By Jeremy Morgan
Latin American Herald Tribune staff

CARACAS – A mountain of state debt repayments is piling up on both the home and foreign fronts for President Hugo Chávez’s government amid continuing uncertainty about the outlook for Venezuela’s heavily oil-dependent economy.

Furthermore, analysts warn that while the government reined in its propensity to live on credit between 2006 and 2008 – and at the same time, bought back some old debt at big discounts – things have gone the other way this year.

Faced with the drop in oil prices from all-time highs up to the middle of last year, the government has resorted to renewed borrowing in a bid to shore up the gap in the national finances. One of the reasons for this is political as much as economic, observers say.

“It’s an election year,” notes an economist employed in the state sector, asking to remain nameless and very much off-the-record for that reason. “They” – by which is meant the president’s economic entourage – “know the Opposition’s out to make up lost ground, and they’re worried that the economy is going against them, and that the voters are going to blame them, not oil prices.”

Poor people in the barrios and ranchos are seen as the centrepiece of the president’s electoral power base. Parliamentary elections are due in October this year. The mainstream Opposition has not been represented at the National Assembly since it shot itself in the foot by pulling out of the last parliamentary elections in 2005.

In the meantime, the debt bill looms on the horizon. Calculations based on official figures show domestic and foreign debt repayments totalling some $19.6 billion between the second half of this year and 2011.

Of this, roughly $10 billion will be due on foreign debt, with a further $9.6 billion on the domestic account. The overall total of state debt is estimated at $50.3 billion, although this apparently doesn’t include the cost of compensating private companies taken over under Chávez’s repeated nationalizations and expropriations.

There are problems there, too. In the oil sector, the government is in dispute with two of the biggest oil companies in the world, ExxonMobil and ConocoPhillips over what’s due to them in lieu of their former billion dollar controlling investments in heavy oil fields and the associated refineries in the Orinoco Basin, colloquially known as the Faja.

Neither dispute looks like reaching anywhere near resolution in the near future, and both companies are resorting to international arbitration or courts. Unconfirmed reports circulating in the industry suggest that some of the oil companies who went along with Chávez’s demand for a controlling 60% stake in oil and natural gas fields across the country have yet to receive full payment.

In the cement sector, Swiss-based Holcim is reported to be disgruntled about the valuation for which it received its first partial payment in June after its plant in Venezuela was taken over a year earlier. The current position of the other two big, foreign cement companies formerly present in the country, Cemex of Mexico and Lafarge of France, isn’t clear, although Cemex has apparently still not settled or agreed to the expropriation while Lafarge did.

Urged to exercise austerity, the government announced a five percent cut in state spending for the first half of this year. Financial support from the oil industry had dropped by roughly half as oil prices steadily slid towards barely $34 a barrel at the turn of the year.

Whether the cutback included spending at the National Development Fund (Fonden) – Chávez’s preferred vehicle for financing his “missions” or social welfare programs – is an open question.

“That’s a good point,” says the indiscreet economist. “How would we know? Fonden hasn’t published figures in three years.” Financed largely by the state oil corporation, Petróleos de Venezuela (PDVSA), Fonden is beyond parliamentary scrutiny. As such, outsiders tend to see it as one described as “something of a black hole” in the national accounts.

With revenue from oil slipping, the government put a hold on plans to eliminate value added tax – which the president deems socially unfair because it hits hardest at the less well off – and instead nudged up the rate.

The National Assembly, which is all but entirely dominated by Chávez’s ruling United Socialist Party of Venezuela (PSUV), pushed through a “complimentary debt” law authorizing the issue of domestic bonds to a value of BsF25 billion.

The bonds were duly launched and plans are to follow with a further BsF37 billion during the second half. Some of these bonds are short-term and due to amortize as early as next year.

As it is, things could be a whole lot worse. The 2009 budget was originally based on an assumption that the price for Venezuela’s mix of medium-grade and heavy crude would average around $60 a barrel this year. As storm clouds gathered, the figure was eventually slashed to $40 a barrel.

As things have since turned out, the first guesstimate was nearer the mark, or at least for the time being. The Venezuelan “oil basket” price closed this week at $68.71 a barrel, up $1.53 on a week before and taking the average for this year so far to $50.85.

While that’s still down on the revised $60 budget assumption, it’s up 37.84% compared with the end of 2008. Even so, the economy contracted in April-June this year, ending a run of 22 consecutive quarters of economic growth.

In a sign of what is seen as a sign of a degree of resumed optimism in official circles, PDVSA started contributing “additional” royalties to the Treasury coffers in July.

The current reckoning is that PDVSA will hand over BsF77.9 billion during the second half of this year. That contrasts strongly with the target of BsF37.2 billion set for the first half when officials were working on a budget forecast of $40 a barrel and PDVSA had cut its contribution by half.

Whether PDVSA has made a similar move on funding for the “missions” remains unclear. Last year, amid reports that the president had grown disillusioned with his social programs, PDVSA wielded the axe in that direction by two-thirds.

Complicating the financial outlook further is the president’s spat with his Colombian counterpart, Álvaro Uribe, and the consequent need to find – and, in this context, more importantly, pay for – alternative sources of the goods Venezuela once imported from the neighboring country.

The likely bill for this remains largely unknown at the moment. As Chávez may have discovered at this week’s summit of the Union of Southern Nations (Unasur), there’s reluctance among many Latin American countries to get involved on Venezuela’s side in the quarrel with Colombia.

On the contrary, it would appear that if fellow Latin Americans want to plunge into the gap created by Chávez’s trade embargo against Colombia, they’re doing so not out of solidarity but because they see a lucrative opportunity.

The warning light came on during a visit to Venezuela by President Cristina Fernández de Kirchner earlier this month. No less than 22 accords under the euphemism of “regional integration” were signed, and Venezuelan entrepreneurs complained that these were largely if not totally one-way in Argentina’s favor.

Argentine executives travelling with Fernández de Kirchner drove a hard bargain – and still are as the details of the deals are hammered out. “We’re going to drive a horse and cart through all the regulations if they want to do business with us,” one hard-headed individual candidly told this reporter in private, before setting out a hit-list of Venezuelan concessions he wants.

The attitude was decidedly uncompromising. “Prompt payment. Simple procedures. Fewer controls. Less bureaucracy. No delays. Hard currency. I’ll tell you the rest when I’ve thought of them.”

In the meantime, the prospect of conflict with Colombia – armed or otherwise – could also complicate prospects for raising funds abroad. Much the same could be said about the rows with ExxonMobil and company.

In this broad context, it’s noted that capital investment – a significant chunk of it coming in from abroad – fell during the second quarter by 2.4% on a year before, although there was still a net 1.3 percent rise during the first half as a whole.

Analysts hear alarm bells in this, too. Commercial lenders, they warn, are unlikely to stride in where investors are becoming wary of treading.

Amid all this, the International Monetary Fund – which Chávez disowns as a lackey of Washington and the big banks – this week injected $3.5 billion into the Venezuelan Central Bank. This was part of a worldwide bid to soften the impact of the global recession and help economies climb out of the slump.