowed for in the national budget. And now on top of everything they're in a panic trying to buy every generator they can get their hands on, to weather the power generation crisis they created with their own neglect.

So we'll keep going into debt, and there's no end in sight to the current trend. Oil production isn't about to go up, because PDVSA's deals with foreign companies seem to go nowhere (they sign paper after paper, but we don't see any real activity in the field to drill the thousands of wells and lay the thousands of km of pipelines needed). Which explains why Venezuelan bonds have fallen below investment grade - the big dogs in the financial world are starting to demand interest rates in excess of 12 % to buy those bonds, to cover the perceived risk - they know a lot more than the common man on the street, and they are extracting their pound of flesh from the Venezuelan people. And this is Socialism of the 21st Century in a nutshell - it puts us in the hands of the same moneylenders Jesus complained about.

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1. Venezuela slides back into crisis while Latin America rebounds

More on the economic situation from el Universal:

"Official statistics show that Latin America overcame the impact of the global crisis and as of the fourth quarter of 2009 resumed economic growth, while Venezuela fell into a recession that tends to worsen.

In the third quarter of 2009, the main Latin American economies showed slight declines that reflect the end of the crisis.

Colombia virtually halted the fall with a 0.2 percent decline; Brazil recorded a negative result (-1.2 percent); Argentina (-0.3 percent) and Peru (-0.6 percent), while Venezuela plummeted 4.6 percent in the year, following a 5.8 percent decline in the fourth quarter of 2009.

The Economist Intelligence Unit said that Venezuela is the only country in the world that expects a GDP contraction in 2010 and 2011.

The Economist projects that in 2010 the Venezuelan economy will decline 5.6 percent amidst an electricity rationing and rising unemployment.

Spanish BBVA group, which runs Banco Provincial in Venezuela, said that "by 2010, we expect an economic activity with significant challenges to overcome, which could lead to a second consecutive year of negative growth (-2.5 percent)."

"First of all, the effects on real income of the devaluation of the Venezuelan bolivar announced in January, could lead to a 2.6 percent fall in private consumption, and could provoke moderate effects on the competitiveness of tradable sectors," BBVA said.

These forecasts are at odds with Brazil's projections. Although Brazilian economy was affected by a recession early last year, it recovered and stood at 4.3 percent in the fourth quarter of 2009.

ECLAC projections show that Latin America averaged a 1.8 percent decline in 2009, while Venezuela fell 3.3 percent.

http://english.eluniversal.com/2010/03/16/en_eco_esp_venezuela-slides-bac_16A3593531.shtml