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The Monetary and Fiscal History of Venezuela 1960-2005 Diego Restuccia University of Toronto Becker Friedman Institute, Chicago – April, 2014 1/15 Venezuela’s Relative GDP per Capita 1 0.9 Real GDP per capita VEN/USA 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 1900 1910 1920 1930 1940 1950 1960 Years 1970 1980 1990 2000 2/15 Real GDP per Capita 6 2.3 x 10 2.2 Real GDP per Capita (Millions of Bs.) I Volatility of output increased substantially after 1974 I Std of de-trended GDP: 2.1% 60-74, 5.4% 75-05 I Typical volatility for the US in annual frequency around 1% I Most fluctuations in non-oil GDP Data HP trend 2.1 2 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 3/15 Government Revenue to GDP 0.35 Total Oil Non−Oil Government Revenues to GDP 0.3 0.25 0.2 0.15 0.1 0.05 0 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 4/15 Government Expenditure to GDP 0.35 Government Expenditures to GDP 0.3 Total Primary Interest 0.25 0.2 0.15 0.1 0.05 0 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 5/15 Government Deficit to GDP (%) 8 Total Primary Government Deficit to GDP (%) 6 4 2 0 ï2 ï4 ï6 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 6/15 Importance of Oil I Oil GDP represents about 20% of total GDP I Oil represents a very large fraction of exports (95%), supply of foreign currency, and total government revenues (60%) I Most oil income goes to the government in the form of taxes and other indirect taxes, leaving a small fraction for investment in oil related projects I Oil prices very volatile since 1970s 7/15 Debt Definition and Classification I Public Debt includes Central Government and public enterprises whose debt is guaranteed by the Central Government such as ALCASA, BAUXILUM, CADAFE, CAMETRO, EDELCA, etc. It does not include PDVSA, BCV, and other financial public enterprises. I Debt is classified as internal and external depending whether the debt is with residents or non residents and whether registered in international financial markets I Maturity classification: short term (less than a year) and long term I Long term debt is the majority of debt, with average maturity of 10 years I There is no indexed debt and no zero coupons, bonds pay coupons every semester 8/15 Debt to GDP (%) 100 Total Internal 90 80 Debt to GDP (%) 70 60 50 40 30 20 10 0 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 9/15 External Debt, International Reserves, and Exports 50 45 External Debt International Reserves Exports 40 Billions of US$ 35 30 25 20 15 10 5 0 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 10/15 Rate of Inflation (%) 110 100 End of Period CPI Inflation (%) 90 80 70 60 50 40 30 20 10 0 1960 1965 1970 1975 1980 1985 Years 1990 1995 2000 2005 11/15 Budget Accounting Budget constraint of the government (nominal domestic currency): ∗ ∗ Bt + Et bt∗ + Mt = Rt−1 Bt−1 + Et rt−1 bt−1 + Mt−1 + Dt + Tt In terms of real GDP and changes: 1 = − mt−1 ) + mt−1 1 − gt πt ∗ rt−1 Rt−1 θt−1 − 1 + ξt θ∗t−1 − 1 + dt + tt gt πt gt πW t (θt − θt−1 ) + ξt (θ∗t − θ∗t−1 ) + (mt 12/15 Accounting Results 61-74 75-86 87-05 61-05 Sources: (1) Internal debt (2) External debt (3) Money issuing (4) Seigniorage Total 0.01 -0.02 -0.04 0.57 0.53 0.64 3.11 0.13 1.43 5.31 -0.04 -1.73 -0.13 2.07 0.17 0.16 0.09 -0.03 1.43 1.65 Obligations: (1) Internal return (2) External return (3) Primary deficit (4) Transfers Total -0.17 -0.12 -0.91 1.71 0.53 -0.46 0.97 -0.45 5.25 5.31 -1.09 0.66 -0.85 1.45 0.17 -0.63 0.50 -0.76 2.55 1.65 13/15 Final Remarks I Currently Venezuela has the highest probability of default and the highest 10-year government bond yields I There is an accelerated rate of expropriation of private enterprises I External and internal debt has been rising fast in the last 6 years I Much of the new debt not accounted in official statistics, loans in exchange of future oil (e.g. China) I Real GDP is contracting at a fast rate 14/15 Table: GDP per Capita in Latin America Country Relative GDP per capita 1960 2009 Argentina Bolivia Brazil Chile Colombia Ecuador Mexico Peru Uruguay Venezuela Latin America USA 0.48 0.14 0.19 0.38 0.22 0.20 0.27 0.26 0.45 0.82 0.30 1.0 0.33 0.09 0.20 0.42 0.22 0.15 0.25 0.16 0.31 0.32 0.23 1.0 Annualized Growth (%) 1.32 1.15 2.17 2.32 2.11 1.61 1.94 1.03 1.37 0.17 1.53 2.10 15/15