Venezuela Weighs How to Spend Oil Bonus: Paying Off Debt or Aiding Poor
CARACAS — AS the world struggles to resolve the Gulf crisis, Venezuela's big new problem is what to do with a windfall of petrodollars. And Venezuelans are debating what to do with the money - whether to pay off their debt or invest in social programs to ease the heavy burden of the country's austerity measures.
Venezuela has the largest proven oil reserves in the Western world. Within three weeks of Iraq's invasion of Kuwait, oil platforms in Lake Maracaibo were pumping 350,000 more barrels a day. By year's end, output will rise to 500,000 barrels a day above the country's previous quota of 1.9 million barrels a day, as set by the Organization of Petroleum Exporting Countries.
``We will gain an extra $1.2 billion to $2.4 billion in oil revenues this year,'' says Celestino Armas, Venezuela's oil minister. Venezuela stands to gain $1 billion a year for every $1 a barrel rise in wholesale prices, say officials of Petr'oleos de Venezuela (PDVSA), the state-run oil company.
This privileged situation has raised the expectations of the average Venezuelan, whose pocket book has been hit by government austerity measures and unemployment. Last year, Venezuela's economy shrank 8 percent, overall unemployment reached 10 percent, and inflation was cut to 30 percent from 85 percent a year ago, the Ministry of Finance says. Union leaders say 500,000 people have lost jobs.
``For us, the standoff in the Gulf is a blessing,'' says Pedro Ibarra, a Caracas shoe store owner. ``The question we are all asking ourselves is: What is the government going to do with the oil bonus?''
The government is ``debating what to do with the extra funds,'' says Marcos Morales, who leads an economic policy team. ``We don't want to count our eggs before they hatch. We remain cautious. You never know what the price of oil will be tomorrow.'' Morales, however, thinks the windfall will wipe out the $1 billion 1990 budget deficit.
In street markets, government offices, and newspapers, three options are talked about: paying off debt to stabilize the economy; reinvesting in PDVSA to expand oil production; or investing in social programs to ease the burden of austerity. Advocates of paying off Venezuela's foreign debt include businessmen and politicians.
``The debt is the heaviest burden we have ever suffered in our history,'' says Sen. Pedro Par'is Montesinos. In mid-August, private banks cut Venezuela's foreign debt by 20 percent to $18 billion, and debt payments were cut by 50 percent. In return, the government will continue austerity rules that help it pay. Still, Venezuela faces annual payments of up to $3.5 billion.
``The Gulf crisis is a bonanza,'' says businessman Jos'e M'arquez. ``But in the long haul, paying off the debt will guarantee that, no matter what happens to the price of the barrel, our economy will be at last stabilized.''
Others believe improving the state-run oil company is as important as fixing the economy. ``We have a very ambitious plan,'' says PDVSA's Paul Reimpell. ``We are going to operate at full capacity in the coming year and beyond.''
From the well head to the gas pump, improvement efforts are under way, PDVSA officials say. But money is needed to reactivate 13,000 idle wells to meet demand. About 80 percent of company earnings goes to the government, with 20 percent reinvested, Reimpell says. Venezuelan President Carlos Andr'es P'erez has said some oil bonus money may be used to expand production, some of it for a rainy-day fund.
Critics, however, say Mr. P'erez wants to overexpand production to satisfy third-world countries and boost his image as a spokesman for the developing world - a role he played as president in the 1970s. Under a 10-year deal between Venezuela, Mexico, and others, Venezuela has been selling oil at $17 a barrel.
But some at home wonder why P'erez does not solve their many problems. ``We demand water, electricity, a better health system, and an end to the rise in prices,'' says Marcos Fiel Loaiza, a social activist.
A year ago, P'erez's new austerity measures sparked riots that killed 300 and injured 1,000. The P'erez free-market plan abolished price controls, reduced government subsidies, freed exchange rates, and moved to privatize state-run companies.
Scattered street protests have erupted over plans to raise gas prices from 26 to 28 cents a gallon. In slums in the city, water shortages have led to demonstrations. Simmering discontent was evident in a recent poll. Sixty-five percent of 1,500 respondents thought the economy would worsen, and 53 percent disapproved of P'erez's leadership.
``It's the same old story,'' says Mr. Fiel Loaiza. ``We live in a country rich in oil and natural resources and somehow the benefits of our national wealth never trickled down to the people.''