External debt increases 15.8% in 2011

Oil prices rose in 2011 thanks to increasing demand from emerging economies and Venezuela's petrodollar revenues grew 41% to amount to USD 88.13 billion. However, the country's debt is unceasingly expanding.

The Central Bank of Venezuela (UCV) reported that accounts payable in US dollars were up 15.8% in 2011 from USD 83.24 billion in 2010 to USD 96.42 billion in 2011.

It is a well known history. Between 1974-1977 and 1979-1981 oil price had an unprecedented escalation that led to windfall oil profits and huge revenue. However, the governments of late Presidents Carlos Andrés Pérez (Democratic Action, a social democratic party) and Luis Herrera Campíns, (Copei, a Christian Democratic party) designed spending plans of pharaonic proportions and debt grew by leaps and bounds.

When oil prices dropped, international banks stop funding and the country fell into a crisis that triggered widespread poverty.

Venezuelan intellectual and politician Arturo Uslar Pietri wrote in an article: "Venezuela is an extreme case; a small country that receives an overwhelming amount of US dollars from the oil industry and does not only spend it but comes up with the insane idea of borrowing money."

Venezuela's Minister of Finance, Jorge Giordani, has said that Venezuela's debt-to-GDP ratio is only 18%, while analysts and investment banks have said that when USD and VEB commitments are taken into account, the debt-to-GDP ratio amounts to 50%.

Even if we consider the latter ratio, Venezuela's debt is not a major problem. However, experts are concerned by the fact that the debt burden has grown rapidly despite high oil prices.

Meanwhile the BCV affirmed that "the increase of public liability is due to the funding received through long-term agreements signed with the Chinese government, to the renegotiation of oil and government bonds in foreign markets and to foreign loans received by state-run oil company" Petróleos de Venezuela (Pdvsa).

"There were also more liabilities due to accrued earnings and dividends owed by joint ventures to minority foreign investors," the BCV added.

The BCV stated in a report that net public debt rose by 20% in 2011.

The flows of petrodollars and funds from debt issues have allowed Hugo Chávez's administration to increase public spending which boosts consumption and economic growth.

In 2011, government spending rose by 5.9% in real terms, the highest increase in the past four years.

Translated by Gerardo Cárdenas