Hugo Chavez and his political ilk skewered the opposition over their proposed austerity measures before last year’s election; now the Chavez administration is making many of those same cuts while Chavez convalesces in Cuba.
The gravely ill Venezuelan dictator who nationalized oil companies before implementing various stages of socialism with their seized profits has been in Cuba since Dec. 11. Chavez has left his country several times to seek operations in Cuba during his long running battle with cancer. Cuban doctors performed a fourth cancer operation on Chavez cancer in December. Though details have been with held, Chavez spokespersons have referred to a cancer in his pelvic region.
Chavez, 58, backed Barack Obama in the recent U.S. presidential election, however missed his own Jan. 10 presidential inauguration due to the cancer which has been characterized as terminal by some media sources.
Meanwhile, the Chavez regime last week clipped $2.9 billion in public spending from its share of the Petroleos de Venezuela SA’s oil revenue, according to a Bloomberg Business Week reports.
Government spending in Venezuela surged 26 percent in the year before the Oct. 7 vote to cut spending, but has recently declined 7 percent in stark contrast. During that time, consumer prices have increased to the highest level in two years.
Many analysts speculate that Chavez will either die or remain incapacitated for the long term and that the austerity drive that his administration has put in place will narrow a gaping budget deficit that is larger than the U.S. deficit relative to gross domestic product.
While the austerity measures may stave off consumer inflation in the short term, a significant devaluation in Venezuelan currency is long overdue, according to analysts.
“The government wants to avoid anything that looks like a devaluation,” said Francisco Rodriguez, a Bank of America economist, during a recent phone interview. “Instead, we’re seeing the same effects as with a straight devaluation, but the impact on incomes will be somewhat delayed.”
During last year’s campaign, Chavez claimed opposition candidate Henrique Capriles Radonski’s economic plans might bring deadly riots like those in 1989 that broke out after subsidies were cut.
Capriles “doesn’t talk about suspending contributions from PDVSA to Fonden as is written here,” Chavez said Sept. 11, reading from what he then called a secret plan proposed by the opposition that included cuts to the same development fund he has axed. “They’re hiding all of that, or trying to hide it,” he said during the campaign in which he coasted to victory.
Fast forward to Jan. 28 when the Chavez administration raised the tax threshold charged to PDVSA on windfall profits, which consequently reduces by 19 percent, to $12.6 billion, the state company’s annual contribution to Fonden. The central bank will also reduce its contribution to Fonden’s 121.5 billion bolivar ($28.3 billion) 2013 budget by 12.5 percent, according to a copy of the plan obtained by Bloomberg Magazine.
The fund that is being cut makes up about 39 percent of government spending according to the Bloomberg report; money that is used to finance infrastructure projects and social spending that includes Chavez’s popular low-income housing program.