BCV supports tapping oil profits

This is part of a series of re=published articles I wrote in 2005 for the Daily Journal in Caracas. ​

​May 11, 2005
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Gaston Parra Luzardo, president of the Venezuelan Central Bank (BCV), wants to allocate a portion of excess international monetary reserves to a National Development Fund. How the government proposes to access the funds, however, is uncertain.
"The Constitution establishes that profits gained by the export of hydrocarbons must be designated for real productive investment, to health and education," Luzardo said at the Federal Legislative Palace on Wednesday.
Luzardo spoke at the presentation of a book titled "Excess Reserves," which promotes the use of reserves, organized Wednesday by the National Assembly's (AN) Permanent Finance Commission. The commission's proposal would devote oil export profits to the National Development Fund, which would then finance social and economic development.
The BCV president backed a proposal to take a percentage of export profits before they are converted into reserves, deviating from President Hugo Chavez' proposal Sunday that funds be taken directly from the central bank's reserves. Luzardo declined to comment on the president's proposed reserve limit.
Rodrigo Cabezas, commission president, did say putting a limit on the reserves was one of the three approaches being considered. The government could also reform the Central Bank Law allowing the decentralization of excess reserves, or follow Luzardo's proposal to take profits from Petroleos de Venezuela (PDVSA) before they reach the bank.
"It doesn't make any sense to Venezuelans to have an excess accumulation of reserves," said Cabezas to journalists after the presentation. He said that if no action was taken, the BCV would have $33 million in international reserves by the end of the year.
Cabezas added the commission's intent to present a proposed bill to the Assembly and open the topic for debate in June.
AN President Nicolas Maduro, of the ruling Fifth Republic Movement (MVR) opened the presentation and voiced his support.
"Institutional and legal arrangements are required to allocate excess reserves to increase investment in the real economy, creating jobs and competitive industries, and closing the gap of inequality that condemns thousands to lives of poverty," Maduro wrote in the book.
Critics have denounced the plan to tap reserves on grounds that the government has not accounted for its spending and that excess reserves prevent the devaluation of the Venezuelan currency.
Opposition Deputy Freddy Lepage, president of the AN's Economic Development Commission, said Tuesday that Chavez's plan to "put his hand" in the international reserves would devalue the Bolivar, an Assembly press release said.
Former BCV official Jose Guerra also criticized the government proposal. "The price of oil at $40 should be sufficient to meet social needs and grant subsidies, but don't touch the central bank," he said on Tuesday.
But Cabezas cast off claims that the government already has sufficient funds for public spending. He said it was a challenge to address the Bs. 69 billion budget, which included 10 billion in public administration costs and 3 billion in university costs. He also discarded criticism that the extra funds would go into the pockets of the president and his party.
Cabezas invited anyone with a constructive idea to join the debate. "I yearn for, I hope that the opposition will come out and tell us, 'we want to work constructively, what kind of controls can we put into place that will serve all Venezuelans,'" he said.
"Excess Reserves," published by the AN's Finance Commission, cites economic studies and examples from other nations that promote spending international reserves. Maduro, Cabezas and Luzardo participated in a "baptism" of the book, in which they covered the book in rose petals.
Cabezas assured journalists that tapping export profits would not get in the way of the Central Bank's duty to back the value of the Bolivar currency, pay external debt and assure there is enough money for imports.
He also said lawmakers would be careful not to hurt the Venezuelan economy or provoke inflation. He said the Finance Commission wanted to reduce inflation to 15 percent by the end of this year, and bring it to 10 percent by 2006.
Internal investment such as spending on social programs was the key to increasing Gross Domestic Product (GDP), which the commission aims to increase by 8 to 10 percent, he said.
While internal investment currently accounts for 8 percent of GDP, Cabezas said the government aimed to raise the figure to 20 percent by 2010. He said this was nothing new for Venezuela, which he said devoted 25 percent of GDP to investment in the 1960's.
Cabezas said the finance commission, the Deposits Guarantee and Banking Protection Fund (Fogade), and members of the central bank have worked for the past six months to produce the current proposal.