CARACAS, Monday January 19, 2009 | Update
Venezuela is to face rising inflation and limited financing as President Hugo Chávez takes control of USD 12 billion in international reserves, analysts told AP.
Chávez said the Central Bank is in the process of handing over 28 percent of its nearly USD 42 billion reserves to the government, which are considered as "excess" reserves by the authorities, in a move to keep high social spending as oil prices continue to fall.
Former Central Bank director Domingo Maza Zavala warned that such move will prevent Venezuela from using reserves for emergencies, at a time when the country is facing an uncertain future. "We should rather strengthen the international reserves of the Central Bank of Venezuela," he added.
Under a reform enacted four years ago, the Central Bank is obliged to set an optimal level of international reserves and turn over the rest to the National Development Fund (Fonden) on a yearly basis. Some economists have rebutted the decision.
Economist Asdrúbal Oliveros said Venezuela is able to weather the financial crisis this year, with billions of dollars distributed among various investment funds. But if the government taps these funds for social spending, as it intends to do, "this will have a very strong and protracted effect on inflation, which unfortunately will remain high in Venezuela this year," he said.
02:57 PM. HEAVY RAINS. Venezuelan Executive Vice-President Elias Jaua reported that the government is designing plans to support farmers, cattlemen and peasants of the state of Mérida who have been hit by heavy rains that have caused crop losses.