Economists ask Comptroller to investigate why Government issues so much debt

November 20, 2005

A while back I wrote this long post
on the corruption racket in Venezuela with
official deposits in the private commercial banking system. Basically,
28.6% of all the country’s monetary liquidity is owned by
the Government and deposited in private banks, which makes no sense,
since the
Government issues bonds in local currency in order to get liquidity to
pay
Government institutions. But then, these same institutions simply turn
around
and deposit the funds in private banks getting interest, and the banks
use those funds to buy the more
Government debt at higher interest rates. The amount is simply
staggering, it was US$ 6.76 billion when I
wrote the article. This means that the Government is getting financing
that it
simply does not need in huge amounts. While people don’t say much
publicly
about this, there is a simple explanation for it: corruption, these
deposits move around on the basis of commisions paid by some private
banks to attract them.

Well, last week two economists who used to work at the Central
Bank decided to do something about it and went to the Comptroller’s Office and asked him to investigate the “equity
damage” for the country, implied in the Government issuing debt without needing it. This
essentially asks the Comptroller to investigate, without specifically telling
him where the source of corruption is, let him figure it out!

According to the two economists, the Ministry of Finance issued
new debt in the amount of Bs. 9.9 trillion (US$ 4.8 billion) in 2004 and 2005, despite the fact that the
Government did not need to issue any debt, as it had almost twice that amount deposited in the
private banking system.

Thus, these two economists ask:” If the Government has such
a high surplus, why does it need to issue debt?” They claim the
Government paid Bs. 1.34 trillion (US$ 640 million) in the last two years
in unncessary interest. Moreover, the damage will continue as
most of this debt is medium term and additional unnecessary interest will need
to be paid before it matures. They ask the Comptroller to investigate the reasoning behind all this, which would lead to
what I posted about in August.

The only question is whether we will ever hear anything from
the comptroller; after all he has not acted in previous cases of blatant
corruption as he is an integral part of the support system for the “robolucion”

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