Venezuela Depleted Savings Amid Oil Revenue Dive, Report Says

[naaman fletcher]

April 29 (Bloomberg) -- Venezuelan President Hugo Chavez tapped government development funds last year after oil revenue plunged and drove the OPEC nation into its first recession since 2003, according to a Finance Ministry document.
Chavez spent $7.2 billion of a $12 billion fund created with China last year and $12.4 billion from the off-budget development fund known as Fonden, the report says. The government issued 37 billion bolivars ($8.6 billion) of local and international debt to compensate for a 67 percent plunge in oil revenue, boosting the country’s overall debt-to-GDP ratio to 17.2 percent from 13.8 percent.
“The savings accumulated between 2005 and 2008 have been declining and a good part of that was spent in 2009,” said Juan Pablo Fuentes, an economist at Moody’s Economic.com in West Chester, Pennsylvania, in a phone interview. “Now the ability to spend dollar savings is even more restricted.”

http://www.businessweek.com/news/2010-04-29/venezuela-depleted-savings-amid-oil-revenue-dive-report-says.html

[protocol rv]

1. That debt to GDP ratio is fishy

naaman, those analysts tend to use the legal exchange rate to estimate debt to GDP ratio. But as you know Venezuela has three exchange rates, and a lot of what goes on is tied to the "black market" rate. The black market isn't really that black, because the government intervenes and sells into it, and also uses bond auctions to drive the bolivar price up when the black market is skittish. This week the bolivar has been weakening a lot in the black market, the central bank put on a bond auction, and the price tacked back this morning. But PDVSA is reportedly not selling into the black market anymore, so it's going to be hard for the rate to hold. And this means the debt to GDP ratio should be estimated using a hybrid rate. When a hybrid rate is used, the debt to GDP ratio can balloon above 50 %. Bond spreads reflect this higher figure - the market is starting to punt Venezuelan bonds deep into the junk category.