Taking advantage that the whole country was on vacation on Thursday, Hugo Chavez piled one illegality over the other to issue a decree to increase the availability of discretionary funds for his spending. The illegal decree creates a special contribution by PDVSA which will go directly to the development fund, whenever oil prices are very high like they are now.
According to the decree,when oil prices are above US$ 70 per barrel, but less than US$ 90, 80% of that difference will go directly to the fund. If prices are between US$ 90 and US$ 100, this will be 90% and if prices are, like they are today, above US$ 100, 95% of the excess will go directly to the Development Fund. This fund is a discretionary fund which is managed with little or no transparency according to the President’s whims and wishes.
The decree is doubly illegal, since it is based on the illegal Enabling Bill granted Chavez in the dying hours of the old National Assembly, which gave the President the power to legislate beyond the term of the Deputies that approved and in violation of the legal mandate the people had given the new Deputies of the National Assembly in September. Chavez would not have had the required 2/3 majority in the new Assembly to obtain these powers.
But to add one illegality on top of the other, the Enabling Powers were given to Chavez to deal with the housing emergency, thus, creating this special contribution to a general fund which is managed with little transparency can not be legal even if the Enabling Bill were legal. But Hugo never cared for such details before.The only way the decree would be legal would be if the funds went directly to deal with the housing crisis, which will not be the case under its structure.
According to Chavez this decree insures that more of the money goes “directly to the people”, but in reality they go more directly to him and his ability to use funds without control, supervision and under his total discretion. Chavez called oil prices exorbitant, which is somewhat ironic given that he has always said that US$ 100 was the fair price for a barrel of oil,
The decree will add to the lack of transparency in the country’s numbers. The current mystery is why international reserves have dropped in 2011 with oil prices increasing significantly when compared to last year. Outflows via the foreign exchange control office CADIVI have increased only marginally, suggesting that PDVSA is either paying supliers, not handing over as much foreign currency to the Venezuelan Central Bank or giving it directly to the development fund Fonden. Such lack of transparency is a partial explanation for the country and PDVSA’s bonds enjoying such a risk premium, as Hugo Chavez continues to manage the country’s finances at will and without much control from other institutions.
Venezuela and Venezuelans lose in the end, as this misdirects funds and keeps straining PDVSA’s cash flow. If you believe oil exports are at 1.6 million barrels a day and assume oil prices will average from here till the end of the year $105 per barrel, this will give the development fund some US$ 11.5 billion for Hugo to spend at will.