Venezuela's fiscal spill continue to be bankrolled by the country's oil industry. This will make up for a politically and economically flammable 2013
Hugo Chavez lives in a world fuelled by optimism. Venezuela's president announced last week that oil prices should stabilise around $100 a barrel; he recently claimed, too, that he was 'totally free' from the cancer he's been diagnosed with a year ago. If true, both would give a much-needed boost to the incumbent’s campaign, less than 100 days before next October's presidential elections.
But if Mr Chavez looks in better shape than a few months ago, the same can't be said about oil prices. With persistent worries about the health of the global economy, and continuing uncertainties hovering over the eurozone, pressures are pushing prices downwards. Major producers have also stepped up production to fill the gap left by the effect of US and EU sanctions on Iran, a major exporter. They are taking measures to lessen Iran's power to send renewed jitters in oil markets, too, with Saudi Arabia and the EUA opening pipelines to bypass the straight of Hormuz. Hopes that China will embark on a more ambitious stimulus plan could still provide a short-term boost to crude, but the trend for years to come seems to be for relatively subdued prices.
That's unlikely to affect Mr Chavez's campaign. The president has long sought to use oil revenues to bolster his popularity at home through expensive social programs, with PDVSA, the state-owned oil company, funnelling close to $53bn between 2006 and 2010. But with economic hardship and rising crime affecting the wider part of his electorate, Mr Chavez will soon face the toughest challenge he's ever had: a recent poll shows him in a statistical tie with Henrique Capriles Radonski, his closest rival, in the run-up to October's elections. No wonder why he's stepping up handouts to wary voters, vowing to build thousands of homes for the poor, and setting up a new pension program that will cost billions. And no doubt he will not stop there.
Mr Chavez will probably get away with it for now. His party controls the congress, so he will have no difficulties in raising this year's cap on government borrowing. He could then try to issue more debt on international markets: analysts think he could aim to collect as much as $15bn from foreign investors this year. He could also rely on local debt markets, as he did this year when PDVSA issued $3bn in a private offering.
Either way, the current spending binge will leave the country with a rough hangover next year. Venezuela's oil production is slowly dwindling: with most of its revenues diverted to the financing social of programs, PDVSA has neglected to invest in exploration, maintenance and innovation. The result is an accrued dependence on oil prices remaining high. But lower prices and accrued spending mean that the state will face a severe adjustment next year - or run out of funds. This will undoubtedly involve devaluating the currency, cutting back on spending, and allocating fewer dollars to imports. All of which will probably bring higher inflation, and aggravate shortages of basic goods.
The next president, whoever he is, will thus inherit a political and economic time bomb. He could slow down the ticking using the usual tricks - borrow from friendly powers like China, in exchange for oil futures, or issue more debt. But this will just make the problem bigger later, end up scaring off already wary investors, and force PDVSA to allocate ever more oil revenues to debt repayment. Venezuela will then have to pay ever higher interest rates, and hope for ever higher oil prices, to prevent its chronic woes from degenerating in a full-blown payment crisis.
Or the next president could start afresh by correctly diagnosing Venezuela's problems, speak truth to his people, and start working on a definitive cure. Many Venezuelian presidents have tried to relieve the country's dependence on black gold - and failed. But that shouldn't prevent a newly empowered government from trying, and us from dreaming. After all, Mr Chavez shouldn't have a monopoly on wishful thinking.