By Jeremy Morgan
Latin American Herald Tribune staff

CARACAS -- The National Assembly approved the 2009 Budget Bill submitted by Finance Minister Ali Rodríguez Araque without modifications even though it's widely seen as unfeasible due to the impact of the global financial crisis on world oil demand and prices.

The budget sets a limit of BsF167.4 billion on state spending next year, although it's highly unlikely that the government will abide by this anyway. Though that total is 22% larger than last years budget, the legislature, all but entirely dominated by government supporters, frequently votes through "additional credits" and there's no reason to suppose that this year will be any different.

In any case, outsiders deem the budget to be all but worthless. Rodríguez Araque based the budget on the assumption that Venezuelan oil prices would average $60 a barrel during the course of next year. Instead, the Venezuela basket closed the week at a new four year low of $31.36 -- 48% below the budget's estimate.

Few economists think this even remotely likely, but the message apparently didn't get through to the legislators. Even as the crisis gathers and oil prices droop, they chose not to amend the minister's blueprint.

Instead, it will be up to President Hugo Chavez to make changes. For critics, the problem with that is he's not an economist, but then, neither is Rodríguez Araque.

Alejandro Grisanti, an economist at British banking powerhouse Barclays who follows Venezuela, says thinks that with falling oil prices, "the fiscal and external accounts look very weak."


The budget also includes a forecast of 15% for inflation. Again, this is deemed highly unrealistic amid a flurry of gloomy tidings about the outlook for consumers next year.

The latest of these has come from the Venezuelan American Chamber of Commerce, commonly known as Venamcham. It warned that inflation could well exceed 45% in 2009. Even more unwelcome from the government's point of view, Venemcham reckoned that there would be also be a devaluation of the currency during the course of next year.

That a devaluation will become necessary is widely assumed by economists and commentators. But the government strenuously insists that no such measure will be taken.

Barclays is also predicting a 37.2% devaluation about 6 weeks after the re-election amendment referendum, from BsF2.15 to BsF2.95 to the dollar.

"In this scenario, the expected fiscal deficit for 2009 is 6.9 points of GDP, and the financial needs will reach USD28.0 billion," says Grisanti. "In addition, Venezuela will run a current account deficit of 2.5 points of GDP, an extremely unusual figure for a country that has had an average surplus in the current account of 8.1% since 1995. Although the country can use the different savings that the government has, it is clearly a stress scenario starting in the second half of 2009."