Bolivarian Republic of Venezuela- Present and Uncertainties -

Luis Rodriguez-09Dec2015-

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Agenda

- Venezuela- Domestic Public/Private Finance

Public: Oil, Gasoline, taxes, future oil pricesPrivate: Venezuelan Privatizations and impact

- International Public FinanceODA investment and is declining

- Conclusions and Comments

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Some facts:*Atlantic Ocean*Close to Panama Channel, Pacific Ocean*Area: 916,445 km^2*People: 33 Million*Official Language: Spanish*Main product: oil/gas

Bolivarian Republic of Venezuela

https://www.google.co.jp/maps/

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Domestic Public/Private FinanceDomestic Resource Mobilization

(DRM)

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http://www.opec.org/opec_web/en/data_graphs/330.htm

Without any doubt Venezuelan proven reserves are #1 worldwide, representing 20.09% of the world reserves, more than all Non-OPEC reserves together and followed by

#2 Saudi Arabia

PDVSA (http://www.pdvsa.com/) is the Venezuelan state-owned corporation responsible for the exploration, production, refining, transport and commerce of

hydrocarbons.

World Oil Proven ReservesD

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ission

In Venezuela, with 1Bs you can get 14.26Lts of gasoline!

Point is to know that, there is a fix exchange rate (1*) of Official: 1Bs = 1/52 USD, this situation has created a No-official market for 1Bs = 1/700 USD (added here just for reference)

Gasoline prices and the exchange rate regulation creates a huge fiscal hole in the taxation system, loosing important component to the Domestic Resource Mobilization (DMR) and affecting directly the Tax/GPD relationship.

Back in 1961, the relation was 1USD = 3.35Bs (2*)

(1*) http://www.bcv.org.ve/cuadros/2/212a.asp?id=64(2*) http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2002/07/19/000178830_98101903574779/Rendered/PDF/multi0page.pdf

The note: Gasoline prices in Venezuela

1Bs = 14.26Lt(March/2015)

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Oil prices

- Oil prices have dropped 60% from Jun/2014 and seems to have the longest term recovery

- Impact to Venezuelan budgeting based upon approx. 2.5 Million barrels/day

https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=D

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Venezuelan Nationalization of Private Sectors

Around 12 years ago Venezuela started a Nationalization program, reducing the private ownership industry. As a result:

-Private sector has been reduced (Private Resource Mobilization) and preventing new companies to settle down in Venezuela

-Food and services shortages: there is not clear example of a successful experience like the one in Venezuela

http://venezuelanalysis.com/tag/nationalization

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International Public FinanceOfficial Development Assistance

(ODA)

http://www.aidflows.org/

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Components of ODA

- ODA disbursements are clearly dropping since its peak of approx. 80M USD in 2007 to a 35.1M USD in 2013 - Bilateral has been historically the main contributors

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- ODA disbursements has been allocated to social sectors and Education in more than 50%, with very small contribution to infrastructure.

- Without strong investment in infrastructure, long term productive employment is not guarantee, communications, commerce, activities are impacted

- This distribution will prevent new investments to arrive the country

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Conclusions and comments

- With the current Venezuelan internal politics and administration, the DRM hardly will contribute to the development of the country

- Private sector is under stress and without clear motivation signal to invest in the country

- Without DRM, the ODA and any other financial instruments will continue to decline making the long term recovery and development a real challenge for next generations

- Inflation (of double digit year on year) needs to be controlled (http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/weorept.aspx?sy=1980&ey=2014&scsm=1&ssd=1&sort=country&ds=.&br=1&c=299&s=PCPI%2CPCPIPCH&grp=0&a=&pr1.x=55&pr1.y=)

- Step by step deregulation of gasoline price and exchange rate needs to be done

- Clear rules for private and foreign investments are necessary

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