Budgets matter

billete-de-100-bolivares-y-de-1-dolar-VenezuelaIt must be difficult being a macroeconomic analyst in Venezuela.

Case in point: the country’s budget. We all know the government spends via the official budget, which gets approved via the legislative process, with all the trappings of a pseudo-democracy.

But then, we also know the government spends money outside of the budget via the BUDGET. How much money? Nobody really knows. There is zero accountability, and very little of it is shared with state and local governments, as the Constitution mandates. That is the cash register they get their funds off of to buy things like … judges, patronage, elections, and the sort.

The government just presented its total “budget” (i.e. the official one) for next year. It is for BsF 742 billion, and in the words of Finance Minister Rodolfo Marco Torres, it “ensures the nation’s economic and social balances.”

So … how much is that? Well, at the market exchange rate, it is roughly US$7 billion.

To put the figure in context,

  • it is roughly half of the gasoline subsidy;
  • if we estimate the government sells 1.5 million barrels of oil per day at an average price of US$80 per barrel, it is the equivalent of 58 days of exports;
  • it is roughly 5% of what the government actually spent in 2013 (around $139 billion, according to the CIA Factbook).

Now, you may actually say that the budget is much more than that, because one should use the official exchange rate. If you believe that, then you’re probably one of those hopeless people that think Venezuela’s minimum wage is the highest in the continent.

You know what? Here at Caracas Chronicles we wish we could take these folks seriously, we really do. But when the government claims that it will spend on the total budget (i.e., including state and local governments, defense, education, health ministries, foreign relations, etc.) an amount that is this paltry, when the naked manipulation of economic figures reaches such farcical heights, when the government is basically announcing that it will shuffle away practically all public spending from public view in order to win an election … it becomes practically impossible.

Budgets matter. Budgets are the mechanisms through which governments set out their priorities and policies, and through which civil society can keep a check on what they are doing with the people’s money.

Budgets matter. We just wish we had one.

(HT: Moncho, as well as the rest of the CC gang)

16 thoughts on “Budgets matter

  1. There are layers and layers of this.

    Layer 1: The Central Government Declared Budget
    Layer 2: The “Creditos Adicionales” Approved by the Asamblea
    Layer 3: PDVSA, CVG,and other Parastatal Budgets
    Layer 4: The Dark Budget (Fonden, Fondo Chino, etc.)

    Layer 1 is reasonably transparent, it’s just that Layer 1 is a very poor predictor of even the total Central Government Spending, since that’s given by Layer 1 + Layer 2, and Layer 1 has no predictive power over Layer 2 which shifts wildly from year to year.

    Layer 3 is less transparent still, though you at least get year end financial reports which make it retrospectively transparent – you can tell what they HAVE spent money on, though not what they WILL spend money on (which, isn’t that supposed to be the point of a budget!??!)

    But where you really have to abandon all hope is with layer 4. You can probably fit the number of people with real access to that data in a VW Beetle. Zillions and zillions that are just never reported on, and that they don’t even accept they have a responsibility to pretend they’re reporting on.

    So yeah, they just announced Layer 1. Big whoop. It tells you almost nothing.


    • Oh, on the contrary, it tells you something very important: that they will starve state and local governments, and that a large majority of public spending is now discretionary, outside of public view, and available to pay for the PSUV’s campaign.


      • But hold on, “créditos adicionales” generate situado constitucional just like the main budget! If there’s a giant earthquake and Saudi Arabia falls into the persian gulf and oil goes to $400/barrel, they could end up approving masses of creditos adicionales and then they wouldn’t starve decentralized gov’ts at all! So I don’t think we can even say it tells us that at all…


            • You know we’re in the wrong side of the looking glass when the Finance Minister of a country with recurrent deficits in the two-digit range crows about being “conservative” in the budget,

              “Indicó que este presupuesto representa un incremento de 34,21 % con respecto al presupuesto de 2014, así como el 21,6% del Producto Interno Bruto (PIB) nominal estimado, y fue calculado en base a un promedio de 60 dólares por barril, para mantener una expectativa conservadora sobre la evolución de los precios internacionales del crudo.”

              #OrwellLives !


  2. There is no need to abandon hope Kiko, just a need to face reality.

    Why do many analysts, CC included still refer to a “budget”, a “government”, an “Asamblea, some “elections”, etc.

    Juan’s excellent post is clear to give a sense of dimension to the issue, that is, less than 10% of the expected spending ( embezzlement, transfers, subsidies, etc.) is presented in a so called “budget.

    Its systematic fraud, a large scale saqueo and a destruction of the mortgage the nation-for party funds analogy presented by a fellow commenter recently. that is all.

    i think its very irresponsible to continue to try to split angel hairs in coming to explanations to something that can be very easily be understood this way (Occam’s razor again)


  3. Pretend
    The chavismo is all about pretend.
    They pretend they have some control over the economy and that they will use that “surplus” in something “good for the people”, that’s the biggest promise and the biggest fallacy of chavismo.


  4. Maybe I am misunderstanding things, but I’d argue that the budget would be much higher than what Mr. Nagel claims. Just to be sure though, here’s what I think is happening in as simple terms as I can imagine:

    * Government sets budget at US$100
    * Government publishes the number in BsF. using their legal (but wrong) conversion of 10 BsF. to the dollar. Now the budget is Bsf. 1,000
    * Mr. Nagel takes the number in BsF. and converts it to dollars at the black market rate of, say, 100 BsF. to the dollar. Now the budget is US$10

    The question then becomes, what happened to the other US$90? I can understand that the government doesn’t get all it’s money in the form of US currency and that assuming income from things like taxes shouldn’t be considered at the official exchange rate, but what about oil money? that’s a big portion of the pie and they are worth more than the government says they do on the budget.

    Also, even if they took the 100 dollar and treated them as if they were 10 by undervaluing them or squandering them, the fact would remain that they expected to receive US$100.

    What am I missing?


  5. What are you all worried about? Nelson Merentes said this is the best time to invest in Venezuela. And that the best time to invest is when there are perturbations in the economy. Bet you didn’t know that. And I thought you were all economists or something.

    There should be smileys here, sure to be someone who doesn’t do irony. Where do they get these people from?


  6. I think it’s truly hilarious how a kleptocracy like that still bothers with some democratic formalities like Maduro receiving the foreign press for a ‘Q&A’, or to have the budget ‘approved’ by the legislative, and better yet, to open this so-called ‘budget’ to the public in an absurd exercise of ‘transparency’. This varnish of normalcy they try to apply on this sick regime just make everything more insane.


    BBC has published an article on the Venezuelan diaspora. And they say that they poor are also leaving now (10% of the population are currently making plans to abandon the country).

    But this extract is priceless:

    Jonathan – 22 años, sin estudios – trabaja como motorizado, que es como en Venezuela se conocen a los mototaxistas o mensajeros que andan en motocicleta por toda la ciudad.

    “Tú sabes que yo apoyo la revolución”, le dice a BBC Mundo sobre el modelo socialista que gobierna a Venezuela hace 15 años. “Pero ahora la situación está muy jodida, todo está muy caro, y ya trabajar no sirve de nada”, asegura.

    Por eso dice que ya tomó la decisión de irse para Bogotá.

    – Pero tú sabes que la ciudad es el doble de grande, que allá no vas a poder trabajar como motorizado y que no conoces a nadie, ¿verdad?, le pregunta BBC Mundo.

    – Yo no sé, pero yo ya me voy en enero como sea, responde.


    The dude is abandoning his own country because the situación ‘está muy jodida, todo está muy caro, y ya trabajar no sirve de nada,’ but still supports the revolución. The guy is so stupid that he prefers to move to another country than to change the bad government that forced him to flee.


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