"The country is highly vulnerable"

His expertise in research on global economics enables him to foretell a period in which oil prices will fall to levels that will spell severe issues for a country that has increasingly become dependent on oil prices.

Douglas Ungredda, coordinator of the Master's Program in International Economics at the Central University of Venezuela, believes that petroleum prices "will range from USD 87 to 95 per barrel, in an environment of deceleration in China and increased production in Saudi Arabia to lower prices and improve the prospect of recovery of the economy of the United States of America."

-What should the price of the Venezuelan oil basket be to avoid any adjustment measures?

-One hundred dollars, any lower and issues would creep up.

-Why is the price per barrel needed for the economy so high when in 1998 that price level was unheard of?

-Our population was younger, and there was greater manufacturing capacity; exports were different from those of the primary sector (aluminum, iron, steel), and there was less dependence on oil. Nowadays, there is absolute reliance on petroleum, and imports are at unprecedented levels.

-Have so-called non-traditional exports, which are actually raw materials other than oil, practically disappeared?

-Without energy, you lack the capacity to export; therefore, you end up with petroleum alone and, evidently, those exports have now become traditional. Non-traditional exports were those funded by Bancoex, and they no longer exist.      

-Does the actual composition of state-owned oil company Pdvsa's exports play a part in the need for high oil prices to maintain equilibrium?

-Of course. Pdvsa ships its products out to its regular customers, who pay for oil at market prices, that is, 37.57% of production. Another 28% stands for domestic consumption, which remains untouchable from a political standpoint; there will definitely not be a local rise in fuel prices. The rest is just dead weight: 17% to comply with the Chinese Fund and the geopolitical agenda.

-A significant factor is the fall in liquid reserves of the Central Bank; 70% is made up of gold bars, not dollars in cash.

-True. Liquid reserves were mainly spent through the National Development Fund (Fonden) for so-called social development expenses, as well as on planes and Argentina's debt. The gold inventory is all that remains, and it is comprised of revalued bars, which now have a base cost of 1,600 dollars per ounce and will not continue to be revalued.

-Do you think that debt levels, which according to research conducted by the Economic Science Academy amounts to 66% of the GDP, will continue to drive public policies in the short term?

-When debt service repayments begin, that is, principal plus interest, hard times will strike. In 2013 and 2014 strong cash flows will be required.

-Is a debt of 66% of the GDP unmanageable?

-Debt tolerance must be looked into. Germany, for example, has a higher debt, but its economy boasts top technology and competiveness. Sixty-six percent of the GDP is cause for concern in Venezuela because of its huge dependence on oil prices; in addition, that does not include hidden liabilities.

-What do you mean?

-We do not know the cost of outstanding claims before Icsid and claims by multinational companies seeking from the Foreign Exchange Administration Board (Cadivi) repatriation of principal. In this case, we are talking about roughly USD 13 billion at an exchange rate of VEB 4.3 per dollar.

-The government believes that devaluation could dilute the debt in bolivars.

-Yes, but a large portion of that debt is in dollars and in indexed bonuses at the official exchange rate.

-How would you define the current position of the country?

-Because of the need for steeply priced oil barrels, the fall in liquid reserves in the central bank and the pace at which debt is being incurred, we are in a highly vulnerable position.  

-How could that vulnerability be addressed?      

-One of the measures would be to limit the geopolitical agenda. A review of the barrels being sent to ALBA member countries is needed, as well as fostering foreign investment. To do so, security must be offered.

-Do you see any similarities between the current situation and the oil boom of the 1970's, that is, an accelerated increase in public expenditures and debt, as well as expansion of the state, which in the end makes us more petroleum dependent?

-This is an accelerated remake of what we went through in the 1970's and 1980's, but now it is more focused on public spending than on investment. In the 1970's there was less foreign exchange distortion and a sole exchange rate; inflation was lower. Now, our inflation is amongst the highest in the world.

vsalmeron@eluniversal.com

Translated by Félix Rojas Alva