Thursday, April 29, 2010

Venezuela Depleted Savings Amid Oil Revenue Plunge: Fonden

By Corina Rodriguez Pons and Daniel Cancel

April 29 (Bloomberg) -- Venezuelan President Hugo Chavez tapped $19.6 billion of government development funds last year after oil revenue plunged and drove the OPEC nation into its first recession since 2003, according to the Finance Ministry.

Chavez spent $7.2 billion of a $12 billion fund created with China last year and $12.4 billion from the off-budget development fund known as Fonden, a report on the ministry’s website says. The government issued 37 billion bolivars ($8.6 billion) of local and international debt to compensate for a 67 percent plunge in oil revenue, boosting the country’s overall debt-to-GDP ratio to 17.2 percent from 13.8 percent.

“The savings accumulated between 2005 and 2008 have been declining and a good part of that was spent in 2009,” said Juan Pablo Fuentes, an economist at Moody’s in West Chester, Pennsylvania, in a phone interview. “Now the ability to spend dollar savings is even more restricted.”

Venezuela, which depends on oil for more than 90 percent of export revenue, is tapping allies from Brazil to China to secure financing this year after drawing down the savings funds last year. China agreed to provide a $20 billion credit line to Venezuela on April 17 and to be repaid with future oil shipments. Chavez said yesterday that Brazilian development bank BNDES may provide a $1 billion loan to build a shipyard.

$12.3 Billion Transfer

Petroleos de Venezuela SA, or PDVSA as the oil company is known, transferred $616 million to Fonden amid a drop in production and oil prices, 5 percent of what it contributed in 2008. Fonden, which has amassed $58.1 billion since it was created in 2005, received $12.3 billion of central bank reserves in 2009, the report says.

The government used the funds from Fonden last year on infrastructure, housing, energy and defense, the report says.

Venezuela cut oil production by more than 300,000 barrels a day last year in line with OPEC quotas. Along with a decline in imports, factory output and investment, that caused the economy to contract 3.3 percent.

Chavez devalued the bolivar in January by as much as 50 percent amid a sputtering non-oil export market to boost government revenue by doubling the amount of bolivars for each dollar from oil sales.

The central bank, which was ordered to transfer $7 billion of reserves to Fonden in the first half of this year, has sent $5 billion to the fund, causing reserves to plunge 21 percent in the first four months of the year.

Oil Company Cash

PDVSA will likely transfer $1.5 billion of oil revenue to Fonden this year, company President Rafael Ramirez said on April 22.

The $58.1 billion that Fonden has received since 2005 represents 19 percent of the government’s spending during that period, Boris Segura, an economist at RBS Securities Inc. in Stamford, Connecticut, said today in a phone interview.

“The government has been using Fonden as an implementing agency for spending since its creation and depended on it more last year when oil revenue fell,” Segura said. “Despite the $5 billion transfer this year from the central bank, the fund is being depleted.”

--Editors: Bill Faries, Harry Maurer.

To contact the reporter on this story: Corina Rodriguez Pons in Caracas at; Daniel Cancel in Caracas at

To contact the editor responsible for this story: Joshua Goodman at

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