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Venezuela increases VAT from 9 percent to 12 percent

The Venezuelan ruler disclosed moves to counter the financial crisis

President Hugo Chávez met with his ministers in the Presidential Palace of Miraflores, downtown Caracas (Photo: ABN)

Venezuelan President Hugo Chávez Saturday in a mandatory radio and television broadcast cut the oil barrel price from USD 60 to USD 40 for the purposes of FY2009 budget, as part of the measures intended to cope with the world financial crisis. Consequently, the Venezuelan FY2009 official budget will be cut by 6.7 percent.

According to Chávez, the Venezuelan oil output following cuts under the Organization of Petroleum Exporting Countries (OPEC) will be 3.17 million bpd.

Further, the value-added tax rate was heightened from 9 percent to 12 percent. Chávez, however, rejected reports that the government has plans to devalue the Venezuelan currency.

Other measures intended to face the effects of shrinking oil revenues include strict execution of expenses, reduction of sumptuary spending and adjustments in the salaries of senior hired public officials. Chávez stressed that he would review the salaries of the justices of the Supreme Tribunal of Justice and directors of the National Electoral Council.

He called for a more effective tax collection, particularly collection of the VAT and the income tax.

The Venezuelan ruler also dismissed an increase in fuel prices. Even though Venezuela's is the cheapest fuel around the world, Chávez said "this is not the right time" to increase fuel prices.

Additionally, the government plans to issue USD 10.2 billion in additional domestic debt, on top of USD 5.5 billion estimated in the original FY2009 budget, thus taking domestic debt issue this year to USD 15.7 billion.

Minimum wages this year will be increased by 10 percent in May and by 10 percent in September.

Meanwhile, Minister of Economy and Finance said that public spending would focus primarily on energy, agro-industrial sector and housing. Chávez vowed to "preserve" welfare programs -known as "missions."

Further, once again the Venezuelan ruler said that Spanish Grupo Santander's Banco de Venezuela would be nationalized. "The crisis facing the capitalist system is going to strengthen the revolution, and we are going to witness that," said the Venezuelan ruler.

Freddy Campos

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