A Perturbing (Or Is It Disturbing?) Budget Presentation in Venezuela

October 23, 2013


So, Minister of Finance and former Vice-President for the Economy Nelson Merentes presented the budget yesterday in front of the National Assembly and made us all feel at ease, projecting inflation for 2014 at “only” (my words) 26-28%.

This is actually quite scary, because a year ago he was projecting 28.8%  for 2013 ( including the decimal) and now it is almost 50% and in 2009 affable Nelson was projecting single digits by 2012, which he also had projected for 2011.

But the whole speech was quite disturbing, if only because Minister Merentes suggested that the Venezuelan economy faced three perturbations: inflation, shortages and the foreign exchange system.

Well, when you think about it, there is only one perturbation: The Chavista-Madurista Government that imposed the exchange controls that have led to shortages and spent and printed money, causing inflation.

That is a single explanation, a single perturbation. But quite disturbing.

But maybe you can add a second one: The fact that the Venezuelan economy has been mismanaged by non-economists like Nelson Merentes for too long.

Because nobody understood what he meant when he said that inflation is “out of range”. Venezuelan inflation has been “out of range” for too long due to irresponsible policies and Government officials. Inflation is what it is, it has no range, ask Mugabe. Venezuela has the second highest inflation in the world. At least five times the rate of any other Latin American country.

Maybe Minister Merentes should coldly think about the numbers he presented. He is a mathematician after all, he knows no economics, but he should be able to at least understand orders of magnitude, no? For example:

-He proposed a budget of Bs. 550.36 billion Bolivars, US$ 87.37 billion dollars at the official rate of exchange, a full 38.8% higher than that presented a year ago by his predecessor the non-economist Jorge Giordani. But wait! Before you think about that 38.8%, it turns out that since it was presented and up to October 2013, the same budget has been increased by 61%. Yeap! With two months to go the Chavez/Maduro Government has spent a full 61% more than was budgeted.

-And if you compare the 2014 budget to the 2010 budget, as presented originally, which is the only fair comparison, the 2010 budget was only 159.40 billion Bs., so that the 2014 budget is “only” 3.45 times the budget of only three years ago.

-And in his budget, Merentes proposed to issue debt in the amount of Bs. 112.7 billion in 2014, which is an amount almost identical to the projected income of the Government from oil, which will be, according to the same presentation Bs. 114.59 billion in 2014. Think about it, the Government will issue debt equal to the amount of money it will receive from oil. Talk about being irresponsible.

-And in 2013, up to today, monetary liquidity has increased by 35.5%, a huge (and inflationary!) number and that if it grows like it did last year in the last two months, it will end growing by at least 50% by December 31st. (This happens every year, a huge jump in M2 due to seasonality)

But despite all of the above, Merentes called for the need to “investigate” why inflation in Venezuela has been in double digits for thirty years in Venezuela.

There is nothing to investigate: Irresponsible Governments is the explanation. Period.

And despite all this, Merentes projects GDP will grow between 4% and 6% in 2014. Funny, last year he projected 6% for 2013 and we are unlikely to go over 2%.

And, yes, there will be no devaluation…

At this point, the fantasy was complete, I changed channels and turned to watch a more realistic movie about a Martian invasion.


15 Responses to “A Perturbing (Or Is It Disturbing?) Budget Presentation in Venezuela”

  1. Alex Dalmady Says:

    You seem to suggest that things would be better if an economist were in charge. I seriously doubt it would matter much.

    • I think it would, the rapid detrioration of the Venezuelan econmy has happended during Chavismo precisely when there weas no economists in the Cabinet like the last sis years. When people dont even know the most basic concepts, they can really screw up..

  2. JRAY5568 Says:


    Does the government report economic growth in real terms of nominal terms? Is it in $ or Bsf?

    Does BCV lend to PdVSA Bsf at the official rate of exchange?

  3. Island Canuck Says:

    Miguel, obviously many people agree with you about this budget – the other rate had another 8% change just today.

    The complete lack of confidence in our economy & leaders is going to destroy the lower & middle classes. Bad days ahead.

    Also what will happen to inflation in November & December with triple payments to public employees & penshioners flooding the economy with Bolivars & limited products to buy.

    One large retailer here on the Island raised all their electronic & white goods prices 50% on Oct. 1.
    An A/C that I bought in March for Bs.4.200 was Bs.12.000 on Sept. 30 & Bs.18.000 on Oct. 2., an overall increase of 329%.

  4. VJ Says:

    Taken from Aporrea…..
    Cómo salvar la economía venezolana y el Bolivarianismo by Heinz Dieterich.
    1. Salvación instantánea en dos días
    Si Maduro y Cabello quieren salvar el proceso tienen una solución inmediata: llamen a Rafael Correa, único Presidente latinoamericano que tiene una comprensión profunda (científica) de la economía de mercado. Tráiganlo discretamente una tarde con su equipo económico, denle las estadísticas reales de la crisis para estudiarlas en la noche y pídanle para la tarde siguiente un plan de rescate. Así evitarán el colapso.
    ¿Quiere decir esto que Correa es un genio o que en Venezuela no hay buenos economistas? Claro que no. Entonces, ¿por qué traerlo? Porque cambiar el rumbo y salvar al Titanic no es un problema de conocimiento, sino de poder. Todo economista venezolano bueno –keynesiano, neoliberal o marxista– sabe que hay sólo dos o tres opciones posibles. Pero, la actitud de autosuficienca del círculo gobernante es tal que no escucha razones científicas ni de sentido común. Sólo un peso pesado como Correa o Fidel Castro pueden romper tal locura……

    Read the complete article in: http://www.aporrea.org/ideologia/a175552.html

  5. laz Says:

    beside the fact mathmatics and economics are capitalist concepts that have no place in a true revolutionary socialist economy.. inflation and shortages are the result of the war on the venezuelan economy by the cia, imperialist eeuu and imf, and a plot to damage the stellar reputation of the bolivarian republic and attack the sovereignty of el pueblo, bla bla bla

    yoyo? arturo? bueller, bueller?

  6. Alex Says:

    Miguel, how is the government increasing the money supply? Has it lowered reserves for banks? (But are banks really lending?) Is the central bank buying government bondsmby printing currency? Isthe central bank lending directly to the government?

    Could you explain this please?

  7. fred Says:

    Devaluation will come during holiday (Christmas) break. Good luck, Next year will be even more fun.

  8. Virginia Laffitte Says:

    Merentes, Maduro, and EVERYONE else in any power should be thrown out
    of the country EXILED, so that Venezuela MAY be able to begin again. There is no doubt that it will be a few decades before, and IF, the country will ever be able to re-stabilize itself. Chavista,Chavismo, MUST GO!! Right down to the last ladron!

  9. Ronaldo Says:

    Chavistas control the official statistics so the official measure of the inflation rate will be whatever the Chavistas say it is. All other estimates will be officially wrong.

  10. bobthebuilder Says:

    If Merentes says there will be no devaluation, then there’ll be one soon. After the election perhaps.

    • NorskeDiv Says:

      In Venezuelan history, and especially the Chavez government, announcing there will be no devaluation is a sure sign of an impending devaluation.

  11. Trader Says:

    One hundred coming soon

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